H1 dollar outflows now more than double BSP’s forecast for entire 2018

With only six months worth of international transactions having been tallied to date, the central bank announced yesterday that the cumulative dollar outflows from the Philippine economy have already exceeded its full year forecast by more than 100 percent.

In a statement, the Bangko Sentral ng Pilipinas said that the country’s balance of payments—the aggregate net value of all transactions for goods and services with the rest of the world —had already reached a deficit of $3.26 billion for January to June.

This is 117 percent higher than the $1.5-billion balance of payments (BOP) deficit the monetary agency is forecasting for the entire year, and 361 percent higher than the $706 million BOP deficit in the same period last year.

The current level also marks the largest balance of payments deficit to date since the $2.85-billion net dollar outflow from the local economy in 2014.

“Based on the Philippine Statistics Authority’s preliminary data for the first five months of the year, the higher cumulative deficit for the period may be attributed partly to the widening merchandise trade deficit that was brought about by the sustained rise in imports of raw materials and capital goods to support domestic economic expansion,” the central bank said.

The BSP had earlier explained that the massive trade gap being incurred by the local economy—where the Philippines has been spending more dollars than it has been earning —was due to the country trying to catch up with its neighbors by importing goods and services to support the Duterte administration’s P9-trillion infrastructure buildup plan.

BSP officials earlier said the current account—which tallies a nation’s trade surplus or gap —would likely end the year at a deficit of $3.1 billion, equivalent to 0.9 percent of gross domestic product.

This represents a 342-percent increase over the original deficit projection of $700 million that its economists announced in late 2017.

The reported balance of payments position is consistent with the final gross international reserve level of $77.53 billion as of end-June 2018.

“At this level, the [dollar reserves] represent more than ample liquidity buffer and is equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income,” the central bank said, adding that it was also equivalent to 6.2 times the country’s short-term external debt based on original maturity and 4.2 times based on residual maturity.

For June alone, the country’s overall balance of payments position posted a deficit of $1.18 billion, higher than the $569-million deficit recorded in the same month last year.

“Outflows in June 2018 stemmed mainly from foreign exchange operations of the BSP and payments made by the national government for its maturing foreign exchange obligations,” the central bank said. “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.”