THE Philippines’ balance of payments (BoP) slumped back to a deficit in May on the back of the central bank’s foreign exchange operations and the debt payments by the national government, wiping out a two-year high surplus in April, official data showed on Monday.
The payments balance hit a deficit of $59 million in May, reversing the $917 million surplus recorded in April – which was the highest in two years – as well as a surplus of $241 million in May 2016.
For the five months to May, the BoP showed a deficit of $136 million, a reversal of the first five months’ surplus of $216 million in 2016.
Tracing this year’s deficit, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo said in a text message to reporters, “mainly due to FX (foreign exchange) operations of the BSP and the FX payments by NG (the national government) on its maturing obligations, even as these were cushioned FX deposits by the NG and investment income of the BSP from abroad.”
“These bookings must have been driven by merchandise trade as imports continued to increase on account of good growth numbers and outflows in the foreign portfolio account,” he added, referring to the foreign exchange transactions and the movement of hot money in and out of the country.
The BSP earlier reported that the movement of foreign portfolio investments in the Philippines in May resulted in a net outflow of $24.35 million, reversing a net inflow in April as investors exited the markets in reaction to lower-than-expected 6.4 percent economic growth and weaker-than-expected corporate earnings in the first quarter.
The net outflow of hot money in May wiped out net inflows of $51.49 million in April and $72.81 million a year ago.
Data on imports for the month of May is yet to be released by the Philippine Statistics Authority.
For full-year 2017, the BSP sees a $500 million BoP deficit.
Effects of US interest rates, GDP
Guian Angelo Dumalagan, market economist at Land Bank of the Philippines, traced the May BoP position to
higher interest rates in the United States, as well as the slower-than-expected 6.4 percent gross domestic product (GDP) growth in the first quarter of the year.
“The BoP report generally reflects the increase in [fund]outflows as a result of higher US interest rates,” he said, adding, “The lower-than-expected growth of the country in the first quarter also contributed to the deficit in May.”
Dumalagan also said that the BSP’s $500 million BoP deficit forecast reflects the central bank’s view that more funds are likely to go out of the country due to the interest rate hikes by the US Federal Reserve, making it more attractive for investors to put their money in the US.
Last week, the Fed raised its benchmark interest rates, citing a better labor market and moderately improving economic activity. The US central bank also continues to project a third rate-increase this year, essentially brushing aside weaker inflation and consumption data in recent weeks.