Balance of payments deficit swells to $3.7 billion in 7 months

MANILA, Philippines — The country continued to book a balance of payments (BOP) deficit up to July, to more than double the shortfall in the first seven months of the year amid strong outflows.

Data released by the Bangko Sentral ng Pilipinas (BSP) yesterday showed the Philippines booked a BOP deficit of $455 million in July, 33 percent lower than the $678 million shortfall recorded in the same month last year.

The country’s BOP position has been bleeding since the start of the year.

“Outflows in July 2018 stemmed mainly from payments made by the national government for its maturing foreign obligations and foreign exchange operations of the BSP,” the central bank said in a statement.

The BSP said the outflows were partially offset by net foreign currency deposits of the national government and income from its investments abroad in July.

The BOP is the difference in total values between payments into and out of a country. A deficit means more foreign exchange flows out of the country to pay for the importation of more goods, services, and capital than what flows in from exports.

From January to July this year, statistics showed the country’s BOP deficit swelled to $3.71 billion, more than double or 168 percent higher than the $1.38 billion shortfall recorded in the same period last year.

The shortfall in the first seven months of the year was more than double the revised $1.5 billion BOP deficit target set by the BSP for this year.

 “The higher cumulative BOP deficit for the period may be attributed partly to the widening merchandise trade deficit for the first half 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 BSP added.

Latest data from the Philippine Statistics Authority (PSA) showed the country’s trade deficit swelled 63.2 percent to $19.1 billion in the first half of the year from $11.7 billion in the same period last year.

For the month of June alone, the balance of trade in goods booked a deficit of $3.35 billion, more than double the $1.59 billion shortfall recorded in the same period last year.

Imports amounted to $51.8 billion in the first semester, while exports reached $32.7 billion. The ballooning trade deficit continues to drag the country’s current account (CA) into a shortfall.

BSP Governor Nestor Espenila Jr. had said the country’s external payments position remains very manageable as it has built sufficient liquidity buffers against global headwinds.

According to the BSP chief, the economy needs more capital goods and raw materials to sustain its growth momentum.

 “Two factors are motivating the modest shortfall. One is the surging growth of the Philippine economy, which requires higher imports of capital goods like machineries and equipmen,t and the other is the continued softness of the global economy particularly in 2015-2016,” Espenilla said.

The current account shortfall indicates that the economy is, on a net basis, importing what is required to continue its expansion as imports are mostly comprised of capital goods, raw materials, and intermediate products which together account for more than 80 percent of total imports.

The BSP said the reported BOP position is consistent with the final gross international reserve (GIR) level of $76.89 billion as of end-July, providing more than ample liquidity buffer and is equivalent to 7.4 months’ worth of imports of goods and payments of services and primary income.

It is also equivalent to 6.1 times the country’s short-term external debt based on original maturity and 4.1 times based on residual maturity.