BOP gap widens to $2.8 billion

MANILA, Philippines — The balance of payments (BOP) plunged into a deficit for the third straight month in March as more dollars flowed out of the country to service foreign obligations, the Bangko Sentral ng Pilipinas (BSP) said.

Data released by the central bank showed a BOP deficit of $73 million in March, reversing the $448 million surplus booked in the same month last year.

“The BOP deficit in March 2021 reflected outflows arising mainly from the national government’s net withdrawal of its foreign currency deposits with the BSP, which were largely used for debt servicing,” the BSP said.

The BOP is the difference in total values between payments into and out of the country over a particular 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.

From January to March, the country’s BOP deficit swelled to $2.84 billion or almost 42 times the $68 million shortfall recorded in the same quarter last year.

This included the biggest monthly BOP in more than two years booked in February at $2.02 billion. This was the widest shortfall since the $2.69 billion recorded in September 2018.

“Based on preliminary data, this cumulative BOP deficit was due largely to the national government’s net repayments of its foreign loans and the country’s merchandise trade deficit,” the BSP said.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the BOP deficit could be attributed to the narrowing trade deficit amid the slower recovery in imports relative to exports.

Latest data from the Philippine Statistics Authority (PSA) showed the country’s trade deficit narrowed by 9.6 percent to $5.17 billion in the first two months of the year from $5.72 billion in the same period last year.

During the period, imports declined by 5.6 percent to $16 billion from $16.96 billion, while exports slipped by 3.6 percent to $10.83 billion from $11.23 billion.

Ricafort also cited the strong growth in remittances from overseas Filipino workers that increase by more than five percent last February due to the start of the rollout of COVID-19 vaccines globally.

He also noted the stronger foreign direct investments (FDI) inflows into the country.

“The hard lockdown in NCR Plus since the latter part of March could still lead to slower recovery in imports, support faster growth in OFW remittances especially to support adversely affected OFW families in the country, both of which could add to the BOP,” he explained.

Data showed the country’s gross international reserves (GIR) slipped to $104.48 billion in end-March from $105.16 billion in end-January. Despite the decline, the foreign exchange buffer is equivalent to 12 months’ worth of imports of goods and payments of services and about 7.3 times the country’s short-term external debt.

The central bank is looking at a better BOP surplus of $6.2 billion or 1.6 percent of gross domestic product (GDP) instead of $3.3 billion or 0.8 percent of GDP this year and $3.8 billion or 0.9 percent of GDP next year.

The country’s dollar surplus more than doubled to an all-time high $16.02 billion last year from $7.84 billion in 2019 as the national government turned to foreign creditors for more borrowings to bankroll the country’s COVID-19 response measures.

“Increased foreign borrowings of the government recently such as the $2.5 billion Euro bond sale and $505 million bond sale as well as foreign fund raising activities of the country’s biggest conglomerates, the proceeds of which could add to the country’s BOP and GIR going forward,” Ricafort added.