BOP back to surplus in October

MANILA, Philippines — The country’s balance of payments (BOP) reverted to a surplus and hit a six-month high of $1.14 billion in October as the national government borrowed more to finance COVID response measures, according to the Bangko Sentral ng Pilipinas (BSP).

Latest data released by the central bank showed the BOP surplus in October was 66.8 percent lower than the $3.43 billion recorded in the same month last year.

However, this was the biggest since the $2.61 billion surplus in April this year.

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

“The BOP surplus in October reflected inflows arising mainly from the national government’s net foreign currency deposits with the BSP and the central bank’s income from its investments abroad,” the BSP said in a statement.

The government deposited the proceeds of its maiden onshore retail bond sale amounting to $1.59 billion to the BSP. Proceeds of the fund-raising activity completed toward the end of September will be used to support the country’s widening budget deficit.

The Philippines has been borrowing heavily from both offshore and onshore creditors to finance its pandemic response measures.

From January to October, the country’s cumulative BOP surplus amounted to $476 million versus the $10.31 billion surplus recorded in the same period last year.

“Based on preliminary data, this cumulative BOP surplus was partly attributed to net inflows from personal remittances, net foreign borrowings by the national government, foreign direct investments, and trade in services,” the BSP said.

Latest data from the Philippine Statistics Authority (PSA) showed the country’s trade deficit widened by 62.6 percent to $29.19 billion from January to September compared to last year’s $17.95 billion.

This came after imports jumped by 30.3 percent to $84.86 billion during the nine-month period from $65.14 billion, while exports increased by 18 percent to $55.68 billion from $47.19 billion.

The BSP is now looking at a lower BOP surplus of $4.1 billion instead of $7.1 billion this year and $1.7 billion instead of $2.7 billion next year, after taking into consideration a more guarded view of global and domestic economic developments going into the remaining months of 2021.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the increasing dollar inflows from OFW remittances, BPO revenues, foreign direct and portfolio investments, revenues from Philippine offshore gaming operators (POGOs), and some pickup in foreign tourism receipts would be supported by accelerating COVID-19 vaccine rollouts locally and in some developed countries around the world in the coming month.

“Proceeds of more foreign borrowings and other fund-raising activities by the government and the private sector in the coming months would be added to the country’s BOP, and, in turn, also to the country’s GIR to new record high levels in the coming months, but offset by any pickup in imports and wider trade deficits if the economy re-opens and recovers further,” Ricafort said.

Going forward, Ricafort said any improvement in BOP and GIR for the coming months could help provide greater support for the peso exchange rate especially versus any speculative attacks.