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Strong Current Account Boosts BOP Surplus in Q1 2015


The country’s balance of payments position yielded a surplus of US$877 million in Q1 2015, a reversal of the US$4.5 billion deficit registered in Q1 2014. This favorable development stemmed from the robust inflows in the current account, combined with the marked decline in net outflows (or net lending by residents to the rest of the world) in the financial account. The current account continued to perform strongly as all sub-accounts registered improvements. Meanwhile, in the financial account, net outflows in the other investment and portfolio investment accounts were significantly lower. The improving global economic conditions supported the favorable outturn in the country’s BOP. In particular, the economic momentum in the United States remained firm and Japan showed some modest expansion. Some growth was also seen in the euro area owing largely to firming domestic demand and gradual strengthening of external trade. Meanwhile, the global inflation environment remained benign, reflecting the broadly subdued outlook for the international price of oil. On the domestic front, manageable inflation, higher-than-expected output growth in Q4 2014, and reports of strong corporate earnings boosted investor optimism.

As a result, the country’s gross international reserves (GIR) increased by US$1 billion to reach US$80.5 billion as of end-March 2015 from US$79.5 billion as of end-December 2014. At this level, reserves could sufficiently cover 10.6 months’ worth of imports of goods and payments of services and income. It was also equivalent to 6.1 times the country’s short-term external debt based on original maturity and 4.6 times based on residual maturity.

First Quarter 2015 Developments

Current Account. The current account registered a surplus of US$3.3 billion (equivalent to 4.8 percent of GDP) in Q1 2015, more than twice the US$1.5 billion surplus (2.3 percent of GDP) posted in the comparable quarter last year. The notable improvement in the current account surplus was attributed to higher net receipts in the services, primary and secondary income accounts coupled with the narrowing of the trade-in-goods deficit.

The trade-in-goods deficit narrowed to US$4.7 billion in Q1 2015 from US$5.4 billion in Q1 2014 due mainly to the combined effects of the decline in imports of goods by 3 percent, stemming largely from the drop in the value of petroleum crude imports due to the fall in the international price of crude oil, and the expansion in exports of goods by 2.5 percent.  Exports of goods totaled US$10.4 billion in Q1 2015 from US$10.2 billion in Q1 2014, driven by the continued demand from major trading partners such as the U.S., Hong Kong, and Malaysia. The uptrend was attributed mainly to exports of manufactures which grew by 3.3 percent to reach US$8.4 billion. Imports of goods amounted to US$15.1 billion in Q1 2015, lower by 3 percent than the US$15.6 billion posted in Q1 2014, due mainly to the contraction in imports of mineral fuels and lubricants and capital goods.

Net receipts from trade-in-services rose to US$2.5 billion in Q1 2015, compared to the US$1.8 billion net receipts in Q1 2014. The 38.8 percent growth was due largely to net receipts in technical, trade-related and other business services (US$3.2 billion), and computer services (US$928 million). Export revenues in business process outsourcing services totaled US$4.3 billion in Q1 2015. Higher net receipts were likewise registered in personal, cultural, and recreational services. Meanwhile, the decreases in net payments of financial, and maintenance and repair services also contributed to the growth in net receipts in trade-in-services.

The primary income account recorded net receipts of US$308 million in Q1 2015, more than fourfold the US$66 million net receipts in the comparable period last year. This was due largely to lower net payments of investment income (by 7.4 percent) on account of reduced net payments of dividends and reinvested earnings on foreign direct investments, along with the 6.4 percent increase in compensation inflows from resident overseas Filipino (OF) workers which amounted to US$1.9 billion.

Net receipts in the secondary income account reached US$5.2 billion in Q1 2015, 2.8 percent higher than the US$5 billion net receipts in Q1 2014. Growth was attributed mainly to the 3.9 percent improvement in personal transfers totaling US$4.8 billion. The bulk of these personal transfers came from non-resident OF workers' remittances (about 98 percent), which increased by 4.2 percent to US$4.7 billion.

Capital Account. Net receipts in the capital account declined to US$22 million in Q1 2015 from US$26 million in the same quarter last year. Outflows arising from residents’ net acquisition of non-produced non-financial assets from non-residents were higher during the quarter.

Financial Account.  The financial account posted net outflows (or net lending by residents to the rest of the world) of US$606 million in Q1 2015, lower by 85.2 percent than the US$4.1 billion net outflows in Q1 2014. This was driven by the notable decline in net outflows of portfolio investments (by 91.9 percent) and other investments (by 99.6 percent). These lower net outflows, however, were offset by the reversal of the direct investment account to net outflows from net inflows during the quarter. 

Direct investments registered net outflows of US$395 million in Q1 2015, a reversal of the US$487 million net inflows posted in the same quarter last year. Residents’ net acquisition of financial assets amounting to US$1.2 billion were greater than their net incurrence of liabilities (foreign direct investments in the Philippines or FDI) of US$851 million. In particular, residents’ net placements of equity capital abroad increased by 83.1 percent to reach US$348 million while their placements in debt instruments issued by non-residents (or intercompany borrowings) declined by 13.5 percent (at US$873 million).

Net outflows in the portfolio investments account amounted to US$227 million in Q1 2015, markedly lower than the US$2.8 billion net outflows in the same quarter last year. This developed as net incurrence of liabilities or foreign portfolio investments totaled US$1.3 billion, a reversal of the US$1.6 billion net repayment of liabilities in the same quarter in 2014. In particular, net placements by non-residents in debt securities were posted during the quarter at US$234 million in contrast to the net withdrawals of US$1.9 billion a year ago.

The other investment account registered net outflows of US$7 million in Q1 2015, a marked decline from the US$1.8 billion net outflows recorded in the same quarter last year. The outflows were due mainly to the net repayment of liabilities by residents, particularly loans availed of by domestic deposit-taking corporations from non-residents (US$3.0 billion). Meanwhile, the main sources of inflows during the quarter were the net withdrawal of foreign currency and deposits by residents (US$1.4 billion) and net repayment by non-residents of loans availed from domestic deposit-taking corporations (US$1.0 billion). 

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