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Second Quarter 2009 BOP Yields Higher Surplus; First Half Surplus at US$2.2 Billion

09.24.2009

The balance of payments (BOP) yielded a surplus of US$484 million in Q2 2009, more than twice the surplus posted in the same quarter a year ago. The positive outcome in the country’s external payments position reflected the initial signs of global economic recovery and stabilization of the financial market. During the quarter, the current account continued to perform strongly, more than offsetting the net outflow recorded in the capital and financial account. Given the sustained surplus in Q2 2009, the country’s BOP position in the first half of 2009 further strengthened to yield a surplus of US$2.2 billion. 
 
Boosted by a healthy BOP position, the country’s gross international reserves (GIR) level rose to US$39.5 billion as of end-June 2009. This was higher by 5.2 percent compared to the end-December 2008 level of US$37.6 billion. At this level, reserves were equivalent to 6.8 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 6.1 times the amount of the country’s short-term external liabilities based on original maturity and 3.2 times based on residual maturity.

Second Quarter 2009 Developments

Current Account.  The current account surplus more than doubled to US$2.0 billion (equivalent to 5.2 percent of GDP) from US$899 million (equivalent to 2.1 percent of GDP) in the same quarter last year. The main contributory factors were the higher net receipts from current transfers and lower trade-in-goods deficit.

The trade-in-goods account recorded a lower deficit of US$2.5 billion from US$3.7 billion a year ago. The 33.8 percent improvement in the trade balance was brought about by the higher rate of contraction of imports (30.4 percent) compared to that of exports (29.4 percent). Exports of goods dropped to US$9.1 billion from US$12.9 billion in the same period last year caused by the continuing weak global demand even as tentative signs of recovery have started to manifest. On the other hand, imports of goods declined to US$11.5 billion from the US$16.6 billion posted in the same quarter a year ago largely due to falling prices of most commodities following the sluggish global trading activity. All major commodity groups registered double-digit negative growth.

Net receipts in trade-in-services totaled US$129 million in Q2 2009. This level was 51.0 percent lower than the US$263 million surplus posted in the same quarter a year ago due mainly to lower net receipts from travel, communication, and construction services, combined with higher net payments in royalties and license fees, government, and financial services. These negative developments were offset by the higher net receipts in computer and information, other business services, specifically miscellaneous business, professional and technical services, and personal, cultural and recreational services, coupled with lower net payments in insurance and transportation services. The decline in net payments in transportation services can be attributed to reduced outlays for freight, following the contraction in merchandise imports.
    
The income account posted net receipts of US$304 million in Q2 2009, lower than the US$429 million net receipts in the comparable quarter a year ago. The 29.1 percent decline in net income receipts was due primarily to increased net payments in the investment income account which more than offset the 2.6 percent improvement in the gross earnings of resident overseas Filipino workers to US$1.1 billion.
 The current transfers account continued to post net receipts reaching US$4.1 billion, or an expansion of 3.4 percent from the year-ago level. Behind the favorable performance was the sustained growth in remittances of non-resident overseas Filipinos.

Capital and Financial Account.  The capital and financial account in Q2 2009 recorded a US$260 million net outflow, a reversal of the US$436 million net inflow registered in the same quarter a year ago. The decline was largely traced to the net outflow in other investments, which more than offset the net inflows in direct and portfolio investments.     

Direct investments in Q2 2009 recorded a net inflow of US$783 million, more than twice the net inflow of US$309 million in the comparable quarter in 2008. The marked improvement was due to higher foreign direct investments.  In particular, non-residents’ net equity capital investments summing up to US$948 million increased more than four-fold during the review quarter. This reflected favorable investor sentiment given the emerging outlook on improving global economic conditions.

Portfolio investments reversed to a net inflow of US$482 million in Q2 2009 from a net outflow of US$1.6 billion in Q2 2008, as signs of global economic recovery stimulated investor appetite for investment opportunities. Inflows during the review quarter included: a) non-residents’ subscription to the bonds/notes flotation of the Power Sector Assets and Liabilities Management Corporation (PSALM) (US$1.0 billion); b) non-residents’ placements in government securities (US$261 million); c) net resale to non-residents through secondary market trading of foreign currency-denominated Philippine debt papers (US$140 million); and d) maturing bonds/notes placements abroad by some local private corporates (US$116 million). 

The other investment account recorded a net outflow of US$1.6 billion in Q2 2009, a reversal of the net inflow of US$1.6 billion recorded in the same quarter a year ago. The net outflow during the quarter resulted from the following:  a) net loan repayments by the National Government (US$161 million), banks (US$557 million), and corporates (US$827 million); and b) net withdrawal by non-residents of their currency and deposit placements (US$568 million), which resulted in a reduction in outstanding external debt.

January-June 2009 Developments

Current Account. The current account recorded a higher surplus of US$3.9 billion (5.2 percent of GDP) in the first half of the year, compared with the US$2.2 billion surplus in the same period last year. The 81.5 percent improvement was due to the gains posted in the current transfers and trade-in-goods accounts.

Receipts from net current transfers expanded year-on-year by 3.8 percent on account of the 2.7 percent rise in remittances of non-resident overseas Filipinos, which reached US$7.4 billion in the first six months of 2009.

Meanwhile, the trade-in-goods deficit narrowed by 29.7 percent to reach US$4.6 billion from last year’s deficit of US$6.5 billion. While growth in exports and imports of goods remained in the negative territory, the trade-in-goods balance improved in the first half of 2009 due to the higher level of decline in imports (by US$10.3 billion) compared to that of exports (by US$8.3 billion). Nonetheless, the rate of decline in both shipments and purchases of goods decelerated in May and June, which could be early indications of a gradual rebound in trade activity.

On the other hand, the services account posted net receipts of US$596 million, lower by 27.1 percent than the US$818 million net receipts in the same period last year. This came about as a result of lower net receipts from travel and communication, combined with higher net payments in royalties and license fees, financial, and government services. The downward impact of these transactions on the services account were tempered by the gains realized in BPO-related transactions, notably other business services (24.5 percent), and computer and information (45.3 percent), as well as construction (11.8 percent), insurance (30.1 percent) and transportation services (31.2 percent).

The net receipts in the income account went down to only US$6 million from a high of US$229 million in the same period last year. The substantial reduction was due mainly to higher net outflows in investment income due to: a) increased outlays on reinvested earnings and undistributed branch profits; and b) lower income receipts of residents (monetary authorities and private corporations) on their holdings of foreign debt securities and currency and deposit placements abroad. These were partly offset by the gross earnings of resident OFWs which rose by 3.6 percent to reach US$2.2 billion.

Capital and Financial Account.  The capital and financial account in the first half of 2009 reversed to a US$1.0 billion net outflow from the US$891 million net inflow in the same period in 2008. This developed following the reversal of other investments to a net outflow, even as direct and portfolio investments managed to post net inflows.

a) The direct investment account in the first semester of 2009 recorded a net inflow of US$769 million, 44.0 percent higher than the level posted a year ago.  Significant inflows came from foreign net equity capital investments which summed up to US$996 million as the healthier investment climate lifted investor sentiment. Reinvested earnings reversed to a net inflow of US$88 million following investors’ decision to retain part of their earnings in local enterprises/corporations. 

b) The other investment account recorded a net outflow of US$2.3 billion in 2009, a reversal of the US$936 million net inflow realized in the same period in 2008. Contributory factors included: a) net loan repayments by local banks (US$1.0 billion) and some private corporates (US$800 million); and b) non-residents’ net withdrawal of currency and deposit placements in local banks (US$217 million) and some private corporates (US$449 million). 

c) The portfolio investment account reversed to a net inflow of US$372 million from a net outflow of US$582 million in the same period a year ago. This positive development resulted from: a) non-residents’ subscription to the Global Bond flotation by the NG (US$1.5 billion) and PSALM (US$1.0 billion); b) non-residents’ placements in government securities (US$658 million); and c) resident banks and private companies’ net withdrawals of their maturing bonds/notes placements abroad (US$365 million).

Revised 2008 BOP

The BSP will also release the revised BOP statistics for 2008, accompanied by technical notes, to reflect data updates and post-audit adjustments.

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