Higher hot money outflow seen this year

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) expects a higher net outflow of foreign portfolio investments or hot money this year due to a series of rate increases by the US Federal Reserve.

Zeno Ronald Abenoja, director of the Department of Economic Research at the BSP, said foreign portfolio investments would likely register a net outflow of $2.5 billion instead of $900 million this year.

Abenoja said the central bank sees a higher net outflow of hot money or speculative funds this year following the series of interest rate hikes by the US central bank .

He pointed out the Fed raised benchmark rates thrice this year and expects to implement three rate increases next year as part of its normalization cycle.

Abenoja also cited the higher-than-expected prepayments done by both the public and private sectors.

Foreign portfolio investments are referred to as speculative funds controlled by investors who actively seek short-term returns and high interest rate investment opportunities.

The net outflow of hot money amounted to $1.9 billion in the first nine months, higher than the full year amount of $300 million in 2016.

This was one of the major factors that prompted the BSP to set a higher balance of payments (BOP) deficit target of $1.4 billion or 0.5 percent of gross domestic product (GDP), almost three times the $500 million or 0.2 percent of GDP set last May.

However, Abenoja said the BSP retained the foreign direct investment (FDI) inflow target at $8 billion this year.

“The overall BOP position for 2017 is seen to post a higher-than-expected deficit of $1.4 billion. This is due to the projected greater net outflow in financial account, even as the current account is expected to show a lower deficit,” he said.

Abenoja said the BSP is now projecting a lower CA deficit of $100 million instead of $600 million to reflect the improvement in the trade balance. The country booked a CA surplus in the first nine months, reversing the $454 million deficit registered in the same period last year.

The BSP upgraded its export growth forecast to 11 percent instead of five percent and the import growth target was retained at 10 percent.

“This reflects the firm recovery in the global economy that has led to increased trade momentum since the second half of 2016 carrying on to 2017,” he said.

The growth target for remittances was retained at four percent to $28 billion for this year.

On the other hand, it is looking at lower revenues from the business process outsourcing (BPO) sector with $8 billion instead of $10 billion this year.

As a result, Abenoja said the BSP sees the gross international reserves (GIR) hitting $80.7 billion instead of $80.5 billion this year and still enough to cover more than eight months of imports of goods and payments of services and income.