PH on track to end 2018 with largest net dollar outflows since 1999

MANILA, Philippines – The recent appreciation of the peso against the US greenback helped draw in more hard currency in November, but failed to derail the Philippines’ steady trek towards recording its largest full year net dollar outflows since central bank records became publicly available 19 years ago.

Data from the Bangko Sentral ng Pilipinas (BSP) showed the country’s overall balance of payments position yielded a surplus of $847 million in November 2018, marking a reversal from the $44 million deficit recorded in the same month last year.

Despite the surplus for last month, the cumulative dollar flows position for the January-November 2018 period registered a deficit of $4.75 billion, which is higher than the $1.78 billion deficit recorded in the comparable period in 2017.

Central bank planners expect to end 2018 with a balance of payments deficit of $5.5 billion — the widest gap in the BSP’s publicly available database that goes back to 1999.

Over the last 19 years, the country has only posted yearend net dollar outflows in 2000 and 2001, at the height of the Estrada political crisis; in 2004 during the Arroyo fiscal crisis; in 2014 with the end of the US Federal Reserve’s quantitative easing policy; and in 2016, 2017, and this year.

“The higher cumulative balance of payments deficit for the [Jan-Nov. Period] may be attributed partly to the widening merchandise trade deficit, based on the Philippine Statistics Authority’s preliminary data, for the first ten months of the year that was brought about by the sustained rise in imports of raw materials and intermediate goods as well as capital goods to support domestic economic expansion,” the central bank said.

For November alone, the inflows stemmed mainly from the BSP’s foreign exchange operations and its income from its investments abroad during the month. These were partially offset by the payments made by the national government for its foreign exchange obligations and its net foreign currency withdrawals during the month in review.

The reported balance of payments position reflected the final gross international reserve level of $75.68 billion as of end-November 2018.

At this level, the dollar reserves represent a more than ample liquidity buffer and are equivalent to 6.7 months’ worth of imports of goods and payments of services and primary income. It is also equivalent to 5.6 times the country’s short-term external debt based on original maturity and 3.9 times based on residual maturity.

Only six months ago, the central bank said it expected net dollar outflows by yearend to hit $1.5 billion which was, itself, already an adjusted projection from the original expectation of a $1-billion deficit for 2018.

This gap was attributed to the country’s yawning trade deficit as the economy imported more goods and services to help fuel the growing economy, amid only a modest performance turned in by the Philippines’ traditional dollar-earning exports.

For next year, the central bank expects net dollar outflows to continue and reach a total of $3.5 billion. Because of this, bankers and economists expect the peso to gradually weaken against the US dollar during this timeframe. /kga