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First Quarter 2012 BOP Surplus of US$1.2 Billion Draws Support from Current and Financial Accounts


The country’s balance of payments position remained in surplus in the first quarter of 2012 at US$1.2 billion. This was, however, lower by 64.4 percent compared to the US$3.5 billion surplus in the same quarter a year ago, as both the current and capital and financial accounts yielded lower net inflows during the quarter. The surplus in the current account was boosted mainly by higher inflows from overseas Filipino (OF) remittances and business process outsourcing (BPO) services transactions while the net inflows in the capital and financial account emanated largely from increased foreign direct investments. After economic activity across the globe slowed down markedly at the end of 2011 due to the heightened sovereign debt crisis in some parts of the euro area, global economic prospects have gradually improved during the quarter. The threat of a sharp worldwide slowdown eased with improved activity in the U.S. and the policy measures undertaken by the European Central Bank to foster the proper functioning of the euro area economy (e.g., offering of cheap loans to European banks, the approval of a new financing package for Greece, bold efforts of Italy and Spain to implement economic reforms). A fragile economic recovery is underway, but the risks remain elevated amid high unemployment, slow growth, continued economic woes in Europe, and higher oil prices. Nonetheless, growth in Asia is anticipated to gain momentum with economic activity remaining relatively solid in most emerging and developing Asian economies while weak recovery will likely persist in major advanced economies.
 As a result of the continued surplus in the BOP, gross international reserves (GIR) reached US$76.1 billion as of end-March 2012, reflecting a 15.4 percent (US$10.1 billion) increase from the year-ago GIR level of US$66 billion. At this level, reserves could sufficiently cover 11.4 months’ worth of imports of goods and payments of services and income. It was also equivalent to 10.9 times the country’s short-term external debt based on original maturity and 6.4 times based on residual maturity.

First Quarter 2012 Developments

Current Account.  The current account registered a surplus of US$882 million, equivalent to 1.6 percent of GDP. This was, however, 8.1 percent lower than the surplus of US$960 million in the comparable quarter in 2011. The surplus in the current account was sustained by net receipts in current transfers and services, which more than compensated for the higher net payments in the income account and the widening of the trade-in-goods deficit.

The trade-in-goods deficit widened slightly by 2.2 percent to US$4.0 billion compared to the US$3.9 billion deficit posted last year, as the increment in imports level (by US$748 million) was higher than that in exports (by US$661 million). Merchandise trading activity slowly rebounded in the first quarter of the year, with both exports and imports of goods registering growth of 5.5 percent and 4.7 percent, respectively. This favorable outcome could be attributed to the gradual improvement in global economic prospects following a string of encouraging economic indicators on the U.S. economy (e.g., improved employment numbers, rising business confidence) and better policy measures adopted to address the euro area sovereign debt crisis. Exports of goods rose to US$12.7 billion in Q1 2012 from US$12.0 billion in the same quarter a year ago. The improvement in exports performance was due mainly to higher shipments of manufactured goods, notably electronic products, machinery and transport equipment, wood manufactures, garments, and processed food and beverages. Meanwhile, imports of goods increased to US$16.7 billion in Q1 2012 due to higher purchases of capital goods and mineral fuels and lubricants indicating the continued expansion of domestic economic activity.

Net receipts in trade-in-services increased by 12 percent to US$1.1 billion in Q1 2012 from US$956 million in the comparable quarter last year as a result of higher net receipts in BPO-related transactions, particularly computer and information services (11.8 percent), and miscellaneous business, professional, and technical services (3.5 percent), as well as construction services (233.3 percent). The improvement in the performance of the services account could also be attributed to lower net payments in travel, financial, personal, cultural and recreational, and government services. These positive developments more than offset the higher net payments in transportation (e.g., freight services in line with higher imports of goods), royalties and license fees, insurance, and communication services.

The income account recorded higher net payments in Q1 2012 amounting to US$256 million compared to US$99 million a year ago. The weak performance of this account was due to increased net payments in investment income which more than offset the higher earnings of resident OF workers of US$1.5 billion, reflecting a 15.2 percent increment from the year-ago level. Net payments in investment income rose by 25.1 percent during the quarter, mainly on account of increased outlays for: a) dividends to foreign direct investors (by 124.4 percent); b) interest on bonds issued abroad by the National Government (NG)   (by 9.4 percent) and banks (by 70 percent); and c) interest on foreign loans by local corporations (by 25.4 percent).
Net receipts in current transfers amounted to US$4.1 billion, higher by 1.3 percent than the year-ago level of US$4 billion. Current transfers during the quarter drew support from the steady remittance flows from non-resident OFs amounting to US$4 billion, or a growth of 2.6 percent. Robust cash transfers in the first quarter of 2012 were driven by the sustained demand for Filipino manpower in various foreign labor markets and by the continued expansion of banks’ presence across the globe through tie-ups established by local financial institutions with foreign and local money transfer operators, mobile phone service operators and pawnshops.

Capital and Financial Account.  The capital and financial account yielded net inflows of US$962 million in the first three months of 2012, although lower by 73.7 percent than the US$3.7 billion net inflows recorded in the same period last year. Capital inflows moderated during the quarter, reflecting continued concerns over the sovereign debt crisis in some parts of Europe. The downgrade of sovereign credit ratings of some European countries by Standard and Poor’s (S&P) in January and by Fitch and Moody’s in February resulted in some volatility in the market which caused risk aversion among investors. Net inflows of portfolio investments during the quarter slowed down year-on-year. Other investments, on the other hand, posted higher net outflows. These developments more than outweighed the increase in net inflows in the direct investment and capital accounts.

Net inflows of direct investments reached US$696 million in the first quarter of the year, higher than the US$406 million net inflows in the same quarter last year. Contributing largely to the trend was the surge in foreign direct investments, which increased to US$850 million during the review quarter from US$493 million posted in Q1 last year. In particular, equity capital yielded higher net inflows of US$931 million from US$151 million last year. On a gross basis, inflows of equity capital reached US$1 billion in Q1 2012 due largely to significant investments in the manufacturing sector. Strong macroeconomic fundamentals and favorable growth prospects of the country encouraged expansions in business operations of multinationals. 
Portfolio investments registered net inflows of US$1.3 billion in the review quarter. This was, however, about half of the US$2.7 billion net inflows registered in the same quarter last year.  The major sources of inflows were: a) subscription by non-residents to the bonds flotation of the NG (US$1.5 billion), banks (US$722 million), and local private corporations (US$500 million); and b) non-residents’ net placements in equity securities issued by banks (US$151 million) and domestic corporations (US$248 million).

The other investment account posted US$1.1 billion net outflows in the review quarter, significantly  higher than the US$351 million net outflows in the same quarter last year. The following transactions accounted for the outflows during the quarter: a) residents’ net placements of currency and deposits abroad (US$646 million); b) net repayment of loans to non-residents by local banks (US$596 million); c) non-residents’ net withdrawal of currency and deposits in local banks and corporates (US$165 million); and d) settlement of local banks’ accounts payables to non-residents (US$132 million).


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