Diminishing surplus a ‘troubling sign’ – analyst
The Philippines’ balance of payments (BOP) posted another monthly surplus in October, but at the lowest level since the country’s deficit swung back to a surplus in July in what analysts now see as a worrying trend.
Data released by the Bangko Sentral ng Pilipinas (BSP) on Wednesday showed the payments balance in October standing at a $24 million surplus, diminishing from the positive $98 million posted in September and reaching the lowest surplus level since the $500 million posted in July.
The central bank explained that the BOP surplus was lower in October due to the settlement of the national government’s maturing external obligations.
“The BOP surplus in October can be traced mainly to deposits of the national government and income from foreign investments of the BSP, which were partly offset by national payments of its maturing foreign exchange obligation,” BSP Governor Amando Tetangco Jr. said in a text message to reporters on Wednesday.
In cumulative terms, the BSP has consistently been in deficit this year. The gap, however, narrowed slightly at the end of October to $3.41 billion from the negative $3.43 billion at end-September.
In the comparative 10-month period last year, the country posted a surplus of $3.83 billion.
Full-year target review
Tetangco said the central bank is reviewing the full-year BOP target to take the latest available information into account.
“Any changes to the projections, if any, will be announced at the appropriate time,” 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.
For this year, the BSP is targeting a payments surplus of $1.1 billion, equivalent to 0.3 percent of the country’s gross domestic product. In 2013, the cumulative BOP stood at a surplus of $5.09 billion. The Philippines has had a full-year BOP surplus for the past nine years, and for 11 of the last 14 years.
Nicholas Antonio Mapa, associate economist at the Bank of the Philippine Islands, said that the BOP and the overall external position of the Philippines has been the economy’s brightest feature and has helped the country attain several credit ratings upgrades.
However, the economist said that the continuing decline of the BOP surplus may be a “troubling sign.”
“As BOP continues to post smaller and smaller surplus, this may be a troubling sign as this is by far the ace we have up our sleeve,” he said.
Since reaching a high of $501 million in July, the BOP surplus has steadily declined in each of the following three months.
Mapa noted that the foreign funds that were parked here in the country temporarily have begun to exit as the United States Federal Reserve looks to normalize its monetary policy stance.
Furthermore, he said that the BOP is coming under pressure as the central bank attempts to smooth out volatile fluctuations in the spot market, using a portion of its gross international reserves from time to time.
“Although gross international reserves remains very, very healthy and the envy of our neighbors, successive drawdown may cause some investors to not view us as rosy. The Fed taper has just ended but respite may not be on its way just yet as the Fed prepares to hike interest rates. Rest assured when this happens, foreign outflow will resume,” Mapa concluded.