Capital flight leaves PH with BOP deficit in August

Foreign money left the country in August of this year in amounts not seen since early 2014 amid volatile financial market conditions caused by jitters over China and the US.

Central bank data released Friday showed the extent of August’s capital flight that sent the local equity index to near bear market territory and the peso to its lowest level in five years.

This comes on the heels of China’s stock market crash and the yuan’s devaluation against the US dollar, effects of which spread throughout the region.

August’s balance-of-payments (BOP) position swung to a deficit of $450 million, the largest since January 2014’s record high of $4.48 billion. This brought the year-to-date tally to a surplus of $1.58 billion, down from over $2 billion the month before.

The BOP is an accounting of all the business done between the Philippines and the rest of the world. A deficit means more money left the country than entered.

Money coming in to the country are in the form of investments, remittances from migrants, and revenue from dollar-earning industries such as manufacturing, tourism and outsourcing. Money that goes out pays for imported goods and debt payments, among others.

The turbulence in local financial markets was a result of, among others, Bank of China’s decision to allow the yuan to depreciate against the greenback in early August. Later in the month, the Chinese stock market fell, dragging down the rest of the region.

The Philippine Stock Exchange Index declined on August 24—dubbed “black Monday”—by 6.7 percent, erasing P764 billion in value from the market. The peso, for its part, dropped to 46.815: $1, at the time the weakest level since the middle of 2010.

Jitters over the US Federal Reserve’s intentions also weighed on local markets last month. Analysts projected a possible rate hike by the US Fed this month, which would have ended close to a decade of record-low interest rates.

Rates were kept steady by the Fed this week.