March BOP swings to $336-M deficit

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The Philippines’ balance of payments (BOP) hit a $336 million deficit in March due mainly to net foreign investment outflows amid uncertainty over the pace of stimulus tapering by the United States Federal Reserve, central bank Governor Amando Tetangco Jr. said.

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Data from the Bangko Sentral ng Pilipinas (BSP) on Monday showed a reversal of the BOP in March from a $345-million surplus in February.

Cumulative BOP position for the first three months of the year stood at a deficit of $4.47 billion, a sharp swing from the $1.54 billion surplus recorded for the same period a year earlier.

Foreign currency debt repayments by the government, the central bank’s foreign exchange operations, and a higher trade gap, also contributed to this year’s deficits, Tetangco said.
Nicholas Antonio Mapa, associate economist at the Bank of the Philippine Islands, said there was nothing worrying about the BOP deficit.

“I actually would welcome the deficits as we are pre-paying foreign debt and incurring larger trade deficits due to increased importation of both raw materials for eventual exports and imports of capital machinery—[they’re] for use in expansion and investment in large ticket infrastructure projects and the rebuilding of devastated parts of the country due to natural calamities,” Mapa said.

“They [BSP] know they will continue to enjoy current account surpluses, albeit probably smaller surpluses, but the situation faced by the BSP is one that is faced by every emerging market central bank,” he said.

The Philippines remains to be one of the most well prepared nations in terms of reserves and projected to continue to post current account surpluses, through the help of the remittances from overseas Filipino workers, Mapa said.

Mapa believes that the central bank continues to hold ample international reserves despite the recorded BOP deficit, and will be able to cushion the impact of the recent changes in the global financial landscape.

For this year, the BSP targets the BOP to retain a surplus of $3 billion or 0.9 percent of the country’s gross domestic product. In 2013, cumulative BOP ended at a surplus of $5.09 billion.

Meanwhile, in terms of the foreign exchange, Tetangco said that outflows have been reflected in the depreciation of the peso, particularly in the latter half of March.

“Since then, however, the peso has recovered, as flows have begun to return to the domestic market. The peso could be subjected to more volatility coming from such external impulses,” he said.

In addition, Tetangco said that the country’s highest monetary authority will continue to maintain a strategic presence in the foreign exchange market to help keep volatility “within reasonable bounds.”

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