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Third Quarter 2010 BOP Surplus Rises; Nine-Months’ Level at US$6.5 Billion


The balance of payments (BOP) surplus stood at US$3.3 billion in Q3 2010, almost 50 percent higher than the US$2.2 billion surplus registered in the comparable quarter a year ago. The favorable external payments position was supported by the robust performance of both the current and the capital and financial accounts. This developed as external demand from Asia, which has continued to lead the global recovery, compensated for the weakness in trade with advanced economies. Investor appetite also was sustained on the back of strong growth prospects for the Philippines and higher yields. As a result of the continued surplus in Q3 2010, the country’s BOP position in the first nine months of 2010 remained strong at US$6.5 billion.

The robust BOP flows supported the build-up in the country’s gross international reserves (GIR) to US$53.8 billion as of end-September 2010, representing a 26.4 percent growth from the US$42.5 billion level posted in the same period last year. At this level, reserves could sufficiently cover 9.4 months’ worth of imports of goods and payments of services and income. It was also equivalent to 9.8 times the country’s short-term external debt based on original maturity and 5.3 times based on residual maturity.

Third Quarter 2010 Developments

Current Account.  The current account recorded a surplus of US$2.7 billion (equivalent to 5.9 percent of GDP), higher than the US$1.9 billion surplus (5.0 percent of GDP) a year earlier. There was a broad-based improvement across all the sub-components of the current account (i.e., merchandise trade, services, income, and current transfers). Higher net receipts in current transfers, income and services accounts were propelled largely by the steady stream of remittances from non-resident and resident overseas Filipinos (OFs) as well as earnings from business process outsourcing (BPO) transactions. Meanwhile, the reduced deficit in the trade-in-goods account further strengthened the current account during the quarter.

The trade-in-goods deficit contracted to US$1.5 billion from the year-ago level of US$2.0 billion, following the sharp increase in export receipts (41.3 percent) which exceeded imports growth (30.1 percent) during the quarter. These developments reflected the growth momentum in Asia which helped provide support to strong intra-regional trade. Moreover, seasonal trends showed a surge in deliveries during the third quarter when export firms normally gear up for the holiday season. Merchandise exports rose by 41.3 percent to US$14.4 billion from US$10.2 billion in the previous year due mainly to inventory build-up and the fast recovery of the electronics industry following increased demand from the top export destinations such as Singapore, Japan and China. Meanwhile, imports of goods amounted to US$15.9 billion, 30.1 percent higher than the US$12.2 billion posted in Q3 2009. Inward shipments of all major commodity groups continued to firm up, indicating sustained rebound in economic activity.

Net receipts from trade-in-services reached US$88 million in Q3 2010, representing a 22.2 percent increase from the US$72 million surplus registered in the same quarter a year ago. This resulted mainly from higher net receipts in construction, travel, computer and information, other business services, specifically miscellaneous business, professional, and technical services, which are comprised largely of BPO-related services, and personal, cultural and recreational services. The gains posted in these accounts were negated by net payments recorded in transportation (notably payments for freight, in line with the rise in imports of goods), insurance, and government services.

The income account recorded a surplus of US$32 million, a reversal of the US$47 million deficit in the comparable quarter last year. This emanated from the gross earnings of resident overseas Filipino (OF) workers amounting to US$1.3 billion in Q3 2010, which rose by 15.4 percent compared to the 5.0 percent increase posted in Q3 last year. The double-digit expansion in OF workers’ remittances more than offset the higher net payments in the investment income account which grew by 8.2 percent to US$1.3 billion during the review quarter.

The current transfers account registered a higher surplus of US$4.0 billion, rising by 2.7 percent from the year-ago level of US$3.9 billion due mainly to the continued strong remittance flows from non-resident OFs amounting to US$4.1 billion. The 8.0 percent expansion in total OF remittances reflected the continued preference for the skills and competencies of Filipino workers, combined with the expanding international remittance transfer networks of bank and non-bank channels.

Capital and Financial Account.  The capital and financial account recorded net inflows of US$1.2 billion in Q3 2010, 40.4 percent higher than the US$864 million net inflows recorded in the same period last year. This development resulted mainly from the increased net inflows in direct and other investments, even as financial derivatives’ trading and portfolio investments reversed to net outflows. A confluence of factors in the domestic front helped boost investor sentiment, notwithstanding the global concerns on the health of the advanced economies.

Direct investments yielded US$311 million net inflows in Q3 2010, 60.3 percent higher than the net inflows recorded in the same quarter last year. The expansion was partly due to higher foreign direct investments which stood at US$361 million during the quarter compared to US$333 million in Q3 2009, reflecting continued foreign investor interest in Asian emerging markets due to economic growth differentials with developed economies, as well as improving domestic fundamentals. In particular, non-residents’ other capital investments increased by more than fourteen times to reach US$257 million. Moreover, reinvested earnings posted higher net inflows of US$25 million, compared to US$14 million realized in the same period a year ago.  The equity capital account also registered a net inflow of US$79 million, although lower than US$301 million last year.

The other investment account registered higher net inflows amounting to US$1.0 billion in the third quarter compared to net inflows of US$578 million in the same quarter a year ago. In particular, the following transactions contributed  to the net inflows in the other investment account such as: 1) repayments of loans extended by local banks (US$790 million) and private corporations (US$21 million) to non-residents; 2) net loan availments by local banks (US$638 million) and private corporations  (US$384 million); 3) net placements by non-residents of their currency and deposits in local banks (US$385 million); and 4) other accounts payables of local banks  (US$232 million).

Portfolio investments posted net outflows in Q3 2010 at US$28 million, a turnaround from the US$52 million net inflows recorded in the same quarter a year ago. Outflows during the review quarter included: 1) residents’ net subscription to bonds/notes issued by non-residents (US$832 million); 2) net placements by residents in money market instruments issued abroad (US$82 million); and 3) net purchase by residents through secondary market trading of Philippine debt papers issued abroad by the National Government (US$874 million), and public and private corporations (US$488 million).

January-September 2010 Developments

Current Account. The current account surplus in the first nine months of the year reached US$7.0 billion, equivalent to 5.2 percent of GDP. Relative to the US$6.2 billion surplus (5.4 percent of GDP) in the comparable period last year, the 13.3 percent growth was traced to higher net current transfers and services receipts, combined with a lower deficit in trade-in-goods, which more than compensated for the increase in net income payments.

Net current transfers receipts posted a year-on-year increment of 2.4 percent, attributed mainly to the 6.9 percent rise in remittances of non-resident OFs, which reached US$11.9 billion in the first nine months of   2010.

The trade-in-goods deficit narrowed by 8.6 percent to reach US$6.3 billion, resulting from the more rapid acceleration of exports at 39.6 percent compared to that of imports at 29.9 percent. Brisk trading activity was evident during the nine-month review period as growth in both exports and imports of goods were in stark contrast with the declines recorded a year ago. Most major export commodity groups registered improvement, boosted mainly by shipments of manufactured goods and coconut products which posted the biggest increments during the first three quarters of the year. Meanwhile, the continued recovery in domestic economic activity and in global demand were reflected in the double-digit expansion in imports across all major commodity groups.

The surplus in the services account increased by 2.2 percent to US$1.3 billion in January-September 2010, due mainly to higher export revenues from BPO-related services, specifically other business services (by 17.4 percent) and computer and information services (by 18.7 percent). Companies in the country’s BPO sector anticipate that their businesses will grow substantially as the shift to non-voice and more complex services continues to accelerate. Meanwhile, travel services registered net inflows of US$20 million, a reversal of the net outflows of US$99 million in the same period last year as the tourism industry started to embark on new strategies under the tourism roadmap for 2010-2016.

On the other hand, the deficit in the income account was higher by 47.3 percent at US$249 million in the first nine months of 2010. The substantial increase was mainly caused by higher net payments in the investment income account arising from: a) higher net payments by residents to direct investors abroad (by 19.5 percent, specifically outlays for reinvested earnings as well as dividends; b) higher interest payments on bonds issued by the NG (by 18.4 percent) and some private corporations (by 17.2 percent); and c) lower net interest income on holdings of debt securities by the BSP (by 27.1 percent) due to declining global interest rates.

Capital and Financial Account.  The capital and financial account yielded US$1.0 billion net inflows in the first three quarters of 2010, a turnaround from the US$1.7 billion net outflows in the same period in 2009. This developed as other investments reversed to net inflows. The investment climate improved given the country’s higher-than-expected second quarter GDP growth and reports of improved corporate earnings in the first semester.

a) The other investment account registered net inflows of US$1.6 billion in the first nine months of 2010, rebounding from the US$2.1 billion net outflows recorded in the comparable period a year ago, due mainly to the following factors: 1) net repayments of loans extended by local banks (US$1.2 billion) and private corporations (US$21 million) to non-residents; 2) trade credits extended by non-residents to private corporations (US$1.6 billion); 3) net loan availments from non-residents by the local banks (US$417 million) and private corporations  (US$665 million); 4) other accounts payables by local banks  (US$319 million); and 5) non-residents’ placements of currency and deposits with local banks (US$616 million).

b) The direct investment account in the first three quarters of 2010 recorded net inflows of US$755 million, 43.6 percent lower than the net inflows posted a year ago. This developed as net placements of non-residents in equity capital declined to US$185 million in Q1-Q3 2010 from US$1.8 billion in the comparable period in 2009. Residents’ equity placements abroad likewise climbed by 27.5 percent to US$338 million during the review period. Meanwhile, non-residents’ reinvested earnings in local direct investment enterprises rose to US$247 million from US$21 million in Q1-Q3 last year. The other capital account also rebounded to a net inflow of US$661 million from last year’s net outflow of US$175 million.

c) Meanwhile, the portfolio investment account yielded net outflows of US$1.2 billion during the review period, slightly higher than the US$1.1 billion net outflows last year.  The major outflows in the first three quarters of 2010 included the following: 1) residents’ net subscriptions to bonds/notes issued by non-residents (US$2.6 billion); 2) net purchase by residents through secondary market trading of Philippine debt papers issued abroad by the NG (US$1.2 billion), banks (US$103 million) and corporations (US$1.2 billion); and 3) redemption of bonds/notes issued by the NG (US$1.4 billion) and some public (US$561 million) and private (US$646 million) corporations.

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