Dollar deficit widest in 29 months on foreign debt payments

MANILA, Philippines — Hefty cash withdrawals by the government to pay for its maturing foreign debts gave the Philippines its second straight dollar deficit for the year, the Bangko Sentral ng Pilipinas (BSP) reported Friday.

What's new

The country's balance of payments (BOP) position reversed to a deficit amounting $2.02 billion in February, BSP data showed. The latest gap was the widest since September 2018 when the deficit hit $2.7 billion.

Why this matters

BOP is a summary of a country's economic transactions with the rest of the world during a specific period. A surplus arises when more foreign funds entered the economy against those that left, while a deficit means the opposite happened.

For 9 of 12 months last year, BOP had stayed in a surplus after the pandemic forced the government to secure loans abroad which in turn, entered the country in foreign currencies. This happened while dollars spent to pay for external obligations dropped because of low imports. The Philippines' external position only reverted to a deficit in January.

For this year, the central bank expects the BOP to register a surplus of $6.2 billion, down from a record-high of $16 billion in 2020 for the good reason that economic activities used to drive dollar outflows are finally gaining pace from a crisis-induced slump.

What the BSP says

The BSP attributed last month's BOP deficit to dollar outflows as a result of its "reserve management operations" and the government's move to dip into its cash deposits with the central bank to pay offshore debts falling due.

Partially countering outflows are inflows from the BSP’s foreign exchange operations, essentially the central bank buying dollars to manage fluctuations in the foreign exchange rate and income from investments abroad.

Other figures

• In the first 2 months of the year, the BOP posted a deficit of $2.77 billion, bigger than $516 million shortfall recorded in the same period in 2020.
   
• The BOP deficit, in turn, reduced the country's gross international reserves to $105.16 billion as of February, which nevertheless were sufficient to cover 12 months' worth of import requirements.