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Q3 2014 BOP Position Yields US$712 Million Surplus; Jan-Sep Position Records US$3.4 Billion Deficit

12.19.2014

The country’s balance of payments position yielded a surplus of US$712 million in Q3 2014. This was lower by 42.9 percent than the US$1.2 billion surplus recorded in the same quarter a year ago. This developed mainly on account of the net outflows (or net lending of residents to the rest of the world) in the financial account, a reversal of the net inflows in Q3 2013. Meanwhile, the current account surplus improved, buoyed by the narrowing of the trade-in-goods deficit and the sustained increase in net receipts in the secondary income account. Global growth prospects remain uneven and sub-par. The outlook for the US economy continues to strengthen while economic conditions in the euro area remain fragile. 

For the first nine months of 2014, the overall BOP position registered a deficit of US$3.4 billion, a reversal of the US$3.8 billion surplus recorded in 2013. This developed as heightened uncertainty in the global financial markets resulted in substantial net outflows in portfolio investments in January even as the level of net outflows was dampened by some recovery in the financial markets during the rest of the period. Thus, the BOP deficit during the period January to September reflected the marked increase in net outflows in the financial account and the lower current account surplus in the earlier period. The net outflows in the financial account were due to the large net outflows in other investments and the reversal of portfolio investments to net outflows. Meanwhile, the lower surplus in the current account was due mainly to the narrowing of trade-in-services surplus.

 As a result, the country’s gross international reserves (GIR) reached US$79.6 billion as of end-September 2014, a decline of 4 percent (or US$3.6 billion) compared to the end-December 2013 GIR level of US$83.2 billion. At this level, reserves could sufficiently cover 10.8 months’ worth of imports of goods and payments of services and income. It was also equivalent to 8.3 times the country’s short-term external debt based on original maturity and 6.1 times based on residual maturity. 

Third Quarter 2014 Developments

Current Account.  The current account recorded a surplus of US$3 billion (equivalent to 4.4 percent of GDP) in Q3 2014, from US$2.6 billion (4.1 percent of GDP) in Q3 2013. The higher current account surplus was due to the narrowing of the trade-in-goods deficit and the continued increase in net receipts in secondary income, which more than offset the decrease in net receipts in trade-in-services and primary income.

The trade-in-goods posted a lower deficit of US$4.4 billion in Q3 2014 from US$5.2 billion in Q3 2013, as the growth in exports of goods outpaced that of imports. The narrowing of the trade-in-goods balance during the quarter reflected improving external demand as overall global growth dynamics are seen to remain broadly favorable.

The trade-in-services account registered a lower surplus of US$1.5 billion in Q3 2014, compared to the US$2.3 billion surplus in Q3 last year. The lower surplus was attributed largely to increased net payments for transport and travel services. Meanwhile, notable growth in net receipts was recorded in computer services (by 27 percent to US$795 million) and technical, trade-related, and other business services (by 7.5 percent to US$3.5 billion).

The primary income account recorded net receipts of US$247 million in Q3 2014, lower by 13.7 percent than the US$287 million in Q3 2013. The 8.3 percent growth in compensation inflows from resident overseas Filipino (OF) workers, which amounted to US$1.9 billion, was partially offset by the 12.5 percent increase in net payments of investment income.

Net receipts in the secondary income account expanded by 8.1 percent to US$5.7 billion in Q3 2014 compared to US$5.3 billion in Q3 2013. The growth was largely due to the 7.6 percent rise in personal transfers amounting to US$5.3 billion. Comprising nearly 98 percent of personal transfers, OF workers' remittances increased by 6.5 percent to US$5.2 billion.

Capital Account. Net receipts in the capital account fell to US$23 million in Q3 2014 from US$31 million in Q3 2013. The decline was due to lower net receipts of other capital transfers to corporates, households and non-profit institutions serving households (NPISHs) and general government, and higher net payments for the acquisition of nonproduced, nonfinancial assets.

Financial Account.  The financial account yielded net outflows (or net lending of residents to the rest of the world) of US$1.1 billion in Q3 2014, a reversal of the US$314 million net inflows (or net borrowing by residents from the rest of the world) in Q3 2013.  This was largely due to the substantial growth in net outflows in the other investment account and the reversal to net outflows in the direct investment account. Meanwhile, the higher net inflows in the portfolio investment account partially offset these outflows. 

The direct investments account recorded net outflows (or net lending of residents to the rest of the world) amounting to US$190 million in Q3 2014, a reversal of the net inflows of US$295 million in Q3 2013.  The turnaround stemmed from the significant rise in residents’ net acquisition of financial assets which more than offset the increase in the net incurrence of liabilities (foreign direct investments in the Philippines or FDI). FDI increased to US$1.4 billion (by 42.2 percent) from US$1 billion. The sustained increase in net FDI inflows during the quarter reflected the continued investor confidence in the country’s solid macroeconomic fundamentals.

The portfolio investments account posted net inflows (or net borrowing of residents from the rest of the world) of US$1.5 billion in Q3 2014, 71 percent higher than the net inflows in Q3 2013. Higher net inflows arising from residents’ net disposal of financial assets and net incurrence of liabilities were recorded during the period, at US$781 million (from US$354 million) and US$683 million (from US$502 million), respectively. The increase in net disposal of financial assets was largely due to non-residents’ higher net redemption of long-term debt securities held by residents. 

The other investment account recorded net outflows (or net lending by residents to the rest of the world) amounting to US$2.4 billion in Q3 2014, more than twice that of the previous period.  This is on the back of the increase in residents’ deposits abroad of US$1.2 billion, combined with resident banks’ net repayment of loans to non-resident creditors of US$850 million and non-residents’ withdrawal of deposits in resident banks amounting to US$652 million.

January-September 2014 Developments

Current Account. The current account posted a slightly lower surplus in the first nine months of 2014 to US$6.8 billion from US$7 billion in 2013. This was due mainly to the lower trade-in-services surplus.

The trade-in-goods deficit slightly widened from US$12.8 billion to US$13 billion. This developed as the increment in imports was higher than that in exports during the comparable period.  The 11.9 percent expansion in goods exports was mainly due to higher shipments of manufactured products, which grew by 11.9 percent to US$29.8 billion. Meanwhile, goods imports grew by 8.9 percent amounting to US$50.2 billion, on account of the higher purchases of capital goods, consumer goods, and mineral fuels and lubricants.

The trade-in-services surplus was down by 30.3 percent to US$3.1 billion from US$4.4 billion in the same period in 2013. The narrowing of the trade-in-services surplus was due primarily to increased net payments for travel services by 67.6 percent.

The primary income account registered net receipts of US$485 million, slightly higher than the US$479 million during the same period last year. This was mainly due to the 8.9 percent increase to US$5.5 billion in receipts from compensation of resident OF workers. 

Net receipts in the secondary income account increased by 8.4 percent to US$16.2 billion, the bulk of which consisted of non-resident workers' remittances which amounted to US$14.6 billion or a growth of 5.4 percent during the period.

Capital Account.  The capital account posted net receipts of US$75 million in the first nine months of the year, 15.2 percent lower than the US$88 million recorded in the same period last year. This was due mainly to the decline in capital transfers to the NG, corporates, households and NPISHs.

Financial Account.  The financial account registered significantly higher net outflows of US$5.6 billion in the first nine months of 2014. This was considerably higher than the US$395 million net outflows posted in the same period last year. The substantial increase in net outflows was due primarily to the net outflows in other investments, which more than doubled the previous year’s level and the reversal in portfolio investments from net inflows to net outflows.

The direct investment accounted yielded net inflows of US$934 million, more than threefold the US$252 million net inflows recorded a year ago. The increase was due to the 61.3 percent expansion in residents’ net incurrence of liabilities (or FDI) to US$4.9 billion from US$3 billion. Residents’ borrowings from their non-resident direct investors increased to US$3.1 billion while non-residents’ net placements in domestic equity capital also rose to US$1.1 billion. 

The portfolio investment account reversed to net outflows of US$368 million from US$2.1 billion net inflows. This developed due to residents’ net acquisition of foreign financial assets (particularly resident banks’ net placements in foreign-issued debt securities) from a net disposal of assets recorded during the same period last year. The substantial decline (by 81.3 percent) in non-residents’ net placements in resident-issued equity and debt securities also contributed to the net outflows.

The net outflows in the other investment account increased by 119.9 percent to US$6.2 billion from US$2.8 billion. This was due to the increase in residents’ net lending of US$4 billion, particularly on account of the higher net placements of deposits abroad and increase in resident banks’ lending to non-residents; coupled with residents’ net repayment of liabilities, particularly on loans to non-resident creditors, and  non-residents’ net withdrawal of deposit placements in resident banks.

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