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Fourth Quarter 2011 BOP Sustains Surplus; BOP Level for Full Year Reaches US$10.2 Billion


For the fourth quarter of 2011, the country’s balance of payments (BOP) position remained in surplus at US$458 million. This was, however, markedly lower than the     US$7.9 billion surplus in the comparable quarter a year ago, mainly reflecting the reversal of the capital and financial account from a net inflow to a net outflow during the quarter. The strength of the global economic recovery was moderated by escalating financial turbulence in the euro zone, sluggish economic activity in the U.S., and concerns over possible spillovers of the global crisis to other advanced and emerging economies. As a result, risk aversion rose, affecting capital flows into the Philippines along with other countries in the region. Meanwhile, the current account continued to register a surplus, but this was tempered by weak external demand, which contributed to the contraction of merchandise exports.

For the full year of 2011, the country registered a US$10.2 billion surplus in the BOP position, despite the fragilities in the world economy. This favorable development was due to the sustained surplus in the current account which was supported by resilient remittances, strong revenues from business process outsourcing (BPO) services and higher income receipts. 

Reflecting the BOP surplus, gross international reserves (GIR) reached US$75.3 billion as of end-December 2011. This was higher by 20.7 percent (or by US$12.9 billion) from the end-2010 GIR level of US$62.4 billion.  At this level, reserves could sufficiently cover    11.1 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 6.8 times based on residual maturity.

Fourth Quarter 2011 Developments

Current Account.  The current account remained in surplus at US$1.8 billion, equivalent to 2.9 percent of GDP. This was, however, 15.0 percent lower than the surplus of US$2.1 billion in the comparable quarter in 2010. The surplus in the current account was sustained by net receipts in current transfers, services and income, which offset the widening trade-in-goods deficit.

The trade-in-goods deficit at US$4.7 billion increased by 39.5 percent compared to the US$3.4 billion deficit posted in the previous year as the contraction in exports of goods (by 17.8 percent) outpaced that of imports of goods (by 6.0 percent). Trade activity was hampered by sluggish external demand in advanced economies. Exports performance was weak, dragged down primarily by lower shipments of electronic products. The country’s import requirements likewise contracted, reflecting the slowdown in exports and lower domestic demand. In particular, imports of raw materials and intermediate goods were lower, pulled down by reduced procurement of materials/accessories for the manufacture of electrical and electronic products.

Net receipts from trade-in-services expanded by 86.2 percent to US$970 million in Q4 2011 from US$521 million in the comparable quarter in 2010. The robust performance of the services account was boosted by the continued growth in BPO-related transactions, particularly miscellaneous business, professional, and technical services (14.0 percent) and computer and information services (18.8 percent). Other contributory factors to the increase in the services account were the lower net payments for transportation services (lower outlays for freight in line with the slowdown in imports of goods), travel, royalties and license fees, and insurance services. These favorable developments offset the lower net receipts in communication and construction services as well as the higher net payments for financial, government, and personal, cultural and recreational services.

Net receipts in the income account rose to US$752 million in Q4 2011 compared to US$516 million a year ago. The 45.7 percent increment was due to higher earnings of resident overseas Filipino (OF) workers amounting to US$1.6 billion, up by 13.9 percent from the year-ago level. This positive development was further strengthened by the   5.4 percent decline in net payments in the investment income account to US$808 million during the quarter.

Net current transfers amounted to US$4.8 billion, higher by 7.2 percent than the year-ago level of US$4.4 billion, shored up by the resilient stream of remittance flows from non-resident OFs amounting to US$4.6 billion, or a growth of 6.0 percent. The diversified destinations and skills of overseas Filipinos, and the strategic network of bank and non-bank service providers across the globe as well as the new financial products and money transfer services offered in the remittance market helped support the robust performance of the current transfers account.

Capital and Financial Account.  The capital and financial account posted net outflows of US$1.0 billion in the fourth quarter of 2011, a reversal of the US$5.3 billion net inflows recorded in the same period last year. The considerable outflows in the financial account were attributed largely to the reversal of the balances in the other investments and portfolio investments to negative territory. These developments outweighed the increase in direct investment inflows during the quarter. Net inflows of direct investments improved, reflecting investor confidence in the country’s sound macroeconomic conditions.
Direct investments registered net inflows of US$461 million in Q4 2011, higher than the US$403 million net inflows recorded in Q4 2010. This resulted mainly from lower investments abroad by residents, which reached US$19 million during the quarter from US$155 million in the same period a year ago.

Meanwhile, foreign direct investments registered lower net inflows of US$480 million mainly on account of the 88.8 percent decline in other capital (consisting mainly of intercompany borrowing/lending between foreign direct investors and their subsidiaries/affiliates in the Philippines) to US$29 million during the quarter.  This more than offset the growth in net equity capital inflows by       40.7 percent to US$363 million.

Portfolio investments recorded net outflows of US$71 million in the review quarter, a turnaround from the US$3.5 billion net inflows registered in the same quarter a year ago. Major outflows during the review quarter included: a) redemption of maturing bonds/notes issued by the NG (US$680 million), local banks (US$310 million), and other domestic private corporations (US$128 million); b) redemption of peso-denominated government securities issued to non-residents (US$166 million); and c) residents’ net placements in bonds/notes issued abroad by non-residents (US$150 million).

The other investment account posted net outflows amounting to US$1.5 billion in the review quarter, a sharp reversal of the US$1.4 billion net inflows in the same quarter in 2010, due to the following transactions: a) residents’ net placements of currency and deposits abroad (US$2.3 billion); b) non-residents’ net withdrawal of currency and deposits in local banks (US$445 million); and c) net repayments of loans to non-residents by local banks (US$424 million) and domestic corporations (US$394 million).

January-December 2011 Developments

Current Account. The current account posted a lower surplus of US$7.1 billion  (3.1 percent of GDP) in 2011 compared to US$8.9 billion (4.5 percent of GDP) a year ago. During the year, the trade-in-goods deficit widened but was offset by higher positive balances in the services, income and current transfers accounts. The merchandise trade deficit rose by 40.9 percent to reach US$15.5 billion due mainly to the decline in exports of goods by 6.9 percent even as imports of goods increased moderately by 1.6 percent. Total export of goods during the year reached US$47.2 billion, representing 21 percent of GDP. The weak performance of exports of goods in 2011 was pulled down primarily by the  12.4 percent contraction in shipments of manufactured goods to US$39.8 billion from US$45.4 billion a year ago. In particular, exports of electronic products fell by 22.5 percent to US$25.2 billion. The drop in exports of manufactured goods more than offset the improvement registered in exports of other major commodity groups in 2011.

On the other hand, the modest growth of goods imports was supported by higher purchases of mineral fuels & lubricants (by 30.0 percent) and capital goods (by 3.4 percent) which offset the cutback in the procurement of raw materials and intermediate goods   (by 5.5 percent) and consumer goods (by 5.7 percent). The growth in shipments of mineral fuels and lubricants in 2011 was due mainly to higher cost of petroleum crude as both import volume and import price increased. Meanwhile, the continued weakness in the external demand for electronics exports led to the 24.5 percent contraction in the procurement of raw material inputs for the manufacture of electronic products to US$15.2 billion from US$20.2 billion in 2010. Consumer goods imports likewise fell on account of reduced purchases of non-durable goods, particularly rice, which considerably dropped by 76.4 percent as both import volume and price declined by 70.2 percent and    20.6 percent, respectively.

The surplus in the services account climbed by 31.4 percent to US$3.6 billion in 2011, due mainly to higher net receipts in other business services (by 11.0 percent) and computer and information services (by 3.4 percent) combined with lower net payments for transportation services (by 2.1 percent), travel services (by 37.2 percent) and royalties and license fees (by 1.4 percent). Export receipts from BPO-related transactions reached US$10.4 billion in 2011, of which US$2.1 billion came from computer and information services and US$8.3 billion from miscellaneous business, professional and technical services. Meanwhile, lower net payments in travel services resulted from rising travel exports (by 19.8 percent) as visitor arrivals increased during the year. However, these gains were moderated by higher net payments for insurance, financial, construction, government, and personal, cultural and recreational services, as well as lower net receipts in communication services.

The income account registered net receipts of US$1.3 billion, more than double the US$505 million posted in 2010. This improvement was due primarily to the 13.8 percent increase in gross earnings of resident OFWs which reached US$5.8 billion. The favorable performance of the income account was also attributed to the lower deficit in investment income (by 1.7 percent). This was on account of lower net payments of dividends and distributed branch profits (by 6.9 percent) to foreign direct investors and increased net income receipts from holdings of foreign debt securities by the monetary authorities (by 33.1 percent). 

Net current transfers receipts recorded a year-on-year expansion of 6.0 percent, buoyed mainly by the 5.5 percent increase in remittances of non-resident OFs, which reached US$17.1 billion in 2011.

Capital and Financial Account. The capital and financial account yielded  US$5.2 billion net inflows for the full year 2011. This was however lower by 29.2 percent than the US$7.4 billion net inflows in 2010. In particular, the capital and financial account balance was pulled down by the sharp reversal of the balance of the other investments account to a net outflow from the previous year’s net inflow. The trend was partly moderated by the improvement in net inflows of direct investments and portfolio investments in 2011. Moreover, the financial derivatives account realized trading gains during the review period.

The direct investment account recorded net inflows of US$1.3 billion in 2011, considerably higher than the US$682 million net inflows realized a year ago. This development was due mainly to the significant decline in the net outflows of residents’ investments abroad which amounted to only US$9 million compared to US$616 million last year.  Meanwhile, net inflows of foreign direct investments were broadly steady at  US$1.3 billion compared to that of last year.

The portfolio investment account posted net inflows of US$5.5 billion during the review period, 26.6 percent higher than the US$4.4 billion net inflows in the previous year. Major inflows in 2011 included the following:  a) subscription by non-residents to the bonds flotation of the NG (US$2.8 billion) and local private corporations (US$1.5 billion);   b) non-residents’ net placements in peso-denominated government securities  (US$2.0 billion); c) non-residents’ net placements in equity securities issued by banks and corporations (US$1 billion); d) resident banks’ maturing bonds/notes placements abroad (US$886 million); and e) non-residents’ net placements in bonds/notes issued by local banks (US$884 million).

The other investment account posted net outflows of US$2.7 billion in 2011, a reversal of the US$2.4 billion net inflows recorded a year ago, on account of the following factors: a) accrual of accounts receivable by local banks from non-residents (US$2.7 billion); b) residents’ net placements of currency and deposits in banks abroad  (US$2.5 billion);   c) net repayments of loans to non-resident creditors by local banks (US$388 million) and domestic corporations (US$413 million); and d) settlement of trade credits extended by non-residents to residents (US$146 million).

Revised 2010 BOP

The BSP will also release the revised BOP statistics for 2010 accompanied by technical notes. The revisions pertain mainly to updates in data estimates, late reports, post-audit adjustments and final data from various sources.

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