Dollar outflows in Q1 blow past BSP’s full year estimate

With only three months’ worth of transactions having been tallied, the amount of dollars that left the Philippine economy in the first quarter of 2018 already blew past the central bank’s full year target, thanks mainly to a yawning merchandise gap with overseas trading partner.

For the January-March period, the country’s cumulative balance of payments position posted a higher deficit of $1.227 billion compared to the $994-million deficit recorded in the same period last year, the Bangko Sentral ng Pilipinas said in a press statement.

The central bank had earlier forecast the balance of payments — the cumulative net value of all the country’s transactions with foreign parties, whether as trade in goods and services or short- and long-term investments — would hit a $1-billion deficit for the entire 2018.

The latest deficit number may still narrow or widen, depending on which direction dollars from trade and investments flow in the coming months.

Merchandise deficit

“The higher cumulative deficit for the first quarter of the year may be attributed partly to the widening merchandise deficit, based on Philippine Statistics Authority data, for the first two months of the year,” the BSP said.

The amount of dollars that flow into or out of the Philippine economy directly affects the country’s dollar reserves position as well as the value of the peso and, ultimately, the prices of local goods and services.

Despite the large first quarter gap, the central bank assured that it continues to expect the overall balance of payments position for the year to be “very manageable.”

For March alone, the country’s overall balance of payments posted a deficit of $266 million. This is lower than the $550 million deficit recorded in the same month last year.

Maturing obligations

Outflows in March stemmed mainly from foreign exchange operations of the BSP and payments made by the national government for its maturing foreign exchange obligations. These were partially offset, however, by net foreign currency deposits of the national government and income from the BSP’s investments abroad during the month.

The reported balance of payments position is consistent with the final gross international reserve level of $80.511 billion as of end-March 2018.

At this level, the dollar reserves represent “more than ample” liquidity buffer and is equivalent to 7.9 months’ worth of imports of goods and payments of services and primary income, the BSP said.

It is also equivalent to 5.6 times the country’s short-term external debt based on original maturity and 4.1 times based on residual maturity.