More dollars leave than enter PH for sixth month as gov’t pays foreign debt

MANILA, Philippines—More dollars flowed out than entered the Philippines in June as the government paid off maturing loans from foreign creditors.

More importantly, however, the latest balance of payments confirmed a trend of deficits that resulted in net outflow of dollars from the local economy in the first half of 2021, reversing a large and unhealthy surplus recorded during the same time in 2020 when economic activity ground to a halt due to the pandemic.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said the country’s overall balance of payments position posted a deficit of $312 million in June 2021, a reversal from the $80 million net dollar flow  surplus recorded in the same month last year.

“The [balance of payments] deficit in June 2021 reflected mainly the outflows arising from the foreign currency withdrawals of the national government from its deposits with the BSP as it settled its foreign currency debt obligations and paid for various expenditures, and the BSP’s net foreign exchange operations,” the BSP said.

These were partly offset, however, by the inflow from the BSP’s income from its investments abroad.

The balance of payments account represents the net tally of dollar flows into and out of the country during a certain period. Inflows may be due to the economy’s earnings from exports, remittances from abroad, as well as short and long term investments from foreign parties. Outflows, on the other hand, may be due to payments for imports of goods and services, investments overseas, or repatriation of dollars by fund managers liquidating their local holdings, among others.

According to the BSP, the cumulative balance of payments position between January and June 2021 registered a deficit of $1.94 billion — a reversal of the $4.11 billion surplus recorded in the same period a year ago.

“Based on preliminary data, this cumulative deficit was partly attributed to a wider merchandise trade deficit,” the BSP said.

The balance of payments position reflects a decrease in the final gross international reserves to $105.76 billion as of end-June 2021 from $107.25 billion as of end-May 2021 and from $110.12 billion at the beginning of the year.

“The latest dollar reserve level represents a more than adequate external liquidity buffer equivalent to 12 months’ worth of imports of goods and payments of services and primary income,” the BSP explained.

“Moreover, it is also about 7.7 times the country’s short-term external debt based on original maturity and 5.1 times based on residual maturity,” it added.

Last month the BSP predicted that dollar flows into the Philippines from overseas will post a bigger surplus this year than initially expected as exports start to recover, but tepid economic activity will continue to constrain imports.

Officials of the BSP have revised their latest estimated balance of payments surplus for 2021 to $7.1 billion or 1.8 percent of gross domestic product. This is higher than the full-year projection of $6.2 billion set by the Monetary Board last March, but substantially lower than the record high $16-billion BOP surplus for the whole of 2020 when the economic slump crimped imports and investments.