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Q1 2016 BOP Yields Shortfall; Global Volatility Causes FX Outflows


The country’s balance of payments position yielded a deficit of US$210 million in Q1 2016, a reversal of the US$877 million surplus registered in Q1 2015. The negative overall BOP position was a result of higher net outflows (or net lending by residents to the rest of the world) in the financial account, even as the current account recorded a surplus. The financial account recorded higher net outflows at US$959 million stemming largely from the other investment account, particularly residents’ net repayment of loans and placement of deposits abroad. Meanwhile, the current account registered a lower surplus at US$447 million as the trade-in-goods deficit widened significantly with declining exports and increasing imports. Global economic activity softens in early 2016 even as growth in the US, euro area and Japan continued to regain momentum. In contrast, downturns were noted in major emerging markets such as India and China. The subdued economic outlook for emerging markets dampened global growth prospects to which several central banks responded by easing monetary policy settings in order to stave off deflationary pressures. 
Meanwhile, the country’s gross international reserves (GIR) amounted to US$83 billion as of end-March 2016, higher than the US$80.7 billion level as of end-December 2015 and US$80.5 billion as of end-March 2015. At this level, reserves could sufficiently cover 10.2 months’ worth of imports of goods and payments of services and income. It was also equivalent to 5.8 times the country’s short-term external debt based on original maturity and 4.2 times based on residual maturity.  The increase in reserves was mainly due to the net foreign currency deposits by the NG and income from the BSP’s investments abroad

First Quarter 2016 Developments

Current Account. The current account registered a surplus of US$477 million (equivalent to 0.6 percent of GDP) in Q1 2016, lower than the US$2.2 billion surplus (3.2 percent of GDP) posted in Q1 2015. The sharp decline in the current account surplus was attributed to the significant widening of the trade-in-goods deficit as merchandise exports fell while merchandise imports increased. Higher net receipts in the services, primary and secondary income accounts kept the current account in surplus territory, offsetting the widened trade-in-goods deficit.

The trade-in-goods deficit widened to US$8 billion in Q1 2016 from US$4.8 billion in Q1 2015 due to the combined effects of the decline in exports of goods by 11.9 percent and the expansion in imports of goods by 12.8 percent. Exports of goods reached US$9.2 billion in Q1 2016 from US$10.5 billion in Q1 2015, as exports to major trading partners notably the U.S., China and Japan exhibited declines during the quarter. Weaker exports were attributed mainly to manufactures, which fell by 9.2 percent, particularly lower shipments of chemicals, garments, machinery and transport equipment, processed food and beverages, and other manufactures. Meanwhile, higher imports of goods at US$17.3 billion were due mainly to increased imports of capital goods, raw materials and intermediate goods, and consumer goods.

Net receipts in trade-in-services rose to US$1.5 billion in Q1 2016, compared to the US$957 million net receipts in Q1 2015. The 56.4 percent growth was due largely to the decrease in net payments in travel services combined with higher net receipts in technical, trade-related and other business services (5.7 percent), and computer services (27.4 percent). Export revenues in business process outsourcing services totaled US$4.7 billion in Q1 2016.

The primary income account recorded higher net receipts (US$579 million) in Q1 2016 amid lower residents’ payment of dividends to non-resident investors. The 1.5 percent increase in compensation inflows from resident overseas Filipino (OF) workers (US$1.9 billion) also contributed to the increase in net receipts in primary income.

Net receipts in the secondary income account reached US$6.4 billion in Q1 2016, 11.1 percent higher than the US$5.7 billion net receipts in Q1 2015. The large net receipts were attributed mainly to the US$5.6 billion personal transfers which grew by 3.0 percent. The bulk of these personal transfers came from non-resident OF workers' remittances (about 98 percent), which increased by 3.2 percent to US$5.5 billion.

Capital Account. Net receipts in the capital account increased to US$25 million in Q1 2016 from US$17 million in Q1 2015. Inflows arising from the NG’s receipts in other capital transfers were higher during the quarter.

Financial Account.  The financial account yielded net outflows (or net lending by residents to the rest of the world) of US$959 million in Q1 2016, more than sixfold the US$152 million net outflows in Q1 2015. This was due mainly to the significant increase in net outflows of other investments (by more than five times) coupled with the reversal of portfolio investments to net outflows from net inflows. These higher net outflows, however, were partly offset by the reversal of the direct investment account to net inflows from net outflows.  
Direct investments recorded net inflows of US$923 million in Q1 2016, a turnaround from the US$358 million net outflows in Q1 2015. Residents’ net incurrence of liabilities (foreign direct investments in the Philippines or FDI) rose to US$1.3 billion while their net acquisition of financial assets declined to US$370 million. FDI continued to register net inflows on the back of the country’s sustained positive economic performance and growth prospects. Non-residents’ placements of equity capital increased by 94.6 percent to US$495 million boosted by investments coming from Hong Kong, Singapore, Spain, the Bahamas, and Taiwan. Non-residents’ net placements in debt instruments (or intercompany borrowings) likewise rose by 50.1 percent to US$617 million. Meanwhile, residents’ net acquisition of financial assets declined by 69.4 percent amid lower net placements of equity capital and debt instruments issued by foreign affiliates.

The portfolio investment account reversed to net outflows at U$522 million in Q1 2016 from US$459 million net inflows in Q1 2015 on account of the 57.8 percent decline in residents’ net incurrence of liabilities, or foreign portfolio investments to US$563 million, combined with the 24.2 percent growth in residents’ net acquisition of financial assets to reach US$1.1 billion. On the liability side, net placements by non-residents in equity and investment fund shares issued by private corporations fell by 92.9 percent at US$77 million, reflective of investor risk aversion on emerging markets amid subdued global growth prospects. Meanwhile, non-residents’ net placements in debt securities more than doubled to US$485 million on account mainly of the NG’s net issuances of long-term bonds amounting to US$797 million. On the asset side, the higher residents’ net acquisition of financial assets was driven mainly by the rise in non-bank corporations’ placements in foreign debt securities to US$587 million from US$5 million in Q1 2015.

The other investment account yielded US$1.4 billion net outflows in Q1 2016, more than fivefold the US$251 million posted in the same quarter a year ago. The outflows emanated mainly from residents’ net acquisition of financial assets totaling US$1.3 billion, which was a reversal of the US$2 billion net disposal of financial assets in the previous year. This was brought largely by net placements of currency and deposits abroad by local banks (US$885 million) from net withdrawals last year (US$1.2 billion). On the liabilities side, sources of outflows included net repayments of loans by local banks (US$1.8 billion).

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