The balance of payments (BOP) registered a surplus of US$3.5 billion in the first quarter of 2011, more than double the US$1.3 billion surplus registered in the same period a year ago. The favorable outcome in the country's external payments position was due primarily to robust net inflows in the capital and financial account. The Philippines, like many emerging market economies, continued to experience strong capital flows, encouraged by the favorable growth prospects of the domestic economy and relatively high yields. Strong capital inflows mitigated the impact on the balance of payments of the tensions in the Middle East and North Africa (MENA) region which caused supply disruptions that drove import prices higher. This development, combined with the moderate growth of exports during the quarter, widened the trade deficit which led to a lower surplus in the current account.
Reflecting the robust external payments position, the country's gross international reserves (GIR) climbed to US$66.0 billion as of end-March 2011, 44.7 percent higher than the year-ago level of US$45.6 billion. At this level, reserves could sufficiently cover 10.1 months' worth of imports of goods and payments of services and income. It was also equivalent to 10.5 times the country's short-term external debt based on original maturity and 5.9 times based on residual maturity.
First Quarter 2011 Developments
Current Account. The current account yielded a surplus of US$933 million, equivalent to 1.8 percent of GDP. This level, however, was 23.0 percent lower than the surplus of US$1.2 billion in the comparable quarter in 2010, as the deficit in trade-in-goods widened. Gains recorded across the other major current account components (i.e., higher net receipts in services and current transfers, and lower net income payments) helped sustain the surplus. The trade-in-goods deficit rose by 36.2 percent to US$3.9 billion from its US$2.9 billion level last year as the expansion in imports was stronger compared to that of exports. Exports growth moderated during the quarter, due mainly to lower shipments of electronics and machinery and transport equipment given the decline in both the demand for and export prices of consumer electronics and communication/radar equipment. Exports of goods expanded by 8.1 percent to reach US$12.0 billion, driven mainly by higher shipments of mineral, petroleum, coconut and other agro-based products. Continued demand from the country's Asian trading partners, such as China (including Hong Kong Special Administrative Region (SAR)), Singapore, Republic of Korea, Taiwan and Japan reflected strong growth in intra-regional trade. Imports of goods expanded by 13.9 percent to reach US$16.0 billion, from its year-ago level of US$14.0 billion, as both volume and prices of raw materials and intermediate goods as well as mineral fuels and lubricants registered increases.
Net receipts from trade-in-services rose to US$1.0 billion in Q1 2011, a 28.9 percent increase from the US$812 million surplus registered in the same quarter a year ago. This resulted mainly from higher net receipts in computer and information and other business services, particularly miscellaneous business, professional, and technical services, which consisted mostly of business process outsourcing (BPO)-related transactions, combined with lower net payments in travel services. The gains realized in these services components, however, were partly offset by higher net payments in royalties and license fees, transportation, insurance, financial, personal cultural and recreational and government services as well as lower net receipts in construction and communication services.
The income account recorded lower net payments of US$142 million in Q1 2011 compared to US$515 million net payments a year ago. The improvement in the income account was due to increased earnings of resident overseas Filipino (OF) workers amounting to US$1.3 billion, 11.9 percent higher than the year-ago level. Another contributory factor to this favorable development was the lower net payments in the investment income account (by 13.5 percent) at US$1.5 billion during the quarter. This developed on account largely of the declines in: a) net payments by residents to direct investors (30.3 percent) particularly dividends and distributed branch profits on equity investments; and b) interest payments on bonds issued by the National Government (NG) (10.1 percent) and by private corporations (8.7 percent). These were offset, however, by higher net payments of dividends by resident corporations to equity portfolio investors abroad (by 34.2 percent).
Net receipts from current transfers registered a surplus of US$4.0 billion, reflecting a 4.3 percent increase from the year-ago level of US$3.8 billion. Inflows were spurred mainly by higher remittances from non-resident OFs at US$3.9 billion. Despite the social unrest in some parts of the Middle East and North Africa region and the string of disasters in Japan in the latter part of the quarter, remittances maintained a broadly steady pace of growth in the first quarter of the year. The continued deployment of Filipino workers to various destinations abroad as well as the expansion of the network of bank and non-bank service providers and innovations in financial products in the remittance market have facilitated the wider capture of fund transfers in the global remittance market.
Capital and Financial Account. The capital and financial account registered significant net inflows of US$2.1 billion in Q1 2011 from the year-ago level of only US$39 million. The considerable improvement in net inflows was due mainly to the surge in portfolio and direct investments due to investors' appetite for emerging market assets given favorable growth prospects and sovereign debt concerns in some parts of Europe.
Direct investment net inflows reached US$432 million in Q1 2011, 37.6 percent higher than the US$314 million net inflows recorded in the same quarter last year. The expansion was boosted mainly by the sustained net inflows of foreign direct investments combined with the 84.5 percent decline in residents' equity capital placements abroad (from US$251 million in Q1 2010 to US$39 million in Q1 2011). Foreign direct investments registered inflows amounting to US$471 million during the quarter, arising mainly from equity capital infusion in new investment ventures in the real estate, manufacturing, and mining and quarrying sectors. In particular, non-residents' equity capital investments increased markedly to US$81 million, nearly twice the US$45 million net equity capital posted in the same period a year ago.
Net inflows of portfolio investments surged to US$1.5 billion in the first quarter of 2011, a reversal of the net outflows of US$193 million posted in the same quarter a year ago due to improved investor confidence in the country's economic prospects. Significant inflows during the review quarter included: a) non-residents' net placements in peso-denominated government securities (US$860 million); b) subscription by non-residents to the bonds flotation of the NG (US$ 2.7 billion) which includes US$1.2 billion Global Peso Notes due 2036 and US$1.5 billion Global Bonds due 2026 which were issued in January and March 2011, respectively, and of local private corporations (US$600 million); c) non-residents' net purchase of bonds issued by local banks (US$927 million); and d) resident banks' maturing bonds/notes placements abroad (US$643 million).
The other investment account posted net outflows amounting to US$763 million in the first quarter, significantly higher than the US$63 million net outflows in the same quarter last year. The following transactions contributed to the increase in net outflows during the quarter: a) net repayments by local private corporations of trade credits extended by non-residents (US$105 million); b) net repayments of loans to non-resident creditors by the NG (US$224 million), local banks (US$335 million), and public and private corporations (US$51 million); and c) residents' net placements of currency and deposits in banks abroad (US$1.1 billion).
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