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First Quarter 2010 BOP Yields US$1.4 Billion Surplus


The balance of payments (BOP) yielded a surplus of US$1.4 billion in Q1 2010. This was lower by 21.3 percent compared to the US$1.7 billion surplus registered in the same quarter a year ago. This developed as a result of the weaker performance of the current account even as the capital and financial account posted a significant improvement.

As a result of the favorable external payments position, the country’s gross international reserves (GIR) as of the first quarter of 2010 rose to US$45.6 billion, 16.8 percent higher than the year-ago level of            US$39.0 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 11.4 times the amount of the country’s short-term external liabilities based on original maturity and 5.1 times based on residual maturity.

First Quarter 2010 Developments

Current Account.  The current account remained in surplus at US$1.8 billion (equivalent to 4.4 percent of GDP), but posted a modest decline of almost one percent relative to the level of a year ago. The lower current account surplus emanated from the higher trade-in-goods deficit and net income payments as well as lower net services receipts. Meanwhile, higher net receipts from current transfers were registered during the period driven mainly by higher remittances of non-resident overseas Filipinos (OFs).

The trade-in-goods deficit, amounting to US$2.3 billion, rose by 1.5 percent compared to the deficit recorded in the same quarter a year ago. On a year-on-year basis, imports during the quarter increased by a slightly higher level than those of exports. These developments reflected the pick-up in domestic economic activity and improved external demand given firmer signs of the global economic recovery. Exports of goods increased significantly by 43.5 percent to US$11.1 billion, reversing the 37.1 percent contraction recorded in the same quarter a year ago as demand from traditional export destinations such as the US, Japan, and China experienced a strong revival. Major export commodities, particularly electronic products which are import-dependent, bounced back during the quarter. In particular, stronger-than-expected gains in export revenues were observed in manufactured goods (notably electronics, machinery and transport equipment, and chemicals); mineral; coconut; petroleum; and other  agro-based products. On the other hand, imports of goods expanded by   34.0 percent to US$13.4 billion, tracking the sharp increase in export earnings during the period in review. Coming from a low base like exports, imports registered strong positive growth across all major commodity groups.

The trade-in-services account registered a surplus of US$826 million in Q1 2010, slightly lower than the US$855 million surplus in the same quarter a year ago. The 3.4 percent decline was due mainly to higher net payments in travel, construction, transportation (notably payments for freight, in line with the rise in imports of goods), financial, royalties and license fees and government services. These were, however, mitigated by the gains posted in computer and information, communication and other business services, specifically miscellaneous, business, professional, and technical services which are comprised largely of business process outsourcing (BPO)-related transactions.

The income account recorded a higher deficit of US$596 million from US$553 million deficit in the same quarter a year ago. This resulted primarily from increased net payments in the investment income account which more than offset the improvement in the gross earnings of resident overseas Filipino workers by 11.2 percent to US$1.2 billion. The major contributory factors to the larger investment income deficit were: a) higher net income payments on portfolio investments (by 15.4 percent) due to increased dividends distributed by banks and private corporations to non-resident portfolio equity investors; b) higher net income payments by residents to direct investors abroad  (by 9.9 percent) specifically dividends and distributed branch profits; c) higher interest payments on bonds issued by the general government (by 1.5 percent); and  d) lower interest income receipts from holdings of debt securities by the monetary authorities (19.8 percent) and corporations  (41.3 percent) due to declining global interest rates.

Net receipts from current transfers rose by 2.4 percent to US$3.9 billion from the year-ago level, bolstered by higher remittances of non-resident OFs which grew by 5.9 percent to US$3.7 billion. The steady remittance flows continued to be propelled mainly by sustained strong demand for Filipino skills and expertise as well as the expanded access to enhanced banking services by overseas Filipinos and their beneficiaries. Prospects for overseas deployment of Filipino workers remain favorable, as employment opportunities are expected to expand as global economic activity gains stream.

Capital and Financial Account.  The capital and financial account balance improved in  Q1 2010, recording significantly lower net outflows of     US$51 million compared to the US$1.4 billion net outflows a year ago. This development was attributed to the notable improvement in the portfolio and other investment accounts, which made up for the lower direct investment net inflows during the review quarter.   

Direct investments posted lower net inflows of US$166 million in Q1 2010, from US$282 million in Q1 2009.  The lower level of net inflows was traced to higher residents’ equity capital investments abroad which aggregated US$230 million from US$52 million in Q1 2009. These outflows were offset, however, by non-residents’ investments in the country which rose to US$396 million. The bulk of the foreign direct investment (FDI) net inflows during the review quarter were recorded in the other capital account which posted net inflows of US$319 million in contrast to the US$48 million net outflows a year ago. These consisted largely of intercompany loans availed of by local subsidiaries from their parent companies abroad, which primarily benefited the services (BPO) and utilities sectors.

By contrast, portfolio investment net outflows narrowed to US$542 million, compared to the U$643 million recorded in Q1 2009. The reversal of non-residents’ portfolio investments to a net inflow of  US$332 million contributed largely to this development. The recovery in portfolio investments was also supported by the robust trading activity in the stock market. The outflows of portfolio investments included: a) net purchase by residents through secondary market trading of Philippine debt papers issued abroad by the National Government (NG) (US$881 million) and some private corporations (US$173 million); b) bond repayments made by the NG (US$1.4 billion) and some public and private corporations (US$453 million); and c) residents’ debt securities placements abroad (US$871 million). These were partly offset by inflows emanating from: a) non-residents’ subscription to the bond flotations by the NG (consisting of the US$1.5 billion Global Bonds and US$1.1 billion Samurai Bonds) and some public and private corporations (US$266 million);  and b) non-residents’ net equity securities placements in private corporations (US$193 million).

Meanwhile, the other investment account reversed to a net inflow of US$352 million in Q1 2010, from a net outflow of US$1.1 billion a year ago, due to: a) trade credits extended by non-residents to private corporations (US$1.1 billion); and b) currency and deposit placements by non-residents in local banks (US$484 million). The impact of the these inflows were, however, dampened by the following outflows: a) currency and deposit placements abroad by resident banks (US$1.1 billion); and b) net repayment of maturing loans by the NG (US$33 million), resident banks (US$25 million), and some corporates (US$69 million).

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