BoP gap shrinks to $596M in August

By Katherine K. Chan, Reporter 

THE PHILIPPINES’ balance of payments (BoP) deficit narrowed in August as sustained dollar inflows partly offset a higher import bill driven by elevated global oil prices, the Bangko Sentral ng Pilipinas (BSP) said.

Based on central bank data released late on Friday, the country’s BoP gap shrank to $596 million in August from the $1.47-billion deficit in July.

However, it marked a reversal of the $359-million surplus a year ago. It was also the second month in a row that the country’s BoP position settled at a shortfall.

This brought the country’s BoP deficit in the eight months to August to $5.943 billion, wider than the $5.397-billion gap posted in the same period last year.

BoP refers to the country’s economic transactions with other nations. A deficit shows that the country spent more than it received, while a surplus indicates more funds entered the country.

“The year-to-date BoP position reflected the continued trade-in-goods deficit and net outflows from foreign portfolio investments,” the central bank said in a statement.

Latest Philippine Statistics Authority data showed the country’s trade-in-goods deficit expanded by 34.9% to $5.97 billion in July from $4.43 billion a year earlier. This brought the seven-month gap to balloon to $37.34 billion.

On the other hand, foreign portfolio investments or hot money yielded a net inflow of $66.47 million in July, down 91.05% from $742.56 million a year earlier.

However, hot money stood at a $3.938-billion net outflow as of July, reversing the $2.285-billion net inflows to the country in the prior year.

“These were partly offset by the sustained net inflows from personal remittances of overseas Filipinos, foreign borrowings by the NG (National Government), trade in services, and foreign direct investment,” it added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort noted that the country’s sustained dollar inflows “fundamentally improved” its BoP position and gross international reserves (GIR) even as higher global oil prices swelled its import bill.

Still, he cautioned against potentially wider deficits as the Middle East war drags on and continues to disrupt global oil supply chains.

“For the coming months, the recent geopolitical risks in the Middle East especially on Iran could lead to some hedging of the country’s imports of crude oil, fuel, petroleum and other commodities especially if prices corrected lower as opportunity to buy to increase local inventories especially if the Strait of Hormuz remained disrupted… (which) could still lead to relatively wider trade deficits/net imports and, in turn, wider BoP deficits,” Mr. Ricafort said.

DOLLAR RESERVES
Meanwhile, revised BSP data showed the Philippines’ dollar reserves rose to its highest level in five months in August.

As of end-August, the country held $104.846 billion in gross international reserves (GIR), slightly higher than the $104.813 billion earlier reported.

This was the highest dollar reserves level seen since March, when it stood at $106.636 billion.

However, the latest level reflected a 2.1% dip from the $107.098-billion GIR recorded a year ago but was 1.48% higher than the $103.317 billion seen as of July. 

“The increase was mainly driven by upward valuation adjustments in the Bangko Sentral ng Pilipinas’ gold holdings due to the increase in the price of gold in the international market, and the BSP’s higher net income from its investments abroad as global bond yields increased,” the BSP said. 

Spot gold touched an over three-month high of $4,631.99 per ounce in August before closing the month at $4,433.19 per ounce, Reuters reported.

International reserves are the central bank’s foreign assets held mostly as investments in foreign-issued securities, foreign exchange and monetary gold, among others.

These are supplemented by claims to the International Monetary Fund in the form of reserve position in the fund and special drawing rights.

“More importantly, relatively higher GIR to provide greater support for the peso exchange rate vs. the US dollar, as fundamentally supported by the continued growth in the country’s structural US dollar inflows especially from OFW (overseas Filipino worker) remittances, BPO (business process outsourcing) revenues, foreign tourism receipts, foreign investments, among others,” Mr. Ricafort said.

In August, the local unit stood at P61.3281 versus the greenback, about 7.1% or P4.0756 weaker than P57.2525 a year ago, according to BSP data.

On Sept. 14, it lost 18 centavos to close at a new historic trough of P62.86, breaking its previous all-time low finish of P62.68 on Sept. 11, Bankers Association of the Philippines data showed.

According to the BSP, the country’s end-August GIR level could cover about 3.3 times its short-term external debt based on residual maturity.

It likewise translates to 6.6 months’ worth of imports of goods and payments of services and primary income, more than double the three-month standard.

The central bank expects the country’s BoP position to end at a $10.7-billion deficit or -2.1% of its gross domestic product (GDP) this year, wider than the $5.7-billion gap or -1.2% of GDP in 2025.

It also projects the GIR level to shrink to $104 billion by yearend from the $110.8 billion recorded last year.