strong external payments dynamics, providing comfortable buffers against external shocks. reflecting these prudent external sector policies, the country ’ s balance of payments ( bop ) position posted a surplus of us $ 3. 2 billion in the first half of the year. the resilience of of remittances and the sharp recovery of exports contributed largely to the country ’ s favorable external payments dynamics. the country ’ s external debt profile continues to improve. six years ago, our external debt - to - gdp ratio was around 70 percent. as of march 2010, this ratio was down to 33 percent. the long - dated maturity structure of our foreign currency debt, helps limit rollover and foreign exchange risks. the country ’ s debt service burden as percent of gdp, which had previously hovered around 10 percent [ 2001 – 2003 ], eased to 6 percent as of march 2010. international reserves have climbed to new highs, providing strong coverage for both imports and short - term external debt. at end - july 2010, the gir stood at us $ 48. 6 billion. at this level, the gir can cover 9 months of imports and is equivalent to 9. 3 times the country ’ s short - term external debt based on original maturity and 5. 1 times based on residual maturity, thus providing a strong cushion against external shocks. as a result of the strong external liquidity position, the philippine peso has remained broadly stable. the trends in the real effective exchange rate ( reer ) show that the peso has generally maintained its international competitiveness over the last ten years. with generally lower inflation rates, the philippine peso has accommodated some appreciation, but without undermining external price competitiveness. third, on financial sector policy – the bsp has put in place critical reforms geared toward maintaining a healthy banking system. the package of reforms includes the disposal of banks ’ bad assets, the promotion of good corporate governance and transparency practices, and the upgrading of risk management standards. as a result, we have today an efficient, sound, and competitive financial system. these critical reforms have been successful in steadily expanding and strengthening the banking system. indicators of the health of the banking system continue to post favorable readings, with asset levels and bank earnings continuing to improve. the capital adequacy ratio remained high at 16 percent and non - performing loans also remained generally low at less than 4 percent of total loans. the favorable performance of the domestic financial markets reflects the upturn in the country ’ s

##ebtedness has risen over the last twenty - year period. inflation targeting was formally introduced in 1995 when households ’ debt - to - income ratio – debt in relation to disposable income – was around 90 per cent. today, just over 20 years later, indebtedness has pretty much doubled and is almost 180 per cent. 12 the rising indebtedness and many people choosing a variable interest rate on their mortgages has made households more sensitive to interest rate adjustments. the importance of monetary policy for households with high indebtedness, in practice mortgage borrowers, has therefore become greater. in an example calculation, four economists from the riksbank have attempted to shed light on how an interest rate rise today would affect mortgage borrowers ’ consumption, compared with 20 years ago. 13 the following scenario could provide a backdrop to these calculations. to fund loans for housing, the swedish banks issue mortgage bonds, among other things. these are partly funded by foreign investors. if these foreign investors, for whatever reason, should lose confidence in the swedish economy and the mortgage bonds, the banks may become very vulnerable. they may find it more difficult to obtain funding on the international markets, at the same time as interest rates start to rise. the exchange rate may 11 since february 2015, the riksbank has purchased nominal and real government bonds. at the end of 2017, total purchases were calculated to amount to sek 290 billion. 12 if tenant - owner associations ’ debts are also included in household indebtedness, households ’ debt - to - income ratio is today around 200 per cent. 13 this calculation can be found in finocchiaro et al. ( 2016 ). 12 start to weaken due to decreased confidence among foreign investors, which, in turn, could push inflation up. in such a scenario, the riksbank may be forced to raise the policy rate to restrain inflation. these rising interest rates would primarily impact households with large mortgages. they would face higher mortgage costs and would thus find it more difficult to manage their loans, which could lead to reduced consumption and demand. the calculation assumes that the policy rate is raised by one percentage point. at the current level of indebtedness, mortgage borrowers would have to reduce consumption by almost two per cent. if indebtedness had instead been the same as when inflation targeting was introduced 20 years ago, their consumption would only have decreased by a few tenths of one per cent. mortgage borrow