BOP reverts to deficit

Ends 9 months of net dollar inflow

MANILA, Philippines — The Philippines started 2021 with a net outflow of dollars as the government’s balance of payments (BOP) position reverted to a deficit, ending nine straight months of surpluses, the Bangko Sentral ng Pilipinas (BSP) reported yesterday. 

The country incurred a BOP deficit of $752 million in January, 44.7 percent lower than the $1.36 billion shortfall recorded in the same month last year. 

The country’s BOP surpluses have been piling up since April last year,  ending 2020 with a record surplus of $16.02 billion in December as the country borrowed heavily to cushion the impact of the pandemic on the economy. 

Foreign borrowings by the national government soared by 82.5 percent to $17.7 billion last year from $9.7 billion in 2019 to beef up the country’s war chest against the COVID-19 pandemic. 

The BOP is the difference in total values between payments into and out of the country over a period. A deficit means more dollars flowed out of the country to pay for the importation of more goods, services, and capital than what came in from exports, remittances from overseas Filipino workers (OFWs), business process outsourcing earnings and tourism receipts. 

According to the central bank, the shortfall in January reflected outflows mainly from the foreign currency withdrawals of the national government from its deposits in the BSP to pay its foreign currency debt obligations. 

The outflows, the BSP said, were partly offset by the inflows from the central bank’s foreign exchange operations and income from its investments abroad. 

The BSP sees the country’s BOP surplus narrowing to $3.3 billion or 0.8 percent of gross domestic product (GDP) this year as the Philippines recovers from the pandemic-induced recession. 

Likewise, the BOP position last month reflected the 1.3 percent decline in the final gross international reserves (GIR) level to $108.67 billion as of end-January compared with the record-high $110.12 billion in end-December last year. 

“The latest GIR level represents an adequate external liquidity buffer, which can help cushion the domestic economy against external shocks,” the BSP said. 

The foreign exchange buffer is equivalent to 11.6 months’ worth of imports of goods and payments of services and primary income. It is also about 9.4 times the country’s short-term external debt based on original maturity. 

Last year’s GIR level was more than double the $7.84 billion booked in 2019 as imports slumped due to the pandemic. 

Traders have no reason to import as consumption plunged and the economy stalled when Luzon was placed under enhanced community quarantine in mid-March last year, resulting in a record 9.5 percent GDP contraction last year.

Data from the Philippine Statistics Authority (PSA) showed the country’s trade deficit narrowed by 46.3 percent to $21.84 billion last year from $40.67 billion in 2019. 

Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), said the country’s BOP could again revert back to surpluses in the coming months due to the continued narrower trade deficit and additional foreign borrowings by the national government, as well as foreign fund-raising activities by conglomerates to take advantage of near record-low borrowing costs. 

Ricafort also cited continued inflows from OFW remittances, BPO revenues, and foreign investments amid optimism on COVID-19 rollouts around the world. 

“Going forward, any sustained increase in BOP surpluses could fundamentally lead to a new record high GIR in the coming months, thereby providing greater buffer for the peso exchange rate versus the dollarespecially against speculative attacks,” Ricafort said.