Result: Net external liabilities down, balance of payments up – BSP
The Philippines’ international investment position (IIP) improved as of end-September as the expansion in the country’s total external financial assets outpaced the rise in total external financial liabilities, the central bank said on Friday.
The IIP is used as a companion framework to the country’s balance of payments (BOP) statistics.
Although the absolute level of the country’s financial assets during the period at $166.9 billion remained below that of external liabilities at $194.06 billion, the result is a drop in net external liabilities to $27.15 billion as of end-September.
That reflects a 5.4 percent decline from net external liabilities of $28.7 billion at end-September 2015, and a 15.2 percent improvement from liabilities of $32.03 billion recorded as of end-June 2016.
Under financial assets, the country’s reserves and direct investments showed a build-up, while the balance of payments remained in positive territory, data from the Bangko Sentral ng Pilipinas (BSP) showed.
On a year-on-year basis, the lower net external liability position was brought about by a $14.6 billion rise in total external financial assets (or by 9.6 percent), which exceeded the increase in total external financial liabilities of $13.0 billion (or by 7.2 percent), according to the data.
“The expansion in total external financial assets was driven mainly by the build-up in the country’s reserve assets and direct investments. Meanwhile, growth in total external financial liabilities was due mainly to increases in non-residents’ direct and portfolio investments,” the BSP said in a statement released with the data.
Investments in the country are considered liabilities because the funds are owned by foreigners, who are assumed to eventually cash in on gains and pull their money out the country.
Compared with the BOP, which is a statistical statement that records the country’s transactions or flows with the rest of the world for a given period, the IIP summarizes the country’s stock of financial claims on and financial liabilities to the rest of the world.
Similar to the BOP’s financial account, assets and liabilities in the IIP are classified as direct investments, portfolio investments, financial derivatives, and other investments.
From end-June, total external financial assets increased by $2.0 billion, or 1.2 percent, and total external financial liabilities decreased by $2.9 billion, or by 1.5 percent, the central bank said.
“The increase in total external financial assets during the quarter was driven mainly by higher direct investments (by 3.8 percent), particularly residents’ net placements in equity and investment fund shares and debt instruments (intercompany lending) issued by non-resident affiliates. Meanwhile, the country’s reserve assets increased by 1.0 percent from end-June 2016,” it added.
The BSP reported declines in other investments, particularly loans (by 1.4 percent) and trade credits and advances (by 18.1 percent), which accounted for the dip in external financial liabilities during the quarter.
In addition, foreign portfolio investment fell by 1.3 percent due mainly to the negative price revaluation of non-residents’ holdings of domestic equity securities, as the Philippine Stock Exchange Index dropped 2.1 percent during the quarter.
Strong BOP, strong BSP
“The improvement in the IIP reflected a stronger balance of payments (BOP) position in Q3 2016 as the country’s BOP registered a surplus of US$1.0 billion,” it said.
Across sectors, only the BSP exhibited a net external asset position as of end-September 2016, while the other major sectors, namely deposit-taking corporations, except the central bank (banks), general government and other sectors, posted net external liability positions as they remained net users of foreign resources.
“All sectors registered an improvement in their net external positions,” it said.
The BSP continued to account for the largest share of the Philippines’ total external financial claims on the rest of the world at 52.0 percent. By type of instrument, 51.6 percent of residents’ total external financial assets were reserve assets held by the BSP.
The other sectors’ total external financial liabilities reached $123.0 billion as of end-September, almost two-thirds (63.4 percent) of the country’s total external liabilities. These mostly consisted of non-residents’ placements in equity capital in local affiliates (34.3 percent), equity securities issued by local corporates (30.6 percent) and debt instruments issued by residents (16.7 percent).
The country’s total external financial liabilities to the rest of the world consisted mostly of non-residents’ investments in equity securities issued by local corporations (25.7 percent), non-residents’ placements of equity capital in resident affiliates (23.2 percent), and residents’ availment of foreign loans (22.5 percent).