Balance of payment deficit narrows to USD439M

The country’s balance of payment (BoP) position stood at a deficit of USD 439 million in May, narrower than the USD 1.61-billion gap a year earlier, the Bangko Sentral ng Pilipinas (BSP) said. 

Still, the BoP position last month was wider than the USD 148-million shortfall in April, data released by the central bank late Monday showed.

The figure was also the widest deficit since the USD 895-million gap in February.

“The BoP deficit in May 2023 reflected outflows arising mainly from the National Government’s (NG) net foreign currency withdrawals from its deposits with the BSP to settle its foreign currency debt obligations and pay for its various expenditures,” the BSP said in a statement.

The BoP measures the country’s transactions with the rest of the world. A deficit means more funds fled the economy than what came in, while a surplus shows the opposite. 

For January to May, the BoP posted a USD 2.87-billion surplus, a reversal from the USD 1.53-billion deficit a year ago.

“Based on preliminary data, this cumulative BoP surplus was partly attributed to net inflows from personal remittances, net foreign borrowings by the NG, trade in services, and foreign direct investments,” the BSP said.  

The BoP reflects final gross international reserves (GIR) of USD 100.6 billion, down by 1.2% from $101.8 billion as of end-April. 

The dollar buffer is enough to fund 7.4 months’ worth of imports of goods and payments of services and primary income. 

The GIR can also cover up to 5.8 times the short-term external debt based on original maturity and 4.1 times based on residual maturity. 

“The narrower BoP deficit in May reflected declines in global commodity prices,” China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message. “In particular, oil prices, which spiked following Russia’s invasion of Ukraine, have since moderated to their current levels.”   

Inflation cooled for a fourth straight month in May to 6.1% — the slowest in a year. Still, this was the 14^th straight month that inflation breached the central bank’s 2-4% target.

Year to date, inflation has stood at 7.5%, still above the BSP’s 5.5% full-year forecast.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said wide trade deficits have kept the overall BoP position in deficit, but not as pronounced as last year.

The country’s trade-in-goods balance reached a deficit of USD 4.53 billion in April, lower than the USD 5.1-billion deficit a month earlier and the USD 5.32-billion gap a year ago.

Exports declined by 20.2% year on year to USD 4.9 billion in April, while the country’s merchandise imports fell by 17.7% to USD 9.43 billion.

“Moving forward, we expect to end the year with a relatively narrower BoP deficit compared with 2022. Robust service growth, especially tourism and business process outsourcing, should offset weak merchandise trade,” Ms. Velasquez said.  

“Lower import costs will drive the trade gap lower despite subdued export demand. The external sector would also receive additional support from remittances, which we expect to continue posting moderate growth due to resilient US and Asian economies,” she added.  

The BoP deficit might continue to narrow in the coming months amid a narrower current account deficit, Mr. Mapa said.

The current account deficit was USD 4.3 billion, or -4.3% of the gross domestic product (GDP) in the first quarter, up from USD 4 billion a year ago, based on BSP data.  

The current account deficit is projected to reach USD 15.1 billion, or -3.4% of GDP, down from the USD 17.1 billion (-4% of GDP) forecast previously.

The planned retail dollar bond offering in the third quarter this year could also push the BoP into months of surplus, Mr. Mapa said.

National Treasurer Rosalia V. de Leon earlier said the offer size would be about USD 2 billion, surpassing the previous retail dollar bond issuance. The Philippines’ last retail dollar bond sale was in 2021, when it raised almost USD 1.6 billion (PHP 81 billion). 

The country’s BoP position is likely to hit a deficit of USD 1.2 billion this year or equivalent to -0.3% of GDP, based on BSP projections. This will be narrower than the USD 7.3-billion deficit in 2022. — Keisha B. Ta-asan