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First Quarter 2009 BOP Yields US$1.7 Billion Surplus


The balance of payments (BOP) yielded a surplus of US$1.7 billion in Q1 2009, higher by 1.1 percent than the surplus posted in the same quarter a year ago. This developed even as the overall external environment remained relatively weak due to fragilities prevailing in the global economy. The favorable outturn in the current account more than negated the reversal of the capital and financial account to a net outflow during the quarter. 
As a result of the continued slump in global demand, exports of goods, and consequently raw material imports for exports production declined, contributing partly to the slowdown in the country’s economic activity, with real gross domestic product (GDP) posting a 0.4 percent growth compared to the 3.9 percent growth in Q1 2008. However, the sustained surplus in the BOP in Q1 2009 is expected to support economic activity for the remainder of the year. The recorded surplus in the BOP also boosted the country’s gross international reserves (GIR) level to reach US$39.0 billion as of end-March 2009. This was higher by 3.7 percent compared to the end-December 2008 level of US$37.6 billion. At this level, reserves were equivalent to 6.2 months’ worth of imports of goods and payments of services and income (import cover). In terms of short-term external debt coverage, the reserves level was 5.6 times the country’s short-term external liabilities based on original maturity and 3.0 times based on residual maturity.

First Quarter 2009 Developments

Current Account.  The current account recorded a surplus of US$2.2 billion (equivalent to 5.9 percent of GDP), higher by 69.2 percent compared to the US$1.3 billion surplus in the same quarter last year. The marked improvement was due to higher services and current transfers net receipts coupled with lower trade-in-goods deficit.

The trade-in-goods deficit narrowed by 22.9 percent to US$2.1 billion from the US$2.8 billion deficit recorded in the same quarter last year, given the larger contraction in imports of goods (US$5.2 billion) compared to that of exports of goods (US$4.6 billion). The global economic slowdown continued to take its toll on exports and imports which both posted double-digit declines following the recession in the economies of our traditional trading partners.

Exports of goods reached US$7.7 billion during the quarter. This level was lower than the US$12.3 billion recorded in the same quarter a year ago. Reeling from the impact of weak global demand, exports of goods started to decline in October 2008 and continued through February 2009. Most commodities performed worse than expected as recessionary trends in the country’s major trading partners such as the US, Japan, and China softened demand for foreign goods. Total imports of goods also declined by 34.4 percent, consistent with the slowdown in domestic economic activity and the global economic downturn. Imports of all major commodity groups, except consumer goods, posted double-digit negative growth.  

The trade-in-services account registered a surplus of US$763 million in Q1 2009, higher than the surplus of US$557 million in the same quarter a year ago. The 37.0 percent improvement was due mainly to the combined effects of: a) higher net inflows in computer and information, construction, and other business services, specifically miscellaneous, business, professional and technical services which are comprised largely of business process outsourcing (BPO)-related transactions; and b) lower net outflows in transportation services (arising from lower outlays for freight, due in turn to reduced purchases of foreign goods), and insurance services. These more than offset the contraction in net inflows from travel and communication services.
The income account posted a higher deficit of US$308 million from US$194 million deficit in the comparable quarter a year ago due primarily to increased net payments in the investment income account. The widening of the deficit more than offset the improvement in the gross earnings of resident overseas Filipino (OF) workers which grew by 4.6 percent to US$1.1 billion.

Net receipts from current transfers rose by 4.5 percent to US$3.8 billion from the year-ago level, strengthened mainly by higher remittances of non-resident OFs which rose by 2.2 percent to US$3.5 billion. Remittance flows continued to be shored up by the steady labor demand for Filipino skills abroad, and the wider access to expanded money transfer services by overseas Filipinos and their beneficiaries.

Capital and Financial Account. The capital and financial account in Q1 2009 recorded a net outflow of US$758 million, a reversal of the US$507 million net inflow posted in the same quarter a year ago, on account of the negative balances recorded across the major financial accounts–direct, portfolio and other investments.           

Direct investments in Q1 2009 posted a net outflow of US$8 million from a net inflow of US$272 million in the comparable quarter in 2008. The net outflow was attributable largely to the 83.5 percent decline in non-residents’ investments which stood at US$44 million during the quarter in review (from US$266 million in Q1 2008).  In particular, the other capital account recorded a net outflow, moderating the impact of the net inflows in equity capital and reinvested earnings.

Portfolio investments reversed to a net outflow of US$146 million in Q1 2009 from a net inflow of US$540 million in Q1 2008, as investors remained risk averse amid the global financial stresses. Contributory factors behind the net outflows during the quarter included:  a) net withdrawal of equity securities placements  by  non-residents  in  private  corporations  (US$384 million);    b) bond repayments by the National Government (NG) (US$935 million) and some private corporates (US$21 million); and c) redemption by residents through secondary market purchase from non-residents of foreign currency-denominated bonds issued by the NG (US$254 million), some private corporates (US$144 million) and the BSP (US$16 million).
The other investment account net outflow reached US$651 million in Q1 2009, nearly three times higher than  the net outflow during the comparable quarter last year. Underpinning this development were the following: a) grant of loans by resident banks to non-residents (US$430 million); b) net repayment of maturing short-term loans by resident banks (US$681 million) and some private corporates (US$8 million); and  c) repayment of banks’ other liabilities (accrued interest expense) to non-residents (US$606 million).

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