The country’s balance of payments position registered a deficit of US$4.5 billion in Q1 2014, a reversal of the US$1.5 billion surplus recorded in Q1 2013. This developed as the financial account posted net outflows during the quarter, which more than offset the surplus in the current account. The net outflows in the financial account emanated mainly from the reversal of both portfolio and other investments to net outflows in Q1 2014. Meanwhile, the current account continued to perform favorably during the quarter on account mainly of the higher net receipts of secondary income, lower deficit in trade in goods, and the reversal of primary income to net receipts from net payments.
The global growth profile remained broadly steady as economic recovery in most advanced economies (i.e, the U.S. and Japan) and some core countries in the euro area has gained traction and continued at a stable pace. However, the ongoing uncertainty in the pace of the US Federal Reserve’s tapering of its monetary stimulus resulted in increased volatility in financial markets as well as the decline in risk appetite for emerging market assets, which adversely affected capital flows into the country.
As a result, the country’s gross international reserves (GIR) reached US$79.6 billion as of end-March 2014, posting a 4.3 percent reduction (or US$3.5 billion) compared to the end-December 2013 GIR level of US$83.2 billion. At this level, reserves could sufficiently cover 11 months’ worth of imports of goods and payments of services and income. It was also equivalent to 7.6 times the country’s short-term external debt based on original maturity and 5.5 times based on residual maturity. The decline in reserves was due mainly to outflows arising from payments by the National Government (NG) of its maturing foreign exchange obligations, foreign exchange operations of the BSP, and revaluation adjustments on the BSP’s gold holdings and foreign-currency denominated reserves. These outflows were partially offset by income from investments by the BSP and foreign currency deposits by the NG.
First Quarter 2014 Developments
Current Account. The current account recorded a surplus of US$2 billion (equivalent to 3.1 percent of GDP) in the first quarter of 2014, reflecting an increment of 13.2 percent compared to the US$1.7 billion surplus in the comparable quarter a year ago. The continued strength of the current account was supported mainly by increased net receipts in both secondary and primary income accounts along with decreased deficit in the trade in goods account, which more than compensated for the lower net receipts in the services account.
The trade in goods deficit narrowed to US$4.1 billion in Q1 2014 from the US$4.2 billion deficit in Q1 2013. The 2.1 percent improvement in the trade in goods balance was due to the higher expansion in exports of goods of 6.6 compared with the increase in imports of goods of 4.1 percent.
Net services receipts amounted to US$1 billion in Q1 2014. This level was however 29.6 percent lower than the US$1.4 billion net receipts posted in Q1 2013. This development was due largely to the reversal in travel services from net receipts of US$295 million in Q1 2013 to net payments of US$167 million in Q1 2014. The lower net receipts from telecommunications, computer, and information services combined with higher net payments in transport, charges for the use of intellectual property, maintenance and repair, financial, and government services further contributed to the decline in the services account.
The primary income account recorded net receipts of US$22 million in Q1 2014, a turnaround from the US$151 million net payments in Q1 2013. The remarkable improvement was attributed largely to higher earnings of resident overseas Filipino (OF) workers, which increased by 11.7 percent to reach US$1.8 billion. This favorable development was partly offset by the net payments of investment income which slightly increased by 0.8 percent during the quarter resulting mainly from higher net dividends paid to foreign direct investors (by 33.5 percent) from US$590 million to US$788 million.
Net receipts in the secondary income account expanded by 8.6 percent to US$5 billion relative to the year-ago level of US$4.6 billion as expansions were recorded in all sub-accounts. Growth was largely driven by the 5.3 percent increase in personal transfers to reach US$4.6 billion in Q1 2014.
Capital Account. Net receipts in the capital account reached US$26 million in Q1 2014, posting a marginal increase from the same quarter a year ago. The decrease in payments in gross acquisitions/disposals of non-produced non-financial assets was compensated by a corresponding decrease in receipts for the period.
Financial Account. The financial account yielded net outflows (or net lending of residents to the rest of the world) of US$3.1 billion in Q1 2014, a turnaround from the US$2.1 billion net inflows recorded in Q1 2013. Residents’ net acquisition of financial assets (US$3.7 billion) exceeded their net incurrence of liabilities (US$639 million). In particular, portfolio and other investments reversed to net outflows during the quarter. Portfolio investment trends continued to indicate cautiousness in the market amid global uncertainties, following the tapering of the quantitative easing (QE) policy by the US Federal Reserve starting January 2014.
The direct investment account registered US$722 million net inflows (or net borrowing of residents from the rest of the world) in Q1 2014, lower by 25.6 percent compared to the level recorded in the same quarter last year. The decrease in net borrowing was due to the 11.6 percent decline in residents’ net incurrence of liabilities (or FDI) to US$1.9 billion in Q1 2014 from USS$2.1 billion in Q1 2013.
The portfolio investments account posted net outflows of US$ 2 billion (or a net lending of residents to the rest of the world) in Q1 2014, a reversal of the US$783 million net inflows posted in Q1 2013. This development was indicative of the bearish investor sentiment on emerging markets as a result of the tapering of the QE program of the US which started in January 2014.
The other investments account likewise posted net outflows (or net lending by residents to the rest of the world) of US$1.8 billion in Q1 2014, from a net inflow of US$431 million in Q1 2013. Net outflows resulted mainly from higher residents' net acquisition of financial assets which reached US$1.8 billion from US$13 million in Q1 2013. Meanwhile, the US$13 million net repayment of liabilities by residents in Q1 2014 was a reversal of the US$444 million net incurrence of liabilities registered a year ago.
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