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Q2 2014 BOP Position Registers US$330 Million Surplus; First Semester BOP Position Yields US$4.1 Billion Deficit on Account of Net Outflows in the Financial Account

09.22.2014

The country’s balance of payments position yielded a surplus of US$330 million in Q2 2014, 68.3 percent lower than the US$1 billion surplus recorded in the same quarter a year ago. The lower surplus was due mainly to the net outflows (or net lending of residents to the rest of the world) in the financial account. Meanwhile, the surplus in the current account expanded, buoyed by the narrowing of the trade-in-goods deficit and the increase in the net receipts in the secondary income account.

During the second quarter, the global economy expanded modestly as divergent growth prospects across countries continued to reflect lingering economic uncertainties. In particular, downside risks—arising largely from increased volatility in financial markets (on account of the expected normalization of monetary policy in the US) along with ongoing geopolitical tensions in Iraq, Syria, and Ukraine—will likely affect global economic activity.

As a result, the country’s gross international reserves (GIR) reached US$80.7 billion as of end-June 2014, reflecting a 3 percent decline (or US$2.5 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 8.4 times the country’s short-term external debt based on original maturity and 6 times based on residual maturity. The decline in reserves was due mainly to payments by the NG of its maturing foreign exchange obligations and foreign exchange operations of the BSP. These outflows were partially offset by revaluation adjustments on the BSP’s gold holdings and foreign-currency denominated reserves, foreign currency deposits by the NG, and income from investments by the BSP. 

Second Quarter 2014 Developments

Current Account.  The current account yielded a surplus of US$3.1 billion (equivalent to 4.4 percent of GDP) in Q2 2014, rising by 41.5 percent relative to the US$2.2 billion surplus in the same quarter last year. The narrowing of the deficit in the trade-in-goods account, combined with the higher net receipts in the secondary income account, contributed to the substantial rise in current account surplus.

The trade-in-goods deficit narrowed to US$3.2 billion in Q2 2014 from the US$4.2 billion deficit in Q2 2013, resulting from the combined effects of the increase in exports of goods (by 4.5 percent) and the decrease in imports of goods (by 3.7 percent).

Net services receipts reached US$604 million in Q2 2014, 53.1 percent lower than the net receipts posted in Q2 2013. The decrease in the trade-in-services account balance was largely driven by the higher net payments for travel services. This, however, was partially offset by the lower net payments for transport, charges for the use of intellectual property, and insurance and pension services combined with higher net receipts from technical, trade-related and other business services, as well as computer services, and personal, cultural, and recreational services.

The primary income account posted net receipts of US$196 million in Q2 2014, growing by more than twice (158.2 percent) the US$76 million recorded in Q2 2013. This was boosted largely by higher compensation inflows from resident overseas Filipino (OF) workers, which increased by 6.7 percent to reach US$1.9 billion. Net payments of investment income remained relatively stable, amounting to US$1.6 billion in Q2 2014.

Net receipts in the secondary income account increased by 8.3 percent to US$5.5 billion compared to the US$5.1 billion recorded in the same period in 2013 as increments were registered across all sub-accounts. Receipts of personal transfers—which grew by 5.6 percent to reach US$5.1 billion—were the main growth driver. About 97 percent or US$4.9 billion consisted of non-resident OF workers’ remittances.

Capital Account. Net receipts in the capital account fell to US$26 million in Q2 2014 relative to the US$31 million level posted in the comparable quarter in 2013. This developed as net receipts of other capital transfers mainly to corporates, households and non-profit institutions serving households (NPISHs) dropped during the quarter.

Financial Account.  The financial account yielded net outflows (or net lending of residents to the rest of the world) of US$912 million in Q2 2014, lower than the US$2.6 billion net outflows registered in Q2 2013. Residents’ net acquisition of financial assets (US$2.8 billion) were higher than their net incurrence of liabilities (US$1.9 billion), driven primarily by the net outflows recorded in the other investment account even as portfolio investments posted higher net inflows and direct investments reversed to net inflows during the quarter.

The direct investments account posted US$429 million net inflows (or net borrowing of residents from the rest of the world) in Q2 2014, a reversal of the US$852 million net outflows in Q2 2013. The reversal of the direct investment account to net borrowing (net inflows) during the quarter could be attributed to favorable investor sentiment as a result of the country’s long-term sovereign credit rating upgrade by Standard & Poor’s in May 2014.

The portfolio investments account posted net inflows of US$521 million (or net borrowing of residents from the rest of the world) in Q2 2014, higher than the US$478 million net inflows registered in the same quarter last year. Residents’ net incurrence of liabilities, which increased by 90.1 percent to US$1.2 billion, was almost double their net acquisition of financial assets at US$681 million.

The other investments account yielded net outflows (or net lending by residents to the rest of the world) of US$1.9 billion in Q2 2014, albeit 18.8 percent lower than the US$2.3 billion net outflows in the comparable quarter in 2013. Residents’ net repayment of loans (US$1.3 billion) and trade credits (US$120 million) and placement of deposits abroad (US$623 million), combined with net lending by domestic banks to non-residents (US$286 million), accounted for the net outflows in the other investment account.

January-June 2014 Developments

The BOP position for the first six months of 2014 registered a deficit of US$4.1 billion, a reversal of the US$2.6 billion surplus recorded in the comparable period in 2013. This was due to the large net outflows in the financial account and the decline in the current account surplus.

Current Account. The current account surplus declined to US$3.9 billion (2.9 percent of GDP) in the first half of the year compared to US$4.4 billion (3.3 percent of GDP) in the comparable period in 2013. The 10.3 percent contraction in the current account surplus was due to the weaker balance of trade-in-goods and services accounts.

The trade-in-goods deficit in the first six months of 2014 widened by 13 percent as the growth in imports of goods (by 3.6 percent) outpaced that of exports of goods (by 0.3 percent). Imports of goods reached US$30.4 billion in the first six months of the year on account of higher purchases of capital goods (particularly aircraft, ships & boats), mineral fuel and lubricants, and consumer goods. Meanwhile, exports of goods reached US$21.8 billion due to higher shipments of mineral products, fruits & vegetables, coconut products, and other agro-based products.

The surplus in the services account fell by 17.8 percent to US$1.7 billion in the first half of 2014 as a result mainly of higher net payments for travel services. This was, however, compensated by the lower payments for transport services coupled with higher net receipts from personal, cultural, and recreational services.

The primary income account yielded net receipts of US$293 million from US$193 million due mainly to the 8.7 percent improvement in receipts from earnings of resident OF workers at US$3.7 billion in January-June 2014 from US$3.4 billion in the same period in 2013. This was partially moderated by the 5.8 percent increase in payments of investment income.

Net receipts in the secondary income account rose by 8.5 percent to US$10.5 billion, buoyed mainly by the 4.8 percent expansion in remittances of non-resident OF workers amounting to US$9.4 billion.
 Capital Account.  The capital account posted net receipts of US$52 million in the first half of the year, 9.3 percent lower than the US$57 million recorded in the same period last year. This resulted from the decline in capital transfers to the NG and corporates, households and NPISHs.

Financial Account.  The financial account registered net outflows (or net lending of residents to the rest of the world) of US$4.6 billion in the first six months of 2014,  rising by more than sixfold from the US$709 million posted in the same period the previous year. The substantial increase in net outflows was due primarily to the reversal of the portfolio investment account from net inflows to net outflows, coupled with the net outflows in other investments.

Direct investment account. Positive developments in the domestic front, including the credit rating upgrade from Standard and Poor’s in May 2014, resulted in higher foreign direct investments (FDI). The 76.9 percent increase in FDI to US$3.6 billion caused the reversal of the direct investment account to net inflows (US$1.1 billion) from net outflows (US$42 million).

Portfolio investment account. The reversal of the portfolio investment account to net outflows was due to residents’ net acquisition of financial assets of US$1.5 billion, coupled with non-residents’ net withdrawal of investments (US$370 million), in contrast to the previous period’s net placements (US$1.1 billion).

Other investment account. There were net outflows (or net lending by residents to the rest of the world) in the other investment account amounting US$3.8 billion, twice the US$1.9 billion recorded in the same period a year ago. This was due to the increase in residents’ net lending (US$1.3 billion) and deposit placements (US$1.4 billion) abroad coupled with net repayments of their foreign loans (US$1.7 billion).

Revised 2013 BOP data

Revised 2013 BOP data with accompanying technical notes will be released in the BSP website. The revisions mainly reflected data updates from various data sources and post-audit adjustments.

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