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2007 Philippine Flow of Funds Report Shows Net Lending to Non-Residents


The BSP has released the 2007 Flow of Funds (FOF) Report. The FOF presents a summary of financial transactions among the different institutions of the economy, and between these institutions and the rest of the world.  It identifies which institutions are net borrowers and net lenders in the series of financial transactions.  Institutions are categorized into four (4), namely, 1) financial corporations, 2) non-financial corporations, 3) the General Government (GG), and 4) the household sector.


1. All sectors generated savings in 2007 due to the robust performance of the domestic economy. 

All sectors yielded savings in 2007, boosted by the favorable domestic economic performance, with real Gross Domestic Product growing by 7.2 percent—the highest recorded in 31 years. The non-financial corporate sector recorded the highest savings at P642 billion attributed to the combined effects of strong revenues and better-managed operating expenses, helped in turn by lower inflation rate and domestic interest rate environment in 2007. The most profitable industries in 2007 were manufacturing, wholesale and retail, real estate, transport, communication and storage, and electricity, gas and water.  The household sector remained the second largest saver generating P381 billion savings. This represented an increase by 6.5 percent from last year’s level following the steady inflow of cash remittances from overseas Filipinos and the lower national unemployment rate at 7.3 percent during the year (from 8.0 percent in 2006).  Meanwhile, the General Government (GG)—which consists of the national and local governments and social security agencies—  realized a savings of P204 billion, recording the fastest annual growth at 76.0 percent. This was bolstered by the substantial improvement in revenues on account of the robust domestic production, which increased the tax base, and improved administrative efficiency of collecting agencies. Moreover, fiscal savings was supported by lower growth in current operating expenditures, due in turn to the decline in interest payments.  The financial corporations sector remained a net saver, but its savings at P76 billion declined by 10.2 percent from last year, as the non-bank financial corporations turned in lower profit in 2007.  This development arose mainly from the lower net income of the banking sector, specifically from trading activities, and higher miscellaneous costs (such as advertising and marketing expenses) and other expenses incidental to bank mergers.

2. Growth in real investments is generally broad-based.

Gross capital accumulation (or real investment) grew by 15.9 percent, with growth evident across all institutions except for the financial sector. The non-financial sector’s capital outlays—accounting for about half of the country’s capital accumulation in 2007—grew by 8.1 percent on account of the private corporations’ expenditures on buildings and structures. The household sector, which contributed more than a third of the total gross capital accumulation, also recorded an 18.5 percent increase in its annual capital accumulation primarily in dwelling units. Meanwhile, the general government recorded the highest growth in real investments at 45.3 percent to P174 billion, largely on infrastructures.  By contrast, the capital accumulation in the financial sector fell by 4.6 percent as growth in the acquisition of real assets was outpaced by the growth in the disposal of bad assets. This is in line with the banks’ continued commitment to clean up their books, which was facilitated by more disposition venues such as Special Purpose Vehicles, joint venture agreements and public auctions.

3.  The country remains a net lender to non-residents.

The country’s net lending to non-residents grew modestly by 4.5 percent to P293 billion in 2007 from P280 billion in 2006, with all sectors as net lenders.  The non-financial corporate sector continued to outperform the other sectors with its P172 billion net lending, largely in the form of trade credits and in currency and deposits.  The household sector ranked as the second highest net lender at P50 billion, the bulk of which was in the form of currency and deposits. Meanwhile, the general government posted a turnaround from being a net borrower in 2006 to being a net lender in 2007 by P34 billion. This was the first time that the general government became a net lender since 2000. The favorable balance sheets of the social security agencies and the lower deficit of the national government, due in turn to fiscal consolidation, contributed to this development.  The financial corporations continued to be a net lender at P37 billion in 2007.  This level was lower compared to P44 billion in 2006.  Bulk of this net lending was extended to the domestic market.

4.  Net lending to non-residents is mostly in the form of securities. 

Net lending by the domestic economy to non-residents in 2007 was mostly in the form of securities, a shift from loan-based lending in 2006. Residents’ net purchase of securities surged by more than tenfold to P284 billion in 2007 from P28 billion in 2006.  Deposits abroad were the second widely used investment instrument amounting to P211 billion. In general lenders to the rest of the world were mostly banks, while borrowers from abroad  involved mostly non-banks.

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