BOP reverses to deficit of $206M in end-November

The country posted a balance-of-payments (BOP) deficit of $1.67 billion in November, the widest in nearly three years, amid global economic uncertainty brought about by US President-elect Donald Trump’s victory in the closely contested election and the anticipated Fed rate increase that eventually pushed through this month.

Bangko Sentral ng Pilipinas data showed that the BOP deficit last month was the biggest since January 2014’s $4.48 billion.

The BOP is a summary of all the businesses the country does with the rest of the world. A deficit means the amount of dollars that left the economy was more than the amount that came in.

It was the second straight month of deficit following October’s $183 million, hence reversing the year-to-date BOP position to a deficit of $206 million as of end-November from a surplus of $1.46 billion at end-October.

Last year, the end-November BOP was also at a surplus of $2.14 billion, which eventually increased to $2.62 billion by the end of 2015.

The BOP deficit last month was also wider than the $141-million deficit posted during the same month last year.

BOP data are tracked closely to ensure that the supply of dollars in the economy remained ample to allow the government as well as businesses to transact with the rest of the world.

Sources of dollar income for the country include remittances from Filipinos overseas, sales from exports of goods and services as well as foreign investments and revenues from industries such as business process outsourcing (BPO) and tourism.

The country uses the dollars it earns for the importation of goods such as food and fuel and also for external debt payments.

Last week, the BSP announced that it had slashed its BOP surplus projection for the year to $500 million from the previous $2 billion, partly as the double-digit growth in imports to date outpaced an expected drop in end-2016 exports that would pull the current account surplus lower to $2.5 billion from the previous projection of $5.8 billion.

The BSP sees imports expanding 11 percent by yearend while exports would likely decline by 3 percent.

BSP Deputy Governor Diwa C. Guinigundo had nonetheless said that despite the widening trade deficit due to rising imports, there was no need to worry about a shrinking current account.

“Imports of capital goods are prominent in the structure of our imports. Capital goods, power generating and electrical machinery are necessary to sustain economic growth,” Guinigundo pointed out to reporters last week.

Also, while merchandise exports were weak, Guinigundo had noted that services such as BPO were providing support.

The latest BSP data showed that as of end-September, the total net foreign direct investment (FDI) inflows reached $5.88 billion, up 25.3 percent from $4.69 billion in the same nine-month period last year. The BSP expects end-2016 FDI to hit $6.7 billion, higher than the previous projection of $6.3 billion.

Foreign portfolio investment or so-called “hot money” was expected to remain at a net outflow of $1.1 billion even as the latest BSP data as of Dec. 2 showed a year-to-date net inflow of $672.73 million.

The country’s gross international reserves (GIR) projection was also cut to $83.7 billion to cover 9.5 months’ worth of imports by yearend from $84.8 billion previously.