ON Monday, the Bangko Sentral ng Pilipinas (BSP) released the country’s balance of payments data for the month of August, and it was good news, indeed, for the economy.
The balance-of-payments accounts of a country summarize its economic transactions with other economies of the world.
For August, the Philippines’ payments balance registered a surplus of $682 million, more than three times higher than the $215 million BOP surplus recorded a month earlier in July, and a complete reversal of the $450 million deficit recorded in August last year. It was also the highest positive balance in five months since March this year, when it reached $854 million.
The central bank attributed the surplus mainly to its “foreign exchange operations” and “foreign exchange deposits of the national government.” These dry and confusing terms actually describe what is one of the most important economic indicators for the country.
Central Bank Deputy Governor Diwa Guinigundo clarified the matter somewhat by explaining that the payments surplus we saw in August came from revenues from business process outsourcing (BPO) activities, OFW remittances that have grown by about 3 percent over the first six months of the year, receipts from tourism businesses, as well as much higher levels of foreign direct investment and “hot money” investments in the country.
To understand why the BOP is so important, it is perhaps easier to think of it as the country’s balance sheet: It records the transactions between the country and the rest of the world; when it has a surplus, that means the country has money in reserve because more money has flowed into the country than has flowed out, and that, obviously, is a good thing. That provides funds to cover government spending, imports of essential goods, and even emergency expenditures for things like disaster relief if needed, improves the country’s credit profile, and provides economic planners with a bit more flexibility to pursue development.
On its own, the positive BOP figure for the month of August, and the $1.531 billion surplus for the first eight months of 2016 are a sign of a healthy economy. Just how strong the economy is was ironically revealed by the somewhat downbeat assessment of the data by many analysts following Monday’s release.
Economists from Moody’s Analytics, HSBC, Singapore-based bank DBS, and ING bank, all focusing on the half-year or year-to-date data, pointed to the relatively narrow surplus margin, which works out to only about 0.1 percent of gross domestic product. They also forecast that the full-year BOP surplus might struggle to reach the BSP’s $2 billion target, due to slow global trade and the shutdown of much of the country’s nickel mining operations dragging on Philippine exports.
Looking at it from a different perspective, the fact that the Philippines posted a strong August surplus under less than robust global conditions – and in what is traditionally “ghost month,” in which business activity slows – is a clear indicator of economic stability.
Taking a bit longer view, DBS pointed out that the trade deficit, which has now reached $16.39 billion for the year to date, has been further aggravated by increasing imports, but noted that many of those imports were capital goods that will eventually contribute to production and business growth, even if the short-term trade picture is a little worrisome.
It is comforting to know that the rhetoric about the Philippines’ robust economy is reflected in real data, particularly in a fundamentally important indicator like the balance of payments. If the Duterte administration follows through on the development plans it has promised and builds on this strong foundation, the economic future for the Philippines, at least for the next few years, looks very bright, indeed.