The balance of payments (BOP) in 2008 yielded a surplus of US$89 million. This developed notwithstanding the US$1.5 billion deficit posted in Q4 2008 amidst the challenges posed by the stresses in the global financial markets and the economic downturn in the advanced economies. The 2008 external payments position was, however, markedly lower compared to the US$8.6 billion surplus posted in 2007. Both the current account and the capital and financial account posted weaker performances, reflecting the strains in the external environment.
With the continued surplus in the BOP, gross international reserves (GIR) rose to US$37.6 billion as of end-December 2008. This was higher by 11.2 percent compared to the end-December 2007 level of US$33.8 billion. At this level, reserves were equivalent to 6.0 months’ worth of imports of goods and payment of services and income (import cover). In terms of short-term external debt coverage, the reserves level was 4.2 times and 2.7 times the amount of the country’s short-term external liabilities based on original maturity and based on residual maturity, respectively.
Fourth Quarter 2008 Developments
Current Account. Despite the global economic downturn, the current account registered a higher surplus of US$2.3 billion (equivalent to 5.2 percent of GDP) compared to US$2.0 billion (4.7 percent of GDP) during the same period in 2007. Underpinning the 11.8 percent rise in the current account surplus were higher net inflows from current transfers, the reversal of the income account to a net inflow, and the lower deficit in trade-in-goods.
Net receipts from current transfers rose modestly by 1.6 percent to US$4.0 billion from the year-ago level, driven mainly by higher remittances of non-resident overseas Filipinos which rose by 3.2 percent to US$3.8 billion. Sustained demand for Filipino manpower worldwide—particularly professional and skilled workers—combined with greater access by overseas Filipinos and their beneficiaries to expanded remittance transfer facilities helped shore up remittance flows.
The income account reversed to a surplus of US$6 million from a US$61 million deficit recorded in the comparable quarter a year ago. Mainly contributing to this favorable development was the higher gross earnings of resident overseas Filipino workers (OFWs), which reached US$861 million, reflecting a year-on-year expansion of 12.1 percent. The surplus was, however, moderated by decreased income receipts from holdings of debt securities by corporations as well as decreased income derived from banks’ currency and deposit placements abroad following the decline in global interest rates.
The trade-in-goods deficit narrowed by 19.2 percent to US$2.1 billion from US$2.6 billion in the previous year as the decline in merchandise imports (US$3.3 billion) exceeded that of merchandise exports (US$2.8 billion). Weak demand, tight global credit conditions, and declining commodity prices affected both exports and imports of goods.
Capital and Financial Account. The net outflow in the capital and financial account in Q4 2008 reached US$3.3 billion, from the US$143 million net outflow recorded in the comparable quarter of the previous year. The outturn was due to the net outflow of portfolio investments and other investments following the unfolding of the global financial crisis.
Direct investments in Q4 2008 posted a net inflow of US$201 million, although this level was 17.6 percent lower than that recorded in the same quarter in 2007. In particular, foreign direct investments registered a net inflow of US$265 million, albeit lower than the US$291 million net inflow in the same quarter in 2007. Specifically, non-residents’ equity capital investments rose by 91.3 percent in Q4 2008 to reach US$241 million. The country continued to attract investors from the U.S., Hong Kong, United Kingdom, Japan, Singapore, and the Netherlands. Foreign equity capital was infused mainly into the financial institutions, construction, mining, and real estate sectors.
Portfolio investments in Q4 2008 reversed to a net outflow of US$1.5 billion from a net inflow (US$659 million) posted in Q4 2007, following investors’ concerns over the weak global economic outlook and the spillover of the financial strains in advanced economies to emerging capital markets. Major outflows during the quarter include: a) net withdrawals of equity securities placements by non-residents in private corporations (US$714 million); b) net purchases by residents of locally issued foreign currency-denominated bonds (US$324 million) to take advantage of the wider discounts of these bonds in the secondary market, and local banks (US$34 million); and c) net bond repayments by banks (US$114 million) and the private sector (US$88 million).
The net outflow of other investments in Q4 2008 widened to US$1.8 billion from US$938 million in the comparable quarter a year ago. Behind this development were the: a) net repayment of trade credits by the private sector (US$1.2 billion); and b) non-residents’ net withdrawal of their currency and deposit placements particularly with local banks (US$1.1 billion).
January-December 2008 Developments
Current Account. The current account remained in surplus at US$4.2 billion (equivalent to 2.5 percent of GDP), but this was lower by 40.6 percent from the previous year’s surplus of US$7.1 billion (4.9 percent of GDP). The sustained surplus in the current account can be traced to the expansion in net current transfers receipts particularly due to robust remittances and the surplus of net income flows. These positive developments were, however, dampened by lower net services inflows and the higher trade-in-goods deficit.
Net current transfers receipts grew by 7.6 percent to US$15.2 billion, as a result mainly of the 9.7 percent rise in remittances of non-resident overseas Filipinos amounting to US$14.5 billion in 2008. The income account reverted to a surplus of US$146 million from a deficit of US$892 million due mainly to higher gross earnings of resident OFWs which rose by 35.0 percent to reach US$4.1 billion in 2008. Services posted a net inflow of US$1.4 billion. This was, however, 36.1 percent lower than the US$2.2 billion surplus in 2007. Lending support to the surplus in the services account in 2008 were the net receipts from computer & information services and other business services largely on account of increased earnings from business process outsourcing (BPO) related-activities, notably contact centers, software development, medical transcriptions and animation. On the other hand, the trade-in-goods deficit widened by 49.9 percent in 2008 to reach US$12.6 billion from last year’s deficit of US$8.4 billion due to the combined effects of a contraction in exports (by 2.6 percent) and expansion in imports (by 5.0 percent).
Capital and Financial Account. The capital and financial account in 2008 reversed to a net outflow of US$1.9 billion, a turnaround from the net inflow of US$3.5 billion in 2007, pulled down by cautious investor sentiment in the last quarter of 2008 in the wake of the global economic crisis. Both portfolio and other investments posted net outflows, more than offsetting the net inflow in direct investments. The portfolio investment account reversed to a net outflow of US$2.6 billion from a net inflow of US$4.6 billion in 2007. Contributing to this development were the following: a) net bond repayments by the NG (US$831 million), corporates (US$1.6 billion), the BSP (US$43 million), and banks (US$224 million); and b) net withdrawals by non-residents of their equity securities holdings in banks and private companies (US$1.3 billion). These outflows were cushioned by maturing debt securities placements abroad by resident banks totalling US$1.5 billion. The other investment account recorded a net outflow of US$522 million in 2008, more than twice the net outflow in 2007 due to net loan repayments by local banks (US$487 million), and some private corporations (US$2.5 billion); and non-residents’ net withdrawal of currency and deposit with local banks (US$204 million).
Meanwhile, the direct investment account in 2008 reversed to a net inflow of US$1.3 billion from a net outflow of US$620 million in the previous year. This improvement resulted from the significantly lower net equity capital investments abroad by residents to US$237 million from US$3.5 billion in 2007. Meanwhile, foreign direct investments posted net inflows in 2008 of US$1.5 billion, lower than the US$2.9 billion net inflows in 2007 following the declines recorded in the major FDI accounts. Net equity capital flows in 2008 amounted to US$1.4 billion, or 30.7 percent lower than the year-ago level. The U.S., Japan, Singapore, South Korea, Germany, Malaysia, Taiwan, Hong Kong, United Kingdom, and the Netherlands were the major sources of equity capital flows. The bulk of these inflows were channeled to the following sectors: manufacturing (shipbuilding/repair, auto electronics parts/ components, paper/cigarette/tobacco products), services (recreational/cultural), mining, construction (hotel/resort/water spa development, power plant facility, global gateway and logistics hub), utilities, real estate, trade/commerce, and financial institutions.
Revision of 2007 BOP Statistics
The BSP also announces the dissemination of the revised 2007 BOP statistics, together with the release of the Q4 and full-year 2008 BOP report. The 2007 revised BOP statistics are being released with accompanying technical notes on the reasons for the revisions, which pertain mainly to data updates from various sources and post-audit adjustments.
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