BOP deficit widens to $678 M in July

MANILA, Philippines - The Philippines posted its widest balance of payments (BOP) deficit in eight months last July driven by large imports which the Bangko Sentral ng Pilipinas (BSP) maintained is no cause for worry despite a continously weakening peso.

BOP recorded a deficit of $678 million last month, the fourth straight month of shortfall and the widest since November last year’s $1.671 billion, BSP said in a statement last Friday.

BOP shows a summary of a country’s transactions with the rest of the world. Components include trade, foreign direct and portfolio investments, and remittances from Filipinos abroad.

The gauge is used to measure the country’s external payments position, or if it has enough resources to settle its foreign obligations. A deficit means more money went out of the country while a surplus means otherwise.

“The higher deficit was attributed to foreign exchange operations of the BSP and to payments made by the national government for its maturing foreign exchange obligations,” the central bank said.

Outflows, in turn, were partially tempered by net foreign currency deposits of the national government and BSP’s income from investments abroad..

The latest deficit figure further widened the year-to-date gap to $1.384 billion, more than double the BSP’s projection this year of $500 million. BOP posted a deficit of $420 million all of last year.

The BOP deficit is driving the peso’s recent weakness against the dollar. Last Friday, the local currency shed 13.5 centavos to close at 51.49 against the greenback, its weakest performance in nearly 11 years.

A weak peso increases the value of imports and may stoke inflation. In the same way, it could also increase the value of remittance and business  process outsourcing (BPO) earnings.

Despite this, BSP Governor Nestor Espenilla Jr. maintained that the peso, which has already weakened by more than five percent this year, is not on a “free fall” and that its performance is reflective of rising capital imports amid fast economic growth.

“The BSP expects that the recovery in merchandise exports and higher-than-expected overseas remittances and BPO revenues would mitigate the current account and the over-all (BOP) for the whole year,” it said.