Buildup of PH dollar flow surplus continues thanks to lower imports, gov’t foreign loans

MANILA, Philippines — The amount of dollars that the Philippine economy has retained almost doubled in the in the first ten months of 2020 compared to the same period last year, as the coronavirus pandemic forced individuals and companies to cut down on their spending for imported goods and services.

At the same time, data from the Bangko Sentral ng Pilipinas also showed that the surplus of hard currency currently being experienced by the financial system is also due to the foreign borrowings of the national government for its response to the COVID-19 crisis.

According to the central bank, the cumulative balance of payments surplus of $10.31 billion for the January to October 2020 period was higher than the $5.73 billion surplus

recorded for the same period a year ago, representing a 79.9 percent increase.

The balance of payments is the net tally of dollars flowing into or out of the country thanks to the local economy’s transactions with foreign parties, whether buying of selling good and services, or receiving or making investments and other financial transfers.

“Based on preliminary data, the current surplus was supported mainly by higher net foreign borrowings by the national government and lower merchandise trade deficit along

with sustained net inflows from foreign direct investments, personal remittances, and trade in services,” the central bank said.

The balance of payments position reflects an increase in the final gross international reserves level to $103.8 billion as of end-October 2020 compared with $100.44 billion at the end of the previous month.

The latest dollar reserve level represents a more than adequate external liquidity buffer, which serves as a cushion for the domestic economy against external shocks. Specifically, it ensures the availability of foreign exchange to meet balance of payments financing needs, such as for payment of imports and debt service, in extreme conditions when there are no export earnings or foreign loans.

This was equivalent to 10.3 months’ worth of imports of goods and payments of services and primary income. Moreover, it is also about 9.2 times the country’s short-term external debt based on original maturity and 5.4 times based on residual maturity.

For the month of October alone, the country’s overall balance of payments position posted a surplus of $3.44 billion, reflecting mainly the central bank’s income from its investments abroad, the national government’s foreign currency deposits from its borrowings, and inflows from the BSP’s foreign exchange operations.

These inflows were partly offset, however, by the government’s payments of its foreign currency debt obligations.

/MUF