The Philippines’ balance of payments (BOP) remained in deficit in April but the gap had narrowed sharply to $19 million from the $340 million recorded in March and $274 million a year earlier, providing some relief to the local currency.
The cumulative BOP position for the first four months of the year stood at a deficit of $4.49 billion, up from $4.475 in March but shows a sharp reversal from the $1.81 billion payments surplus recorded in the same period a year earlier.
In a text message to reporters, BSP Governor Amando Tetangco said that the April deficit can be attributed to the government’s servicing of its foreign currency debt as well as the central bank’s foreign exchange operations, “which were not entirely offset by foreign exchange deposits from national government and BSP foreign exchange investment income.”
Justino Calaycay, analyst at Accord Capital Equities Corp., said that the narrower BOP deficit eases pressure on the Philippine peso.
“The BOP is the summary of the country’s transactions with the rest of the world—akin to the balance of trade. This means that the country’s inflows have, in one way or another, caught up with the outflows which should lend stability to the domestic currency,” Calaycay said in an email to The Manila Times.
Calaycay added that the reduction in the payments deficit may have been due to the country’s stronger export activity relative to importations.
“We also have to look into whether the country was able to issue debt in the international debt market, which nevertheless will be at lower rates since the country has been upgraded to investment status by all major ratings agencies,” he said.
The balance of payments summarizes the country’s economic transactions with the rest of the world over a certain period. It consists of the current account, the capital account, and the financial account.
A surplus arises when foreign exchange inflows are greater than outflows, while a deficit is incurred when outflows exceed the inflows, causing a drop in the country’s gross international reserves.
For this year the BSP is targeting a payments surplus of $3 billion, equivalent to 0.9 percent of the country’s gross domestic product. In 2013, the cumulative BOP stood at a surplus of $5.09 billion.