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2010 International Investment Position Improves; Net Liability Position Continues to Decline

09.30.2011

The developments in the Philippine economy ended last year on a strong note as the country emerged from the global economic turmoil with a solid performance. Notwithstanding the growing concerns on the weak and uneven pace of global activity, the country's International Investment Position (IIP) further improved at end-2010 on the back of strong growth prospects and sustained appetite for emerging markets' assets. Preliminary IIP data as of end-December 2010 indicated that the country's net liability position declined by 31.1 percent to US$10.6 billion, from the revised end-2009 level of US$15.4 billion. The sustained expansion in the country's total financial assets or claims of residents from the rest of the world continued to drive the country's net IIP. Total financial assets surged to US$96.1 billion by end-2010, markedly higher by 24.6 percent relative to the previous year's level of US$77.2 billion. Similarly, total financial liabilities increased, albeit, at a much slower pace of 15.3 percent to reach US$106.7 billion, from its year-ago level of US$92.5 billion. 

Across sectors, the Bangko Sentral ng Pilipinas (BSP) recorded a stronger net external position while the Banks, General Government and Other Sectors posted weaker net positions at  end-December 2010. The BSP's net external asset position improved appreciably by 42.5 percent to US$61.0 billion in 2010, compared to the US$42.8 billion recorded in the preceding year.  The  year-on-year expansion in the BSP's foreign assets was driven by the steady build-up in the country's gross international reserves (GIR) given robust foreign exchange inflows. Meanwhile, the 6.3 percent contraction in the Banks' total external assets, coupled with the 39.0 percent increase in its foreign liabilities (largely due to increase in liabilities to direct investors in the form of intercompany borrowings and foreign loan availments of local banks) led to a weaker net asset position amounting to US$1.9 billion vis-à-vis the previous year's level of US$6.8 billion. On the other hand, the General Government remained a net user of foreign resources. It posted a higher net liability position of US$39.0 billion from the year-ago level of US$32.8 billion. The bond flotations (US$6.6 billion), net issuances of peso-denominated government securities in the domestic market (US$2.7 billion), as well as foreign loan availments (US$1.3 billion) by the National Government (NG) contributed to the increase in financial liabilities of the General Government.  Similarly, the Other Sectors recorded a higher net liability position of US$34.4 billion from the US$32.2 billion recorded last year due to higher foreign direct investments and foreign borrowings.

The IIP is a companion framework to the Balance of Payments (BOP) statistics.  While the BOP is a statistical statement that records the country's transactions or flows with the rest of the world for a given period, the IIP summarizes the country's stock of financial claims on and financial liabilities to the rest of the world as of a specific reporting period.  Similar to the BOP's financial account, the assets and liabilities in the IIP are classified as direct investments, portfolio investments, financial derivatives, and other investments.  Unlike the BOP which is reported quarterly, however, the IIP is released annually with a lag of nine months from reference year.   

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