Net dollar inflow in 2020 breached BSP forecast

The bad news is that the final tally for the net inflow of dollars into the Philippine economy in 2020 was almost double that of the previous year.

The worse news is that this surplus—caused by a sharp drop in imports as local output shrank by the biggest rate in the country’s recorded history—was double the worst-case scenario set out last October that the central bank was bracing itself for.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said the country’s overall balance-of-payments position posted a record-high surplus of $16.02 billion for the entire 2020.

This level is more than two times higher compared with the $7.84 billion surplus recorded in 2019 and is 97.7-percent more than the $8.1-billion surplus that the central bank had predicted in mid-October of last year.

This surplus means the country’s economy retained more dollars during this period from investment inflows, earnings from exports of goods and services, remittances and borrowings, than what it spent paying for imports, capital outflows and debt repayments, among others.

The central bank attributed the large net inflow of hard currency into the Philippine economy to “higher net foreign borrowings by the national government and lower merchandise trade deficit, along with sustained net inflows from personal remittances, foreign direct investments and trade in services.”

For December 2020 alone, the central bank said it recorded a surplus of $4.24 billion, which was significantly higher than the $1.57 billion in net inflows in December 2019.

‘External shocks’

In particular, the central bank said this BOP surplus in December 2020 reflected inflows mainly from its foreign exchange operations and income from its investments abroad as well as the national government’s foreign currency deposits with the BSP of proceeds from its issuance of global bonds.

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

The BOP position reflected an increase in the country’s dollar reserve level to $110.12 billion as of end-December 2020—also a record high— compared with $104.82 billion as of end-November 2020.

“The latest GIR level represents an adequate external liquidity buffer, which can help cushion the domestic economy against external shocks,” the regulator said.

Specifically, it ensures availability of foreign exchange to meet BOP 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 11.8 months’ worth of imports of goods and payments of services and primary income. Moreover, it is also about 9.5 times the country’s short-term external debt based on original maturity and 5.4 times based on residual maturity.