The country’s balance of payments (BOP) position in January slipped to a deficit of $4.48 billion, data from the Bangko Sentral ng Pilipinas (BSP) showed on Wednesday.
The BOP deficit for the month was a reversal of the $419-million surplus recorded in December 2013, as well as the $2.04-billion surplus recorded in the same month last year.
The current BOP level is also in contrast to the recorded $5.089-billion BOP surplus for full-year 2013. This year, the BSP projected that the BOP will remain in surplus in 2014 at $3 billion, or 0.9 percent of the country’s gross domestic product.
In a text message, BSP Governor Amando Tetangco Jr. said that the BOP deficit can be attributed to the decline in financial account, one of the components of BOP.
“The drop in the BOP reflects the decline in the Financial Assets account, which has been triggered by market nervousness due to the recent heightened uncertainty in the actions of the AEs [advanced economies],” he said.
Meanwhile, Tetangco explained that the drop in the Financial Assets accounts was also caused by payments of the national government for debt service.
“Nevertheless, the fundamental sources of foreign exchanges, including remittance, remain robust,” he added.
The BSP governor also said that improvement in the overall external position is expected when the nervousness dissipates.
The BOP summarizes the country’s economic transactions with the rest of the world during a period. It consists of the current account, the capital account, and the financial account. A surplus arises when inflows are greater than outflows, while a deficit is incurred when outflows of dollars exceed the inflows.
A deficit in the BOP causes a drop in the country’s gross international reserves (GIR). The GIR are foreign assets that are readily available to and controlled by the central bank for direct financing of payments imbalances and for managing the magnitude of such imbalances.
GIR consists of holdings of gold, special drawing rights, foreign investments and foreign exchange, including Reserve Position in the Fund. These assets are valued mark-to-market. Higher GIR helps prop up the peso and keeps domestic inflation at bay.
As of end-January, the country’s GIR recorded its lowest level since June 2012 as it declined to $78.9 billion.