PH dollar flow deficit narrows after IMF boosts BSP reserves

MANILA, Philippines—A surge of dollars into the Philippines from additional liquidity by International Monetary Fund (IMF) narrowed the country’s currency deficit flows in August, according to the Bangko Sentral ng Pilipinas (BSP).

The BSP said the country’s deficit in balance of payments—net tally of economic transactions with the rest of the world at a given period—narrowed substantially in the first eight months of 2021.

In a statement, the BSP said the country’s overall balance of payments position posted a surplus of $1.04 billion in August of this year, higher than the $657 million surplus recorded in the same month in 2020.

“The dollar flow surplus in August 2021 was due mainly to the additional allocation of Special Drawing Rights to the Philippines given the IMF’s efforts to increase global liquidity amid the pandemic and the BSP’s income from its investments abroad,” the BSP said.

These were partly offset by the national government’s foreign currency withdrawals from its deposits with the BSP as the government settled its foreign currency debt obligations and paid for various expenditures, and the BSP’s net foreign exchange operations.

The surplus in August reduced the cumulative balance of payments deficit in January-August 2021 to $253 million from $1.3 billion in the first seven months of the year.

Based on the Philippine Statistics Authority’s international merchandise trade statistics, the trade balance for January-July 2021 reached $21.31 billion, up from $13.51 billion deficit posted in the same period in 2020.

Notwithstanding, the current year-to-date balance of payments level is a reversal from the $4.77 billion surplus recorded in the same period in 2020.

“Based on preliminary data, this cumulative balance of payments deficit was partly attributed to a wider merchandise trade deficit and lower net foreign borrowings by the national government compared to the same period last year,” the BSP said.

The balance of payments position reflects an increase in the final gross international reserves level to $107.96 billion as of end-August 2021 from $107.15 billion as of end-July 2021.

The latest dollar reserve level represents an adequate external liquidity buffer equivalent to 10.8 months’ worth of imports of goods and payments of services and primary income.

“Specifically, it ensures 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,” the BSP said.

It is also about 7.6 times the country’s short-term external debt based on original maturity and 5.3 times based on residual maturity.

TSB