BOP deficit widens to $312 million in June

MANILA, Philippines — The country incurred a balance of payment (BOP) deficit of $312 million in June, reversing the $80 million surplus booked in the same period last year as more dollars flowed out of the country to settle more maturing foreign obligations, as well as the widening trade deficit arising from the further reopening of the global economy from COVID-19 lockdowns, the Bangko Sentral ng Pilipinas (BSP) said yesterday.

The latest BOP shortfall, however, was smaller than the $1.4 billion deficit recorded in May.

“The BOP deficit in June reflected mainly the outflows arising from the foreign currency withdrawals of the national government from its deposits with the BSP as the national government settled its foreign currency debt obligations and paid for various expenditures, and the BSP’s net foreign exchange operations,” the BSP said.

The outflows were partly offset by the inflows from the central bank’s income from its investments abroad.

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.

From January to June, the country reported a BOP deficit of $1.94 billion, a reversal of the $4.11 billion surplus recorded in the same period last year.

“Based on preliminary data, the cumulative BOP deficit was partly attributed to a wider merchandise trade deficit,” the BSP said.

Latest data from the Philippine Statistics Authority showed the country’s trade deficit swelled by 42.5 percent to $14.18 billion from January to May compared to $9.95 billion in the same period last year.

During the period, imports jumped by nearly 28 percent to $43.53 billion from $34.12 billion, while exports grew by 21 percent to $29.35 billion from $24.17 billion as the global economy recovers from the pandemic-induced recession.

The central bank is now looking at a higher BOP surplus of $7.1 billion, or 1.9 percent of gross domestic product (GDP), instead of $6.2 billion, or 1.6 percent of GDP this year.

The latest BOP position reflects the decline in the country’s gross international reserves (GIR) level to $105.76 billion in end-June from an all-time high of $110.12 billion in end- 2020.

The BSP expects the foreign exchange buffer to hit a record $115 billion this year and $117 billion next year in anticipation of continued national government foreign currency deposits amid higher foreign borrowings to address the impact of the pandemic and to fast-track its infrastructure program.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the BOP shortfall in June narrowed from the $1.4 billion recorded in May amid gains in the local financial markets especially in the early part of the month, as well as the continued increase in OFW remittances, BPO revenues and foreign direct investments (FDI).

Cash and personal remittances from OFWs have been booking double-digit growth rates for the months of April and May, while net FDI inflow jumped by 56 percent from January to April.

However, Ricafort said the threat of the more contagious Delta variant could potentially lead to risk of lockdowns and travel restrictions, slowing down recovery prospects for the economy as well as in imports, curbing any further widening of the trade deficit and the BOP deficit.

The economist said stronger inflows are expected this July from the proceeds of the national government’s $3 billion global bond issuance.

“Proceeds from the national government’s bond issuance would be added to the country’s BOP and GIR for the month of July,” Ricafort said.