Gov’t’s foreign loans, imports decline keep dollar flows in surplus

Dollar inflows to the Philippine economy continued to outpace outflows in the first half of the year, thanks largely to proceeds from foreign loans of the government and a pandemic-induced slowdown in imports, according to the central bank.

In a statement, the Bangko Sentral ng Pilipinas said the country’s overall balance of payments position posted a surplus $4.1 billion for the first half of 2020—slightly lower than the $4.7-billion surplus during the same period last year.

“The current balance of payments surplus was supported mainly by foreign borrowings by the national government, the bulk of which were drawn in the second quarter, along with lower merchandise trade deficit,” the central bank said.

“These positive outcomes negated fully the impact of higher net outflows of foreign portfolio investments, and lower net inflows from trade in services, personal remittances, and foreign direct investments,” it added.

June’s balance of payments position reflected the third consecutive month when cumulative net dollar flows recorded a surplus, the central bank pointed out.

For June 2020 alone, the economy saw net dollar inflows from trade and financial activities of $80 million, a reversal from the $404 million deficit recorded in the same month last year.

“The balance of payments surplus in June 2020 reflected mainly the inflows from the national government’s foreign loan proceeds that were deposited with the BSP as well as the BSP’s income from its investments abroad,” the central bank said.

These inflows were offset, however, by the foreign currency withdrawals made by the national government to pay its foreign currency debt obligations during the month in review.

The latest balance of payments position reflects a record high final gross international reserves level of $93.47 billion as of end-June 2020.

“At this level, the central bank’s total dollar reserves represents an ample external liquidity buffer, which can cushion the domestic economy against external shocks,” the institution said, explaining that, specifically, it ensured availability of foreign exchange to meet financing needs, such as for payment of imports and debt service, in extreme conditions when there are no export earnings or foreign loans.

This is equivalent to 8.5 months’ worth of imports of goods and payments of services and primary income. Moreover, it is also about 7.3 times the country’s short-term external debt based on original maturity and 4.8 times based on residual maturity.

Short-term debt based on residual maturity refers to outstanding external debt with original maturity of one year or less, plus principal payments on medium- and long-term loans of the public and private sectors falling due within the next 12 months. INQ