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BOP Position for January-September 2005 Yields a High Surplus of US$2.7 Billion


The balance of payments (BOP) position in the third quarter of 2005 yielded a surplus of US$749 million, a reversal from the US$246 million deficit posted in the same quarter last year due to the robustness of the capital and financial account and continued surplus in the current account. These positive developments helped the BOP position revert to a surplus of US$2.730 billion in the first nine months of the year.  

The favorable outcome in the external payments position brought the BSP’s gross international reserves (GIR), including reserve position in the IMF, to US$18.5 billion as of end-September 2005, up by 14.3 percent from the end-December 2004 level of US$16.2 billion. At this level, reserves remained adequate and were equivalent to 4.1 months’ worth of imports of goods and payment of services and income (MIGSI). In terms of debt coverage, the reserves level was 3.1 times the amount of the country’s short-term external liabilities based on original maturity and 1.8 times based on residual maturity. 

Current Account

The current account, while less robust in the third quarter of 2005, remained in surplus at US$167 million, equivalent to 0.7 percent of GDP. The higher surplus in the current transfers account due to the continuous growth in workers’ remittances was partly offset by the higher deficits in the income and trade-in-goods accounts even as the services account posted a lower deficit. However, despite the weaker third quarter performance, the cumulative nine-month balance surged to US$1.205 billion surplus (1.7 percent of GDP) from only US$584 million a year ago. The significant improvement was attributed to the strong inflows of OFW remittances in the current transfers account and the contraction in the services account deficit. This more than compensated for the higher deficits in the trade-in-goods and income accounts. 

a)  Trade-in-Goods Account

Total export earnings in the third quarter of 2005 aggregated US$10.297 billion with the expansion coming mainly from shipments of electronics and garments.  Meanwhile, imports totaled US$12.694 billion, traced to higher purchases of all types of imports.

For the first three quarters of the year, the trade-in-goods deficit widened significantly as the 6.9 percent expansion in imports of goods outperformed exports growth of 3.6 percent. The nine-month cumulative levels of exports and imports of goods amounted US$29.315 billion and US$35.380 billion, respectively.

Electronics exports increased in the third quarter of the year at US$7.329 billion, up by 3.5 percent from last year’s level of US$7.084 billion. The third quarter’s expansion was attributed in large part to increased exports of other digital monolithic (137.8 percent), electrical machineries and equipment (55.0 percent) and input/output peripheral units (15.6 percent), which negated the contraction in semiconductor devices exports. These non-semiconductor products were marketed to the U.S., Netherlands, China and Japan. Meanwhile, exports of semiconductor devices while less brisk, remained the largest component of electronics exports cornering about 30 percent. These were shipped to China, Malaysia, Singapore and Hong Kong. These favorable developments led to the 2.1 percent growth in electronics shipments for the nine-month period to US$20.596 billion.   

Meanwhile, garments exports rebounded in the third quarter of 2005 with a 6.1 percent improvement in shipments that reached US$673 million from the year-ago level of US$634 million. This was a reversal from the contraction of 2.7 percent in the same period last year. As a result, total export earnings for the first three quarters of 2005, at US$1.713 billion, rose by 2.4 percent from last year’s level. 

On the other hand, imports of capital goods increased by 7.2 percent to US$2.376 billion in the third quarter of 2005, an improvement from the 0.8 percent contraction in same quarter a year ago. Growth was traced solely to higher procurement of power generating and specialized machines. However, the cumulative nine-month procurement of capital goods posted a contraction of 2.1 percent to US$6.503 billion, owing largely to the decline in purchases of telecommunications equipment as well as office and EDP machines compared to year-ago levels. 

Imports of raw materials and intermediate goods reached US$7.437 billion in the third quarter of 2005, up by 8.6 percent from last year’s level. Expansion was due to the rise in purchases of the following products: a) materials and accessories for the manufacture of electronics exports; b) semi-processed raw materials such as chemical compounds, artificial resins and medicinal and pharmaceutical chemicals; c) manufactured goods like iron & steel and textile yarn and fabric; and d) embroideries. This led to the 4.0 percent growth in imports of this commodity group to US$21.026 billion for the nine-month period. 

The substantial increase in imports of mineral fuels and lubricants in the third quarter of 2005 at US$ 1.836 billion was triggered by the continuing hike in world oil prices during the quarter. The 54.0 percent increase was mostly  attributed to the combined effects of the increase in the average price and volume of petroleum crude imports. In particular, imports of petroleum crude rose by 96.7 percent to US$1.202 billion as the average price climbed to US$55.04 per barrel from US$38.89 per barrel. Volume also increased to 21.84 million barrels from 15.71 million barrels during the quarter in review. These developments led to the 40.9 percent increment in imports of mineral fuels and lubricants in the nine months of the year to US$4.855 billion. 

Imports of consumer goods reached US$884 million in the third quarter of the year triggered by the rise in purchases of both durable and non-durable goods. This caused total consumer goods purchased during the first nine months of 2005 to rise by nearly 20 percent to US$2.646 billion.

b) Services Account

The trade-in-services account during the third quarter of 2005 posted a lower deficit of US$262 million owing largely to higher net inflows of travel, communication, construction, and computer and information services as well as passenger transportation services, coupled with lower net outlays for transportation, other business services, royalties and fees and financial services. These positive developments translated to a 24.5 percent improvement in trade-in- services during the first nine months of the year as the deficit narrowed to US$984 million from US$1.303 billion a year ago.

c) Income Account

The deficit in the income account in the third quarter of 2005 widened to US$262 million from only US$24 million deficit in the same period a year-ago. This developed on account of the higher net outflow in both direct and portfolio investment income accounts following one, the higher net outlays of dividends and profits to direct investors and two, increased interest payments by the general government on its bond and notes issues.  

These developments contributed to the widening of the net outflow in the income account to US$377 million in the first three quarters of the year from a net outflow of US$184 million in the same period last year. The 7.1 percent improvement in the compensation income of resident OFWs failed to offset the 15.0 percent increase in the investment income account deficit during the nine-month period. 

d)  Current Transfers

Net current transfers in the third quarter of 2005 rose to US$3.081 billion from the year-ago level of US$2.399 billion. The 28.4 percent improvement was attributed mainly to higher workers’ remittances which grew by 27.8 percent to reach US$2.803 billion during the quarter in review coupled with the significant increase in gifts and donations which are lodged in “other transfers” component. This brought net receipts from current transfers in the first nine months of 2005 to US$8.631 million, up by 25.5 percent from the year-ago level. 

Capital and Financial Account

The capital and financial account in the third quarter of 2005 reversed to a surplus of US$533 million in contrast to the US$671 million deficit posted in the same quarter last year. The reversal resulted from the recovery of the portfolio investment account which posted a surplus of US$1.151 billion which, combined with the higher direct investment inflows, more than offset the higher outflows in the other investment account. These developments brought the year-to-date capital and financial account balance to a surplus of US$2.249 billion from the US$407 million outflow posted in the same period a year-ago.

a) Direct Investments

The direct investment account surplus widened to US$327 million during the review quarter from US$226 million in the same quarter a year-ago. This positive performance resulted from higher non-residents’ net investments which grew by 13.0 percent to reach US$347 million during the quarter, in tandem with the 75.3 percent decline in resident investments abroad amounting to US$20 million. Higher equity placements by non-residents amounting to US$373 million were recorded during the quarter in review, the bulk of which came from the U.S.A, Japan, and Germany and were directed to the manufacturing and services sectors.  

Following this development, direct investment during the nine-month period rebounded to post a surplus of US$756 million from a deficit of US$39 million on the combined effects of higher non-residents’ equity investments and lower equity placements by residents abroad.  

b)  Portfolio Investments

The portfolio investment account recorded a surplus of US$1.151 billion in the third quarter of the year, a reversal from the US$127 million deficit posted in the same quarter of 2004. The turnaround was on account of the: i) withdrawal by resident banks of their placements in debt securities abroad amounting to US$1.137 billion; ii) non-residents’ increased placements in equity securities of US$803 million; and iii) non-residents’ subscription to the bond and note issuances by the national government and a government corporation. 

The market’s upbeat mood following a string of positive developments such as: i) favorable third quarter corporate earnings results; ii) decelerating inflation rates; iii) third quarter real GDP growth; iv) fiscal surplus in August; v) continued export growth; and vi) double-digit growth in OFW remittances, resulted in net portfolio investment inflows of US$3.178 billion during the nine-month period. This is a turnaround from the US$902 million net outflow recorded a year ago. 

c) Other Investments

The other investment account deficit in the third quarter widened to US$965 million from US$747 billion in the same quarter in 2004. Accounting for the higher deficit were the following: i) lower loan availments of the National Governmenmt and private entities; ii) withdrawal by non-residents of their deposits with domestic commercial banks; and iii) increased currency and deposits placement abroad by private entities (e.g. temporary placements by build-operate- transfer (BOT) companies of their idle project funds in their trust accounts abroad). Thus, the year-to-date other investment account balance was a deficit of US$1.679 billion from a surplus of US$567 million in the same period in 2004.

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