The Philippines ended 2018 with the biggest net outflow of dollars from the local economy in four years due to the country’s yawning trade deficit—a situation mitigated only by the recent strength of the peso and remittances that traditionally surge during the holiday season.
Data released by the Bangko Sentral ng Pilipinas on Friday showed that the country’s full-year balance-of-payments (BOP) position registered a higher deficit of $2.31 billion compared to the $863-million deficit in 2017.
More importantly, however, this amount was 53-percent higher than the $1.5-billion in net dollar outflows the central bank had predicted for the local economy in 2018, itself already an adjusted forecast from the $1-billion deficit it expected at the start of last year.
“The higher cumulative balance-of-payments deficit for the period may be attributed partly to the widening merchandise trade deficit, based on the Philippine Statistics Authority’s preliminary data, for the first eleven 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 BSP said.
The BOP represents the net amount of dollar flows into and out of a particular economy. It takes into account the international transfer of resources whether these be for import and export trade of goods and services, as well as long- and short-term investment flows. A BOP deficit represents an outflow of dollars from the economy, which, in turn, translates to a weaker local currency, and vice versa.
The largest net dollar outflow for a single recorded by the central bank in recent history was in 2014 when $2.85 billion left the local economy as a result of the decision by major central banks around the world to reverse the accommodative monetary policy that has been in place since 2008 as a response to the global financial crisis.
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 dollar during this timeframe.
On a monthly basis, the country’s overall BOP position yielded a surplus of $2.44 billion in December 2018, significantly higher than the $917-million surplus in the same month of the previous year, the BSP said.
Inflows in December 2018 stemmed mainly from the BSP’s foreign exchange operations, the national government’s net foreign currency deposits and the central bank’s income from its investments abroad during the month. These were partially offset, however, by the payments made by the government for its foreign exchange obligations.
The reported BOP position reflected the final gross international reserves level of $79.19 billion as of end-December 2018. At this level, the central bank’s dollar reserves represented “a more than ample” liquidity buffer and was equivalent to seven months’ worth of imports of goods and payments of services and primary income.
It is also equivalent to six times the country’s short-term external debt based on original maturity and 4.1 times based on residual maturity.