The balance of payments (BOP) for the fourth quarter of 2003 reversed to a surplus of $886 million from $89 million deficit in the same quarter in 2002, attributed mainly to the continued surplus in the current account. This brings the cumulative BOP position in 2003 to a surplus of $111 million compared to the $663 million surplus in 2002.
The current account continued to post a surplus of $1,497 million in the fourth quarter of 2003, although lower than the $1,597 million surplus in the same period in 2002. The robust net inflow in the income account throughout the year, particularly from OFWs, tempered the decline in the trade balance, ending 2003 with a cumulative current account surplus of only $3,347 million compared to previous year’s level of $4,383 million.
The income account balance registered a higher surplus of $1,417 million in the fourth quarter 2003 primarily on account of higher remittances of OFWs which rose by 9.8 percent to $1,977 million. For 2003, OFW remittances grew by 6.3 percent to $7,640 million, resulting in net income inflows of $5,215 million or 16.1 percent higher than the year-ago level. The increased deployment of sea-based workers and higher-paid land-based OFWs (e.g., caregivers/caretakers, office managers, clerks and utility personnel) cushioned the impact of the decline in deployment of other land-based workers. The lower payment of dividends and profits during the review quarter due to the generally weak corporate performance also contributed to the improved performance of the income account.
The trade-in-goods balance posted a lower surplus at $121 million in the fourth quarter of 2003 as growth in imports outpaced that of exports. Overall, however, the trade-in-goods balance posted a deficit of $1,253 million for 2003 from previous year’s surplus of $407 million on account largely of weak exports in the early part of the year to pull off by only 1.4 percent compared to the 6.3 percent imports growth.
Exports of goods reached $9,249 million following the recovery in exports of manufactured goods, particularly electronics, machinery and transport equipment, chemicals and coconut oil. This was due in part to the increased demand from partner countries spurred by expectations of improving global economy in the last quarter of 2003. Meanwhile, lower exports of garments, fruits and vegetables and mineral products mitigated the gains realized by these major commodities. Hence, exports rose minimally by 1.4 percent in 2003 to $34,842 million.
On the other hand, imports, particularly of capital goods and raw materials and intermediate goods, rebounded in the fourth quarter, after two quarters of decline. The increase in imports indicated a more robust domestic economic activity in 2004. This development, combined with the first quarter import surge, brought cumulative imports to $36,095 million or a growth of 6.3 percent for 2003.
Meanwhile, the deficit in the trade-in-services account narrowed by 20.4 percent to $207 million in the fourth quarter 2003 due to higher receipt from travel and communication services. Net inflows from travel in the fourth quarter were 66.5 percent higher at $258 million as geopolitical concerns as well as the fear of the SARS epidemic diminished. Notwithstanding the last quarter surge, the cumulative trade-in-services deficit for the 2003 at $1,227 million was 20.6 percent higher than 2002 deficit of $1,017 million.
The capital and financial account, on the other hand, yielded a higher net outflow in the fourth quarter, bringing the cumulative deficit to $5,319 million for 2003. Both direct and portfolio investment accounts were weak in 2003 relative to 2002, weighed down by global uncertainty during the first half of the year, domestic political noise and corporate restructuring.
Net inflows of direct investments declined by 88.3 percent in the fourth quarter bringing aggregate net inflows in 2003 to $161 million from $1,733 million in 2002. A number of approved big ticket investments were deferred, due partly to pending inter-company re-alignments and take-over as well as domestic political pressures. Moreover, the sale by a foreign investor of its shares in a telecommunications company to its local partner company contributed to the further contraction of the direct investments account.
Similarly, weaker portfolio investment account in the fourth quarter resulted in a cumulative net outflow of $706 million in 2003, a turnaround from the net inflow of $1,122 million in 2002. Behind this development was the repayment of bonds and residents’ purchases of foreign-issued local debt papers in the secondary market which more than offset the bond flotation of the National Government intended to pre-fund the National Government’s (NG) 2004 requirements.
By contrast, the net outflow in the other investment account in the fourth quarter was reduced significantly by 66.3 percent. Largely contributing to this development were banks’ issues of unsecured subordinated debt which were eligible as tier 2 capital. However, even with the positive development in the fourth quarter, the full-year 2003 deficit of $4,795 million was 7.0 percent higher than the previous year net outflow of $4,480 million with the net repayment of loans particularly by the National Government and local companies.
Reflecting all the external payments developments, the BSP’s gross international reserves (GIR) as of end-December 2003 remained comfortable at $16.9 billion, adequate to cover 4.7 months’ worth of imports of goods and payment of services and income. Based on other reserve coverage measures, the level of reserves was 2.9 times the amount of the country’s short-term external debt based on original maturity or, alternatively, 1.5 times the amount of short-term external debt based on residual maturity.