The balance of payments (BOP) yielded a surplus of US$2.0 billion in Q4 2009, a reversal of the US$1.5 billion deficit registered in the same quarter a year ago. Underpinning the favorable development in the country’s external payments position was the robust performance of both the current and capital and financial accounts during the quarter. The external sector accounts benefited from the modest rebound in global economic activity and improved investor risk appetite particularly for emerging market assets. The Philippine economy’s sound macroeconomic fundamentals likewise contributed to the strong external payments dynamics. As a result of these positive developments in Q4 2009, the country’s BOP position in 2009 surged to a US$5.3 billion surplus from only US$89 million in 2008 as the global economic recovery gained headway and as the relative strength of the country’s underlying macroeconomic fundamentals encouraged capital inflows into the domestic economy.
Supported by a robust BOP position, the country’s gross international reserves (GIR) rose to US$44.2 billion as of end-December 2009. This was higher by 17.8 percent compared to the end-December 2008 level of US$37.6 billion. At this level, reserves could adequately cover 9.0 months’ worth of imports of goods and payments of services and income. In terms of short-term external debt coverage, the reserves level was 9.9 times the amount of the country’s short-term external liabilities based on original maturity and 4.2 times based on residual maturity.
Fourth Quarter 2009 Developments
Current Account. The current account balance posted a higher surplus of US$2.7 billion (equivalent to 5.8 percent of GDP) compared to the US$2.3 billion surplus (equivalent to 5.3 percent of GDP) in the same quarter in 2008, supported mainly by higher net receipts of current transfers and income, combined with the lower trade-in-goods deficit.
The trade-in-goods deficit narrowed to US$2.0 billion from US$2.2 billion in the same quarter a year ago following the rebound in merchandise trade in November and December. Exports growth (4.9 percent) outpaced that of imports (2.6 percent) during the quarter in review. After registering monthly declines since October 2008, exports of goods posted positive growth in November and December as demand from major trading partner countries started to pick up. Exports during the quarter rose to US$10.5 billion from US$10.0 billion in the comparable period a year ago. Consistent with the developments in exports in the last two months of 2009, imports of goods rose to US$12.5 billion in Q4 2009 from US$12.2 billion in the same period a year ago. The increase in imports was observed across all commodity groups.
The trade-in-services account yielded net receipts amounting to US$304 million in Q4 2009. This level was, however, lower by 40.2 percent than the US$508 million surplus posted in the same quarter in 2008 as a result of higher net payments for travel, transportation, operational leasing, government, financial and personal, cultural and recreational services combined with lower net receipts from communication and construction services. The downward pull of these transactions on the trade-in-services balance was partly mitigated by the higher net receipts in business process outsourcing (BPO)-related transactions, namely: miscellaneous business, professional and technical services which grew by 6.0 percent to US$901 million, and computer and information services which expanded by 5.2 percent to reach US$385 million during the quarter.
The income account posted a surplus of US$256 million in Q4 2009, a reversal of the US$17 million deficit recorded in the same quarter in 2008. The turnaround in the income account was due primarily to the 40.7 percent increase in the gross earnings of resident overseas Filipino (OF) workers, which reached US$1.2 billion in the review period. This favorable development more than offset the 8.8 percent increase in net payments of investment income arising from: a) higher net income payments by residents to affiliated enterprises abroad (by 6.5 percent); b) higher net income payments on portfolio investments abroad (by 340.5 percent) due to increased dividends distributed by private corporations to non-resident portfolio equity investors; and c) higher net interest payments on loans incurred by the general government and private corporations.
Net receipts from current transfers grew by 5.0 percent to reach US$4.2 billion from the year-ago level, buoyed primarily by the 4.2 percent increase in remittances from non-resident OFs. Strong remittance flows aggregating almost US$4.0 billion were underpinned by: a) sustained overseas demand for Filipino workers; b) the conduct of bilateral talks with host countries which continues to open up new employment opportunities abroad for Filipinos and facilitate hiring of displaced workers who were affected by the global economic meltdown; and c) the continued expansion of bank and non-bank service providers’ shares of the global remittance market as well as the introduction of innovative products and services that cater to remitters’ financial needs.
Capital and Financial Account. The capital and financial account in Q4 2009 reversed to a net inflow of US$840 million from a net outflow of US$3.5 billion in Q4 2008. The rebound was largely due to the sizable amount of net inflows of direct and portfolio investments, even as other investments posted a slightly higher net outflow.
Direct investments in Q4 2009 reverted to a net inflow of US$251 million, a turnaround from the net outflow of US$51 million in Q4 2008. The marked improvement was largely due to higher non-residents’ investments (US$345 million) during the quarter in review, specifically in the other capital account (US$233 million). Net intercompany loan availments of local utilities firms from their parent companies abroad boosted the other capital account during the review quarter.
Portfolio investments reversed to a net inflow of US$1.8 billion in Q4 2009 from a net outflow of US$2.1 billion in Q4 2008. Buoyed by the country’s resiliency on the back of sound macroeconomic fundamentals, investors responded positively to the equity and debt securities offerings in Q4 2009. Trading in the local stock market was robust during the review quarter, with the volume of trading rising to 141,858 million shares in Q4 2009, from only 79,490 million shares traded in Q4 2008.
The net outflow of other investments widened to US$1.2 billion in Q4 2009, from the US$1.1 billion net outflow recorded in the same quarter in 2008. The net outflow during the quarter resulted from the following: i) loans extended by resident banks to non-residents (US$979 million); ii) currency and deposit placements abroad by resident banks (US$994 million) and private corporations (US$378 million); and iii) loan repayments by the NG (US$283 million), banks (US$251 million), and corporations (US$396 million).
January-December 2009 Developments
Current Account. The current account recorded a higher surplus of US$8.6 billion for 2009, equivalent to 5.3 percent of GDP. The more-than-twofold increase over the US$3.6 billion surplus recorded in 2008 was brought about by the favorable performance of all the components of the current account, except the income account.
The merchandise trade deficit narrowed to US$8.9 billion, a notable improvement (31.1 percent) relative to the US$12.9 billion shortfall recorded last year. This developed as the drop in imports exceeded the contraction in exports. With weak global trade prevailing until October 2009, exports of goods for the full year 2009 contracted by 22.3 percent as all major export commodity groups posted declines, except for sugar and products. Meanwhile, imports fell by 24.1 percent due to the contraction in all major commodity groups given weak global prices of most commodities.
The trade-in-services account recorded net receipts of US$1.5 billion in 2009, 32.7 percent higher than the US$1.2 billion surplus recorded in 2008. This developed due largely to the gains registered in BPO-related transactions as reflected in higher net receipts from miscellaneous business, professional and technical services as well as computer and information services which expanded by 16.0 percent and 11.0 percent, respectively. On the other hand, lower net payments for transportation and insurance services also contributed to the strong performance of the trade-in-services account.
By contrast, the income account reversed to a deficit of US$69 million compared to the year-ago surplus of US$111 million. The reversal was caused by higher net income payments by residents to affiliated enterprises (by 19.9 percent) and to portfolio investors (by 35.6 percent), as well as lower net interest income receipts on currency and deposit placements by the monetary authorities and corporations due to the decline in global interest rates. These developments negated the 12.0 percent growth in earnings of resident OFWs which reached US$4.6 billion during the year.
Net current transfers receipts rose year-on-year by 4.7 percent to US$16.0 billion, mainly on account of the 4.2 percent growth in remittances of non-resident OFs to US$15.1 billion in 2009.
Capital and Financial Account. Net outflows in the capital and financial account widened to US$2.0 billion in 2009 from US$1.8 billion in 2008. This developed as the other investment account reversed to a net outflow from a net inflow recorded a year ago, notwithstanding the robust gains posted by direct and portfolio investments.
a) The direct investment account in 2009 continued to record a net inflow of US$1.6 billion, 23.7 percent higher than the level posted a year ago. Non-residents’ investments grew year-on-year by 26.2 percent as all direct investment components recorded positive balances. The country continued to attract foreign investments in 2009 as investors recognized the relative strength of the country’s underlying macroeconomic fundamentals, with inflation continuing to be low and falling within target, the external payments position remaining favorable and economic growth showing resilience as a result of the strength in domestic demand.
b) The portfolio investment account reversed to a net inflow of US$1.4 billion from a net outflow of US$3.8 billion in the same period a year ago. This positive development resulted from a combination of transactions by non-residents, particularly subscription to the bond flotation by the NG (US$3.3 billion), PSALM (US$2.2 billion), and private corporations (US$500 million) as well as placements in government securities (US$1.2 billion); and resident banks’ maturing bonds/notes placements abroad (US$279 million).
c) The other investment account posted a net outflow of US$5.1 billion in 2009, a turnaround from the US$771 million net inflow in 2008. Contributory factors to the net outflow include: i) net loan repayments by local banks (US$1.0 billion) and some private corporates (US$740 million); ii) non-residents’ net withdrawal of currency and deposit placements in local banks (US$134 million) and some private corporations (US$404 million); and iii) loans extended abroad by resident banks to non-residents (US$2.2 billion).
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.
Read Full Report