Balance of payments deficit grew to widest in over 2 years

The Philippines posted its largest dollar deficit in over two years in November, with the outflows stemming from the Bangko Sentral ng Pilipinas’ (BSP) moves to shore up a weak peso and repayment of external debt of the government.

The balance of payments (BoP) summarizes an economy’s transactions with the rest of the world during a certain period.

Latest data from the BSP showed that in November, there were $2.3 billion more payment outflows than inflows, which was more than thrice larger than the $724-million gap recorded in the preceding month.

READ: Philippines posts $2.3B balance of payment deficit in Nov

A deficit arises when outbound payments are greater than inbound funds during a period, leaving the country with less resources for transactions with the rest of the world. A surplus means the reverse happened.

BSP data showed that the latest monthly reading was the widest BoP deficit recorded since September 2022.

The central bank attributed the November results to “net foreign currency withdrawals” of the government. This means that the state took out more cash than it deposited with the BSP during the period, to settle its offshore debts and cover its various spending needs.

Propping up peso

The BSP also blamed the deficit last month on its “net foreign exchange operations,” which were meant propping up a weak peso that had revisited the record-low level of 59:$1 twice in November.

The central bank may dip from its foreign exchange reserves to defend the local currency from volatility—or, worse, speculative attacks—that can stoke imported inflation.

In turn, intervention in the forex market contributed to the decrease of the 11-month surplus to $2.12 billion from the $3 billion recorded in January-November last year.

The central bank said the decline in the cumulative 11-month surplus was due to lower foreign borrowings of the government and less earnings from trade in services like business process outsourcing. That, however, was offset by continued inflows from remittances, hot money and foreign direct investments.

Still over $100B

The large BoP deficit in November reflected a decrease in the gross international reserves (GIR)—which serves as the country’s buffer funds against external shocks—to $108.5 billion from $111.1 billion in October.

The latest GIR level nevertheless represents a more than adequate external liquidity buffer equivalent to 7.7 months’ worth of imports. At the same time, the buffer funds were also about 4.3 times the country’s short-term external debt based on residual maturity.