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Balance of payments back to deficit

By Luz Wendy T. Noble, Reporter

THE Philippines’ overall balance of payments (BoP) position posted a deficit of $1.39 billion in May, as the government repaid some of its foreign debt obligations.

Data from the Bangko Sentral ng Pilipinas (BSP) showed the BoP position in May was a reversal from the $2.43-billion surplus in May 2020 and the $2.614-billion surplus in April.

May’s BoP deficit is also the biggest since the $2.019-billion shortfall in February.

“The BOP deficit in May 2021 was mainly attributed to outflows arising from the foreign currency withdrawals of the National Government (NG) from its deposits with the BSP as the NG settled its foreign currency debt obligations and paid for various expenditures,” the central bank said in a statement.

However, the outflows were partially offset by inflows from the central bank’s foreign exchange operations and external borrowings of the National Government.

The BoP provides a picture of the country’s transactions with the rest of the world. A deficit means more funds left the country, while a surplus show that more money came in.

At its end-May position, the BoP reflects a final gross international reserves level of $107.25 billion, down by 0.42% from the $107.71 billion as of end-April.

The dollar reserves in May are enough to cover 12.2 months’ worth of imports of goods and payments of services and primary income. It is also about 7.9 times the country’s short-term external debt based on original maturity and 5.2 times based on residual maturity.

In the January-May period, the BoP deficit reached $1.627 billion, a reversal of the $4.029-billion surplus during the same period a year ago.

“Based on preliminary data, this cumulative BoP deficit was partly attributed to wider merchandise trade deficit and net outflows of foreign portfolio investments,” the central bank said.

The BSP last week revised its BoP surplus projection to $7.1 billion this year. This is higher than its previous forecast of a $6.2-billion surfeit, but lower than the $16-billion record BoP surplus in 2020.

Analysts said they are keeping an eye on the extent of the economy’s reopening in the coming months, as well as the Federal Reserve’s hints at tightening policy.

“With looser curbs locally, there is a potential for a wider trade deficit as the imports sector rebounds, while a hawkish US monetary policy could mean a persistent financial outflow. Therefore, a BoP deficit and peso depreciation appears more plausible by yearend given the current scenario,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a Viber message that he expects upside risks of more net outflows of foreign investments, as investors will likely move to developed country’s markets once the Fed tightens monetary policy.

Mr. Asuncion added the recent current account data may also be indicative that the BoP position will remain at a deficit in the coming months.

The current account includes flows related to trade in goods and services; remittances from overseas Filipino workers; profit from Philippine investments abroad; interest payments to foreign creditors; as well as gifts, grants and donations to and from abroad.

The current account in the first quarter of the year posted a deficit of $614 million, reversing the $225-million surplus a year earlier, the BSP said on Friday. This was supported by continued import growth as the economy gradually reopens.

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