Imports boost June BoP shortfall to $569M, reverses yr-earlier $418M surplus
THE Philippines’ balance of payments (BoP) tilted deeper into a deficit of $569 million in June, the widest in seven months, as importers’ demand for the dollar grew while the national government honored its debt obligations, the central bank said on Wednesday.
The gap widened from a $59 million deficit in May and reversed a $418 million surplus recorded in June 2016, the Bangko Sentral ng Pilipinas (BSP) said in its latest report.
June also marked the widest deficit since the payments balance slipped to a $1.67 billion shortfall in November last year.
Bangko Sentral Deputy Governor Diwa Guinigundo said the deficit in June was “due mainly to higher corporate demand for FX [foreign exchange]that affected the FX operations of the BSP, coupled with debt payments by the national government [NG].”
“These were mitigated by the NG deposits with the BSP and inflows from the BSP’s investment income from abroad,” Guinigundo said in a text message to reporters.
Statistics on national government debt, the BSP’s foreign exchange operations and related data for June are not yet available.
For the first half of 2017, the BoP deficit stood at $706 million, a reversal of the first six months’ surplus of $634 million in 2016.
At the end of that six-month period, in June, the central bank revised its 2017 balance of payments position forecast down to a deficit of $500 million from a previous projection of a $1 billion surplus.
Strong imports, weak peso
Trade figures for June are yet to be released by the Philippine Statistics Authority, but the Bangko Sentral, as Guinigundo pointed out, estimated that even while exports continued to recover, the expanding economy pushed imports higher, particularly of capital goods and raw materials.
“This contributed to the recent downtrend in the peso against the US dollar even as the overall macroeconomic fundamentals remained robust,” Guinigundo said.
The peso has been trading at weak levels beyond P50:$1, hitting a trough of $50.940:$1 on Wednesday. It was the peso’s weakest finish in almost 11 years, or since it settled at P50.945:$1 on August 30, 2006.
‘Forex reserves to drop’
IHS Markit Asia Pacific chief economist Rajiv Biswas in his analysis focused on the year-to-date tally, saying that the payments position of the Philippines deteriorated significantly in the first half of 2017.
Biswas described the BoP balance as “reflecting increasing trade deficits due to strong growth in imports of capital goods and intermediate goods for new investment in manufacturing and infrastructure development.”
Going forward, Biswas said the net external payments position of the Philippines could weaken slightly during the second half of 2017, resulting in extended but modest declines in foreign exchange reserves.
The latest official data shows that the Philippines’ gross international reserves stood at $81.41 billion as of June, falling from previous levels amid dollar outflows from the central bank’s foreign exchange operations and debt payments.
“The combination of the balance of payments deficit and further US Fed rate hikes could continue to result in some modest further Philippine peso depreciation against the US dollar in the second half of 2017,” Biswas said.