Dollar outflows in first 6 months more than twice 2018 target

MANILA, Philippines — Dollars continued to flow out of the domestic economy in the first six months of the year on the back of a ballooning trade gap due to the sustained rise in imports, the Bangko Sentral ng Pilipinas reported Thursday.

From January to June, the country’s balance of payments, or BOP, swung to a $3.26 billion deficit, higher than the $706 million shortfall registered in the same period last year and more than double this year’s $1.5 billion deficit target.

“The higher cumulative BOP deficit for the period may be attributed partly to the widening merchandise trade deficit for the first five months of the year that was brought about by the sustained rise in imports of raw materials and capital goods to support domestic economic expansion,” the central bank said.

The BOP measures the Philippines’ international transactions during a period. A surplus arises when more funds entered the country against those that left, while a deficit is incurred when outflows exceed inflows. When inflows and outflows are equally matched, the BOP position is in balance.

The country’s swelling BOP deficit comes at a time when President Rodrigo Duterte needs more dollars to fund his administration’s ambitious infrastructure program, which has been widening the country’s trade gap due to high demand for imports of construction-related goods.

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In June alone, the country’s BOP position posted a deficit of $1.18 billion, higher than the $569 million gap a year ago and the widest BOP deficit recorded since $1.67 billion shortfall in November 2016.

Outflows in June 2018 stemmed mainly from foreign exchange operations of the BSP and payments made by the government for its maturing foreign obligations, the central bank said. But these were partially offset by net foreign currency deposits of the government and income from the BSP’s investments abroad during the month.

According to the BSP, the country’s foreign reserves of $77.53 billion as of June is enough to cover 7.5 months’ worth of imports and provides “more than ample liquidity buffer” for the economy against external shocks. It is also equivalent to 6.2 times the country’s short-term external debt based on original maturity and 4.2 times based on residual maturity.