BoP deficit widens to USD 895M in February

DOLLAR OUTFLOWS rose in February, driving the balance of payments (BoP) position to its biggest deficit in five months, on the back of foreign loan payments and a wider trade gap, the Bangko Sentral ng Pilipinas (BSP) said.

Data released by the BSP late on Monday showed the BoP position widened to an USD 895-million deficit in February, from the USD 157-million shortfall a year ago.

It was also a reversal from the USD 3.08-billion surplus in January, which reflected the National Government’s USD 3-billion global bond issuance.

The BoP deficit in February was the biggest in five months or since the USD 2.34-billion gap in September 2022.

“The BoP deficit in February 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 central bank said in a statement.

Latest data from the Bureau of the Treasury showed the National Government’s outstanding debt hit PHP 13.698 trillion as of end-January, 2.1% higher than the PHP 13.419 trillion at end-December. As of end-January, external debt increased by 17.8% to PHP 4.314 trillion from a year ago.

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

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a note that the BoP deficit was largely due to the significantly wider trade gap. He noted imports have been bloated by relatively higher global commodity prices, and also reflected increased demand due to the further reopening of the economy.

The trade deficit ballooned to USD 5.74 billion in January from the USD 4.50-billion deficit in December. This was driven by the 3.9% increase in imports to USD 10.97 billion, while exports fell by 13.5% to USD 5.23 billion in January, latest data from the statistics agency showed.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said BoP swung to a deficit from January’s surplus as both the current and financial accounts were likely in a shortfall.

“Current account woes likely on the back of the chronic trade deficit with remittances and BPO (business process outsourcing) call center receipts unable to compensate,” Mr. Mapa said.

In 2022, the current account deficit ballooned to USD 17.8 billion from the USD 5.9-billion gap in 2021, amid a wider trade in goods deficit. 

“Meanwhile, the financial account, which was in surplus in January due to dollar bond proceeds, likely swung into shortfall as outflows outpaced inflows as uncertainty picked up due to concerns about the Fed rate hike cycle,” Mr. Mapa said.

Fed officials have signaled further policy tightening this year, but market players are concerned that the rate hikes may continue to negatively affect the banking sector in the US. The Fed’s two-day policy review ends on March 22.

For the first two months of the year, the BoP posted a USD 2.19-billion surplus, a turnaround from the USD 259-million deficit during the same period in 2022.

“Based on preliminary data, the cumulative BoP surplus reflected inflows that stemmed mainly from the Global Bond issuance of the NG in January 2023, personal remittances, and foreign portfolio investments (FPI),” the central bank said.

In January, personal remittances rose by 3.5% year on year to USD 3.07 billion, while cash remittances jumped to USD 2.76 billion.

Transactions on FPIs registered with the BSP through authorized agent banks posted a net inflow of USD 292.12 million in January.

With the latest data, the central bank said the dollar position as of end-February reflects final gross international reserves (GIR) of USD 98.2 billion, down 2.5% from USD 100.7 billion a month prior.

Despite the decline, the dollar buffers are enough to service 7.4 months’ worth of imports of goods and payments of services and primary income.

The GIR can also cover up to 5.9 times the country’s short-term external debt based on original maturity and 3.9 times based on residual maturity.

Moving forward, the country’s dollar position could be supported by the continued growth in remittances, BPO revenues, foreign investments, and tourism receipts, Mr. Ricafort said. 

“The proposed USD 3-billion US dollar or euro-denominated retail bonds to be offered by the National Government in the second quarter of 2023, with a tenor of at least 5 years, would also be added to the country’s BoP and GIR by then,” he added.

The BSP last week lowered its BoP projections for the year. The country’s BoP is likely to yield a deficit of USD 1.6 billion this year or equivalent to -0.4% of GDP, lower than the previous projection of a USD 5.4-billion gap (-1.3% of GDP) in December.

Meanwhile, the current account deficit is seen to end the year at a $17.1-billion deficit equivalent to -4% of GDP, narrower than the USD 19.9-billion (-4.7% of GDP) forecast in December.

The BoP in the Philippines stood at a USD 7.3-billion deficit in 2022, a reversal from the USD 1.3-billion surplus a year earlier. — Keisha B. Ta-asan