BOP deficit swells to $1.23B

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, due mainly to a yawning merchandise gap with overseas trading partners.

In a statement, the Bangko Sentral ng Pilipinas said that for the January-March period, the country’s cumulative balance-of-payments (BOP) position posted a higher deficit of $1.23 billion compared to the $994-million shortfall recorded in the same period last year.

The central bank had earlier forecast the BOP—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.

“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 continued to expect the overall BOP position for the year to be “very manageable.”

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

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 BOP position is consistent with the final gross international reserve level of $80.51 billion as of end-March 2018.

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

The central bank added that the overall BOP position for 2016 was revised from a deficit of $420 million (-0.1 percent of gross domestic product) to a deficit of $1.04 billion (-0.3 percent of GDP). The revision reflected post-audit adjustments involving the reclassification of renminbi-denominated assets from non-reserve eligible assets to reserve assets.