The balance of payments (BOP) yielded a surplus of US$1.1 billion in Q3 2009, a reversal of the US$394 million deficit registered in the same quarter a year ago. The favorable outcome in the country’s external payments position was due to the strong performance of the current account which more than compensated for the lower net inflow recorded in the capital and financial account. As a result of these favorable developments in Q3 2009, the country’s BOP position in the first nine months of 2009 strengthened to yield a surplus of US$3.3 billion.
Boosted by a healthy BOP position, the country’s gross international reserves (GIR) rose to US$42.5 billion as of end-September 2009. This was higher by 13.3 percent compared to the end-December 2008 level of US$37.6 billion. At this level, reserves could sufficiently cover 7.9 months’ worth of imports of goods and payments of services and income. In terms of short-term external debt coverage, the reserves level was 7.9 times the amount of the country’s short-term external liabilities based on original maturity and 3.8 times based on residual maturity.
Third Quarter 2009 Developments
Current Account. The current account balance reversed to a net inflow of US$2.0 billion (equivalent to 5.2 percent of GDP) from a net outflow of US$438 million in the same period last year, mainly as a result of higher net inflows of current transfers and income, coupled with a lower trade-in-goods deficit.
The merchandise trade deficit narrowed further to US$1.9 billion from US$4.2 billion a year ago as the year-on-year contraction in import payments (29.8 percent) outpaced the decline in exports sales (22.0 percent) during the quarter. Exports dropped to US$10.2 billion, lower than the level posted in the same quarter a year ago, but the contraction was less than the declines posted in the first two quarters of the year, reflecting incipient signs of stabilization in advanced economies. Imports of goods declined to US$12.1 billion, down by 29.8 percent from US$17.3 billion in the same quarter last year. The contraction in the import bill was driven in part by lower commodity prices as a result of the still weak global demand as well as lower volumes of key import goods.
Net receipts in trade-in-services reached US$37 million in Q3 2009, lower by 82.0 percent than the US$206 million surplus posted in the same quarter last year. The lower net receipts for the quarter were traced to travel and other business services, specifically miscellaneous business, professional and technical services, coupled with higher net payments in royalties and license fees, and financial services. In contrast, higher net receipts in communication, construction services, and computer and information services, as well as lower net payments in insurance and transportation services were noted.
The income account posted a surplus of US$16 million in Q3 2009, a turnaround from the net payments of US$95 million recorded in the same quarter a year ago. This favorable development was due to the 3.9 percent increase in the gross earnings of resident overseas Filipino (OF) workers, which reached US$1.1 billion.
Similarly, net receipts from current transfers increased by 6.9 percent to US$3.9 billion from the year-ago level, boosted primarily by the 7.6 percent increase in remittances from non-resident OFs. Robust remittance flows amounting to US$3.8 billion were shored up by strong overseas demand for Filipino workers, on account of the diversity and quality of their skills. The level of remittances also drew support from the expanded presence of local banks and non-bank remittance agents in countries with large concentration of OFs, through enhanced partnerships and tie-ups with foreign financial counterparts.
Capital and Financial Account. The capital and financial account in Q3 2009 recorded a net inflow of US$147 million, but this was lower by 68.9 percent than the net inflow recorded in the comparable quarter a year ago. Contributing largely to the decline was the net outflow in other investment, which offset the positive balances posted in direct and portfolio investments.
Direct investments in Q3 2009 posted a net inflow of US$249 million. This was, however, only nearly half the US$480 million net inflow recorded in the same period in 2008. The net inflow was traced to the positive balances across the major foreign direct investment accounts.
Lifted by improving global economic conditions as well as stronger investor risk appetite, portfolio investments reversed to a net inflow of US$1.2 billion in Q3 2009 from a net outflow of US$1.1 billion in Q3 2008. Net inflows of portfolio investment resulted from non-residents’ subscription to the bond flotations by the National Government (NG) (US$750 million), and by corporations (US$500 million), as well as the net resale to non-residents of foreign currency-denominated bonds issued by the NG (US$123 million).
The other investment account reversed to a net outflow of US$1.4 billion in Q3 2009 from a net inflow of US$986 million in Q3 2008. Behind this development were: i) the grant of loans by resident banks to non-residents (US$389 million); ii) currency and deposit placements abroad by residents (US$722 million); iii) net repayment of maturing long-term loans by some private corporations (US$95 million); iv) net withdrawal by non-residents of currency and deposit placements with local banks (US$190 million); and v) net repayment of short-term trade credits by private corporations (US$461 million).
January-September 2009 Developments
Current Account. Despite challenging global economic conditions, the country’s current account recorded a higher surplus of US$6.2 billion (equivalent to 5.4 percent of GDP) in the first nine months of the year. This was more than thrice the US$1.7 billion surplus recorded in the same period last year. This developed as the more favorable performance of the current transfers and trade-in-goods accounts more than offset the relatively weaker balances in the services and income accounts.
Net current transfers receipts rose year-on-year by 4.9 percent, on account of the 4.3 percent rise in remittances of non-resident OFs to US$11.2 billion in the first nine months of 2009.
Meanwhile, the merchandise trade deficit narrowed to US$6.5 billion, a marked improvement (39.4 percent) from the US$10.7 billion shortfall recorded last year, as the decline in imports outpaced the drop in exports. Reflecting weak external demand, exports of goods for the first nine months plummeted by 29.3 percent as all major export commodity groups posted declines except for sugar and products. Meanwhile, imports fell by 31.5 percent due to the contraction in the global prices of most commodities, particularly mineral fuels and lubricants, and raw material inputs for electronics exports (which comprised 29.4 percent of total import payments) following the soft demand for electronic products.
The services account continued to post a surplus during the first nine months of the year. However, net receipts fell by 17.1 percent to US$849 million from US$1.0 billion last year, due largely to the decline in travel and communication services. The travel industry continued to falter, with net travel receipts dropping by 84.6 percent to US$266 million as the estimated average amount of tourists’ spending in the country declined. Moreover, higher net payments of government and financial services, and royalties and license fees contributed to the lower surplus in the services account. Moderate increases in services receipts, were, however, realized in BPO-related accounts, i.e., computer and information (33.8 percent), as well as miscellaneous business, professional and technical services (28.9 percent).
Net receipts in the income account reached US$32 million, lower by 76.1 percent than the US$134 million recorded in the same period last year. Gross earnings of resident OFWs grew by 3.7 percent to reach US$3.4 billion in the first nine months of the year. This was, however, negated by the higher net payments of investment income, particularly higher income payments made by residents to affiliated enterprises and lower income receipts from portfolio investors abroad.
Capital and Financial Account. The capital and financial account in the first nine months of 2009 reversed to a net outflow of US$1.7 billion, a turnaround from the US$1.4 billion net inflow posted in the same period a year ago. The capital and financial account was pulled down by the risk aversion and weak market sentiment that prevailed during most of the review period, particularly the first and second quarters The sharp reversal of the other investment account to a net outflow largely mirrored this development, even as direct and portfolio investments recorded net inflows.
a) The direct investment account from January to September 2009 continued to post net inflows which amounted to US$1.0 billion, following higher non-residents’ investments (US$1.3 billion). This developed as equity capital and reinvested earnings posted net inflows during the period. Encouraged by the country’s sound macroeconomic fundamentals, equity capital infusion reached US$1.3 billion, up by 26.3 percent from the year-ago level. Reinvested earnings reversed to a net inflow of US$114 million as investors opted to retain earnings/profits in local enterprises following better-than-expected corporate earnings results in the first half of 2009. By contrast, other capital reversed to a net outflow of US$164 million on account of higher trade credits extended to affiliates abroad and intercompany loan repayments to foreign direct investors.
b) The portfolio investment account also turned around to a net inflow of US$1.5 billion in the first three quarters of 2009 from a net outflow of US$1.7 billion in the comparable period in 2008. Contributory factors include: i) non-residents’ subscription to the bond issuances by the NG (US$2.3 billion), corporations (US$500 million), and PSALM (US$1.0 billion); and ii) maturing bonds/notes placements abroad by residents (US$434 million).
c) The other investment account meanwhile reversed to a net outflow of US$4.4 billion from January to September 2009 owing largely to a number of factors: i) grant of loans by local banks to non-residents (US$1.2 billion); ii) net loan repayments by local banks (US$757 million), and some private corporations (US$892 million); iii) non-residents’ net withdrawal of currency and deposit placements in local banks (US$843 million); and iv) residents’ currency and deposit placements abroad (US$1.4 billion).
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