THE COUNTRY’S earnings from abroad rose to a 17-month high in December on the back of steady remittances from migrants and a likely drop in the country’s import bill following the collapse in oil prices.
Despite the improvement in the Philippines’ balance of payments (BOP) position in December, the economy still ended the year with its first annual deficit in a decade, Bangko Sentral ng Pilipinas (BSP) data this week showed.
In December, the country posted a BOP surplus of $843 million—the highest since the $1.1-billion surplus of July 2013. But throughout 2014, the country posted a deficit of $2.88 billion—the first for the economy since 2004.
BOP is a summary of all the business the country does with the rest of the world. A surplus means more money entered, rather than left, the country. A deficit means the opposite.
Sources of income for the country include remittances from overseas Filipino workers, income from exports of goods and services, foreign investments and revenues from certain industries such as tourism and business process outsourcing.
Meanwhile, the country uses the dollars it earns on the importation of goods, such as food and fuel, and the payment of foreign debt. Divestments made by foreign investors are also counted as outflows.
Major outflows that took place at the start of last year resulted in last year’s deficit.
“Capital flowed out of emerging market economies, including the Philippines, in reaction to global developments, particularly the commencement of the (US Federal Reserve) tapering,” BSP Governor Amando M. Tetangco Jr. said in a statement late Tuesday.
Tetangco was referring to the US Fed’s decision to reduce its monthly asset purchases in January 2014. Called quantitative easing, the bond-buying program was meant to bring down interest rates and boost economic activity in the United States. As yields fell, investors moved their money to emerging markets in pursuit of higher returns.
The asset purchases, which started in 2009 and reached a peak of $85 billion a month, ended in October of last year. This triggered the repatriation of foreign funds back to the United States as the American economy started to recover.
In January 2014 alone, the country posted a record high BOP deficit of $4.48 billion.
“Going forward, our policy [is] to strengthen our buffers against external shocks so that good macrofundamentals would continue to be a pull factor for investments,” Tetangco said.