BSP: Foreign exchange flow improved in 8 months

Foreign exchange flows to the Philippines appeared to have reached a surplus in the eight months to July on the back of the government’s foreign exchange deposits and earnings from the central bank’s investments.

The Bangko Sentral ng Pilipinas (BSP) said the improvement in the country’s external payments position last month was also supported by the robust current account, which covers recurring income streams such as remittances, revenues from dollar-earning industries and foreign trade.

“We don’t have the data yet but I think the current account is expected to be in surplus,” BSP Governor Amando M. Tetangco Jr. told reporters on Tuesday.

In July the country’s balance of payments (BOP) position swung to a surplus of $501 million, better than the $24-million deficit the month before. A BOP surplus means more foreign money entered the economy than exited. A deficit means the opposite.

Apart from the current account, the Philippines also benefited from dollar deposits by the government and income from the BSP’s investments from overseas.

The BOP position is an indication of the country’s ability to withstand external economic crises that may lead to a shortage in the amount of foreign exchange in the system.

Dollars are needed by companies and the government to do business with the rest of the world. A shortage will force locals to buy foreign exchange from abroad, which may weaken the peso.

Thanks to the surplus in July—the highest since November’s $837 million—the seven-month BOP position stood at a deficit of $3.64 billion. This was an improvement from the end-June deficit of $4.14 billion.

A record-high BOP deficit of $4.48 billion was recorded in January of this year as investments fled the Philippines and returned to advanced economies like the United States. Other emerging markets suffered the same fate.

For 2014, the inter-agency Development Budget Coordinating Committee (DBCC) expects the Philippines to post a BOP surplus of $1.1 billion, implying a continued improvement in the coming months.