BoP deficit narrows in August

The Philippines balance of payments (BoP) position remained in a deficit for a fifth straight month in August, albeit sharply narrower from a year ago, mainly due to the National Government’s foreign debt payments, the central bank said late on Monday.

Based on data released by the Bangko Sentral ng Pilipinas (BSP), the country’s BoP deficit stood at USD 57 million in August, 90% lower than the USd 572-million gap recorded in the same month a year ago.

Month on month, it rose by 7.5% from the USD 53-million deficit in July.

The August BoP gap was the highest deficit in two months or since the $606-million shortfall seen in June.

The BoP measures the country’s transactions with the rest of the world at a given time. A deficit means more funds fled the economy than what went in, while a surplus shows that more money entered the Philippines.

“The BoP deficit in August 2023 reflected net outflows arising mainly from the National Government’s (NG) payments of its foreign currency debt obligations,” the BSP said in a statement.

For the first eight months of the year, the BoP position swung to a USD 2.15-billion surplus from the USD 5.49-billion deficit a year ago.

“Based on preliminary data, this development reflected mainly the improvement in the balance of trade and the sustained net inflows from personal remittances, trade in services, and foreign borrowings by the NG,” the BSP said.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the overall BoP was better than last year mainly due to the improvement in the trade balance.

“Last year we saw the trade deficit balloon to all-time lows, but we have seen a bit of an improvement this year,” Mr. Mapa said in an e-mail.

The Philippines’ merchandise trade deficit shrank to a USD 4.2-billion deficit in July amid falling imports and exports. This brought the first-half trade balance to a USD 32.18-billion gap, lower than the USD 35.84-billion shortfall in the comparable year-ago period.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort in a note said the year-to-date BoP surplus was due to the proceeds of the NG’s foreign currency-denominated borrowings from commercial and multilateral sources this year.

These include global bond issuances and official development assistance (ODA), as well as the continued structural dollar inflows into the country via remittances, business process outsourcing revenues, and tourism receipts.

The central bank said the eight-month BoP position reflects the final gross international reserves (GIR) level of USD 99.6 billion at end-August, slipping by 0.4% from USD 100 billion as of July.

The GIR represents 7.4 months’ worth of imports of goods and payments of services and primary income.

It can also cover up to 5.7 times the country’s short-term external debt based on original maturity and 3.9 times based on residual maturity.

In the coming months, the country’s BoP position will be supported by continued structural dollar inflows and the likely narrower trade deficit, Mr. Ricafort said.

“The proposed USD 2-billion retail bonds to be offered by the National Government in September 2023… as well as the National Government’s planned debut of about USD 1-billion Islamic bonds later in 2023 or early 2024… would also be added to the country’s BoP and GIR in the latter part of the year,” he said.

The government is planning to offer retail dollar bonds this month, as well as Islamic bonds or Sukuk bonds by yearend or early 2024.

“For the rest of the year, we do see the BoP likely flat with any potential worsening of the current account deficit possibly offset by inflows related to the financial account (dollar issuance and return of portfolio investments),” Mr. Mapa added.

Last week, the central bank lowered its balance of payments projection for this year as exports and imports of goods may decline amid weaker global economic conditions.

For this year, the BoP is seen to yield a deficit of USD 127 million (0% of gross domestic product), which is significantly lower than the previous projection of a USD 1.2-billion gap (-0.3% of GDP).

For 2024, the country’s BoP position is projected to swing to a USD1-billion surplus (equivalent to 0.2% of GDP) next year, better than the previous projection of a USD0.5-billion deficit. 

The BSP also projects the current account deficit to reach USD 11.1 billion (-2.5% of GDP), lower than the previous forecast of USD 15.1 billion (-3.4% of GDP).

The central bank expects a narrower current account deficit of USD 10.3 billion (-2.1% of GDP) in 2024 as the country’s trade in goods gap is expected to shrink. — Keisha B. Ta-asan