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First Quarter 2007 BOP Yields a Surplus of US$1.4 Billion


The country’s balance of payments (BOP) posted a surplus of US$1.4 billion in the first quarter of 2007, due mainly to the strong current account and net inflows of direct and portfolio investments. Ample foreign exchange flows allowed residents (i.e., the BSP and the private sector) to accumulate foreign assets and prepay some of their debt, thus, tempering the BOP surplus for the quarter which was lower by 33.1 percent relative to the level in comparable period a year ago.

These developments in the BOP led to the rise in the BSP’s gross international reserves (GIR), including reserve position with the IMF, to US$24.7 billion as of end-March 2007. This was higher by 7.5 percent than the end-December 2006 GIR level of US$23.0 billion. At this level, the GIR was equivalent to 4.6 months’ worth of imports of goods and payment of services and income (import cover). In terms of short-term debt coverage, the reserve level was 4.9 times the amount of the country’s short-term external liabilities based on original maturity and 2.7 times based on residual maturity.

Current Account

The continued surplus in the current account at US$1.8 billion was traced to increased revenues from exports of goods and remittances from overseas Filipinos (OFs). The current account balance, which has been in surplus since 2003, was equivalent to 5.8 percent of GDP, the highest ratio recorded since 2005. 

a)  Trade-in-Goods Account

The trade-in-goods account registered a lower deficit of US$1.2 billion compared to a deficit of US$1.5 billion in the same quarter last year as exports growth at 12.0 percent outpaced that of imports at 7.5 percent.

Total exports of goods increased to US$12.0 billion from US$10.7 billion in the comparable period a year ago, driven by higher demand for key export commodities, particularly manufactures and mineral products. Shipments of other export goods such as fruits and vegetables and other agro-based products also lent support to the double-digit expansion in goods exports. Meanwhile, imports of goods rose to US$13.1 billion from the year-ago level of US$12.2 billion due to higher purchases across major commodity groups, particularly raw materials and intermediate goods, as well as capital goods. Increased imports of these commodity groups provided inputs for exports, supported the domestic requirements of the economy, and enabled the expansion of productive capacity.

b) Services Account

The deficit in the trade-in-services account widened to US$143 million in the first quarter from only US$13 million a year ago. The higher deficit resulted from higher net outflows in transportation (largely freight services, consistent with higher imports), as well as financial and government services. Furthermore, lower net inflows were posted in communication, construction, computer and information, other business, and personal, cultural and recreational services. These developments offset the gains posted in travel, insurance services, and royalties and fees.

 c) Income Account

The income account registered a higher deficit of US$323 million compared to the year-ago level of US$226 million. The 42.9 percent increase in net outflows was due to: a) increased payment of dividends and profits, following increased direct and portfolio investments in the previous year; and b) higher interest payments on banks and private corporations’ borrowings due to the increase in global interest rates. These developments overshadowed the 13.7 percent rise in the gross earnings of resident overseas Filipino workers (OFWs) which amounted to US$723 million.

d)  Current Transfers

Net receipts from current transfers grew by 18.3 percent to US$3.4 billion from the year-ago level of US$2.9 billion, buoyed mainly by the 19.0 percent increase in remittances from non-resident overseas Filipinos to US$3.2 billion. This favorable outcome was mainly the result of innovative remittance schemes offered by financial institutions, and enhanced links with remittance centers overseas, therefore, increasing access to financial services and facilitating transfers by overseas-based Filipinos to their beneficiaries.

Capital and Financial Account

The capital and financial account surplus contracted by about 90 percent to US$154 million from US$1.4 billion during the comparable quarter in 2006. While both the direct and other investment accounts improved, there was a significant decline in net inflows of portfolio investments as residents’ investments abroad rose by more than fivefold.  In particular, domestic banks’ placements in foreign debt securities rose appreciably during the review quarter.

a)  Direct Investments

Net direct investment inflows grew by 12.5 percent to US$638 million relative to the level posted in the same quarter in 2006 due to the more than twofold increase in non-residents’ net equity capital placements to US$682 million. In particular, gross placements of equity capital almost doubled to US$755 million from US$382 million in the same period a year ago. The bulk of these investments came from the U.S., Japan, Singapore, and Korea. Major recipient industries included manufacturing, services, mining, real estate, financial intermediation, agriculture, and construction.

b)  Portfolio Investments

The portfolio investment account recorded a net inflow of US$376 million during the review quarter, significantly lower than the US$1.7 billion net inflow posted in the comparable quarter last year. Contributing to the contraction in the net portfolio investment inflow was the more than fivefold rise in residents’ investment abroad, specifically net placements in debt securities by domestic banks which amounted to US$1.2 billion from only US$245 million in the same quarter last year. This, in part, reflected residents’ better financial position, following stronger current account receipts, and, therefore, greater capacity to accumulate foreign assets.

c)  Other Investments

The net outflow in the other investment account slightly declined to US$815 million from US$838 million in the same quarter last year. Contributory factors included programs loans of the National Government, and loan availments by banks. These inflows, however, were offset by the loan repayments of both the public and private sectors, as well as prepayments for loans maturing in September 2007 onwards. 

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