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Q2 2017 BOP Shows Surplus

09.15.2017

The country’s balance of payments position (BOP) rebounded in Q2 2017, yielding a surplus of US$289 million after posting a deficit in the first quarter of the year. This was lower than the US$843 million surplus registered in the same quarter last year due to less net inflows (or net borrowing by residents from the rest of the world) in the financial account even as the current account reversed to a surplus. Net inflows in the financial account declined to US$688 million due mainly to net outflows in the other investment account and the lower net inflows of direct investments. Residents repaid and prepaid their external debt and some invested in foreign equities. Meanwhile, the current account registered a surplus of US$15 million from a deficit of US$1.3 billion in Q2 2016. Global economic conditions continued to improve as indicators of activity signaled sustained expansion in the U.S., euro area, and China even with slower growth in Japan and India. Overall growth prospects for the global economy remained broadly positive which helped improve the country’s external trade and sustain investor confidence on the Philippine economy.

Second Quarter 2017 Developments

Current Account. The current account registered a surplus of US$15 million in Q2 2017, a reversal from the US$1.3 billion deficit recorded in Q2 2016. This development was brought about mainly by higher net receipts in the trade-in-services, and primary and secondary income accounts which mitigated the widening trade-in-goods deficit during the quarter.

The trade-in-goods deficit increased to US$9.7 billion in Q2 2017 from US$9.5 billion in Q2 2016 even as exports of goods started to recover. Exports of goods rose by 17.6 percent to US$12.2 billion in Q2 2017 from US$10.4 billion in Q2 2016, with increases recorded across all major commodity groups, except petroleum products, on the back of increased demand from the country’s major trading partners (i.e., China, Hongkong SAR, Japan, Taiwan, Thailand). Imports of goods recorded US$22 billion in Q2 2017, higher by 10.3 percent than the US$19.9 billion recorded in Q2 2016 due mainly to increased imports of raw materials and intermediate goods.

Net receipts in trade-in-services expanded by 69 percent to reach US$2.3 billion in Q2 2017, compared to the US$1.3 billion net receipts in Q2 2016. The upturn was attributed largely to lower net payments in travel, transport, and financial services and higher net receipts in technical, trade-related, and other business services, and computer services. These gains more than compensated for lower net receipts in manufacturing services as well as higher net payments in charges for the use of intellectual property. Export revenues in business process outsourcing services amounted to US$5.5 billion in Q2 2017, or an increment of 7 percent from the US$5.1 billion receipts in Q2 2016.

The primary income account posted net receipts of US$1 billion in Q2 2017, higher than the US$696 million net receipts in Q2 2016. The 44.8 percent increment was due largely to lower net payments of investment income (by 18.6 percent) arising mainly from decreased interest payments on bonds issued by the National Government (NG) coupled with lower dividends paid to non-resident portfolio investors which mitigated the increased reinvested earnings in favor of  foreign direct investors (by 11 percent).

Net receipts in the secondary income account reached US$6.5 billion in Q2 2017, higher than the US$6.2 billion net receipts in Q2 2016. The 4 percent increase resulted mainly from the 82.4 percent increase in net receipts of other current transfers (i.e., gifts and donations from non-residents) along with the 2.3 percent growth in personal transfers amounting to US$6 billion.

Capital Account. Net receipts in the capital account improved to US$37 million in Q2 2017 from US$26 million in Q2 2016. Inflows arising from the NG’s receipts in other capital transfers were higher during the quarter.

Financial Account.  The financial account registered net inflows (or net borrowing of residents from the rest of the world) of US$688 million in the second quarter of 2017, down by 70.2 percent than the level posted in the same quarter last year. The reduction in net inflows was brought about mainly by the other investment account which realized net outflows, a turnaround from the net inflows recorded in Q2 2016, and the decrease in net inflows of direct investments during the quarter. These developments partly dampened the reversal of the portfolio investment account to net inflows from net outflows.
    
Direct investments recorded net inflows of US$2.1 billion in Q2 2017, lower than the US$2.4 billion net inflows recorded in the same quarter a year ago. This developed as the decline in inflows (residents’ net incurrence of liabilities or FDI) more than offset the decline in outflows (residents’ net acquisition of financial assets).  In particular, FDI dropped by 25.7 percent to US$2.1 billion. By component, non-residents’ net placements of equity capital in local affiliates fell by 95.5 percent to US$40 million. Gross placements originated mostly from the U.S., Japan, Hongkong, Singapore and Taiwan. These were channeled to the real estate; financial and insurance; electricity, gas, steam and air conditioning supply; wholesale and retail trade; and manufacturing activities. Meanwhile, non-residents’ net placements in debt instruments (or intercompany borrowings) increased by 6 percent to US$1.9 billion.

The portfolio investment account registered net inflows of US$244 million in Q2 2017, a reversal from the US$880 million net outflows in Q2 2016 on account of the 72.7 percent decline in residents’ net acquisition of financial assets, coupled with the 59.2 percent increase in residents’ net incurrence of liabilities, or foreign portfolio investments, which amounted to US$585 million.

The other investment account yielded net outflows of US$1.7 billion in Q2 2017, a reversal from the US$879 million net inflows recorded in the same quarter a year ago. This developed on account of residents’ net acquisition of financial assets totaling US$931 million, combined with their repayment of liabilities amounting to US$741 million. Residents’ net acquisition of financial assets during the quarter was in sharp contrast to the US$636 million net disposal of financial assets in
Q2 2016. This was due to resident banks’ net lending to non-residents (US$645 million) from net repayment of non-residents to resident banks in Q2 2016, trade credit and advances extended to non-residents (US$215 million), and c) resident private corporations’ net placements in currency and deposits abroad (US$514 million), a reversal from net withdrawal in Q2 2016.
 
January-June  2017 Developments

For the period January-June 2017, the BOP posted a deficit amounting to US$706 million from a surplus of US$634 million in the comparable period in 2016.

Current Account. The current account registered a deficit of US$234 million (0.2 percent of GDP) in the first half of 2017, lower than the US$424 million deficit (0.3 percent of GDP) in the same period in 2016. The improvement in the current account stemmed mainly from increased net receipts in the trade-in-services, and secondary and primary income accounts which partly negated the widening deficit in the trade-in-goods account.

The trade-in-goods deficit for the first half of 2017 went up by 9.4 percent to almost US$19 billion as imports of goods expanded by US$5.3 billion from the previous year’s level, compared to the increase in exports of goods of US$3.7 billion. Exports of goods grew by 18 percent to US$24 billion in the first six months of 2017 from US$20.3 billion in the same period last year. Growth was driven primarily by increased shipments of manufactured goods (by 12.1 percent), mineral products (by 87.7 percent), and coconut products (by 78.2 percent). Imports of goods rose to US$43.4 billion in the first six months of 2017 from US$37.7 billion in the same period in 2016. The 15.2 percent increment emanated mainly from higher imports of raw materials and intermediate goods (16.8 percent), and mineral fuels and lubricant (30.6 percent), indicating continued expansion in domestic economic activity.

Net receipts in the trade-in-services account amounted to US$4.6 billion in the first half of 2017, higher than the US$3.5 billion net receipts registered in the comparable period last year. The 33.9 percent improvement was due to lower net payments for travel combined with increased net receipts in computer, and technical, trade-related and other business services. This positive outcome more than offset the higher net payments in charges for use of intellectual property. Earnings from BPO services in January-June 2017 amounted to US$11 billion or a growth of 8.5 percent from the same period in 2016.

The primary income account recorded net receipts of US$1.7 billion, 27.2 percent higher than the US$1.3 billion net receipts in  the first half of 2016. This developed as a result mainly of the contraction in net payments in investment income (by 12.9 percent) on account of lower dividend payments on direct investments (by 14.8 percent) combined with increased interest receipts on portfolio investments (by 221.7 percent) and on reserve assets (by 19.3 percent).

Net receipts in the secondary income account grew by 6 percent to US$12.8 billion, buoyed primarily by the 5.5 percent increase in remittances of non-resident OF workers amounting to
US$11.9 billion.

Capital Account.  Net receipts in the capital account reached US$53 million in the first six months of 2017. This was higher by 5.6 percent than the US$50 million recorded in the same period in 2016, due mainly to the 18.8 percent growth in other capital transfers to the NG.

Financial Account.  The financial account reversed to net outflows (or net lending of residents to the rest of the world) of US$135 million in the first half of 2017 from US$1.5 billion net inflows posted in the same period last year. This development was due to the reversal of the other investment account to net outflows and the increase in net outflows of portfolio investments combined with the decline in net inflows of direct investments during the period.

The direct investment account recorded net inflows of US$3.2 billion in the first six months of 2017, lower than the US$3.6 billion net inflows posted in the same period a year ago. The decline was brought about by lower net inflows of FDI which fell by 14 percent even as resident’s net acquisition of financial assets dropped by 39.3 percent to US$404 million due to the 78.7 percent decline in investments in debt instruments. FDI net inflows were lower as non-residents’ net placements of equity capital declined by 90.3 percent to US$141 million from US$1.4 billion a year ago. The decline in equity capital more than offset the 29.2 percent increase in investments in debt instruments issued by local subsidiaries/affiliates (intercompany borrowing) to US$3 billion and the 9 percent rise in reinvestment of earnings to US$416 million.

Net outflows of portfolio investments grew by 30.3 percent in January to June to reach US$3.0 billion on account mainly of higher net repayment of liabilities by residents (US$2.1 billion). Net repayment of liabilities consisted mainly of net redemption of debt securities issued by local banks (US$471 million) and by the NG (US$1.8 billion) that were held by non-residents. Meanwhile, the bulk of residents’ net acquisition of financial assets consisted of net placements by local corporations in debt securities (US$636 million) issued by non-residents.

The other investment account recorded net outflows of US$468 million, a reversal from the net inflows of US$325 million in the first half of 2016. Net outflows emanated mainly from resident banks’ lending to non-residents (US$1.3 billion), trade credit and advances extended to non-residents (US$436 million), and loan repayments by domestic private corporations (US$827 million) in the first half of 2017.

Gross International Reserves. The country’s gross international reserves (GIR) amounted to
US$81.3 billion as of end-June 2017, higher than the US$80.9 billion level as of end-March 2017 but lower than the US$85.3 billion level as of end-June 2016. At this level, reserves could sufficiently cover 8.5 months’ worth of imports of goods and payments of services and income. It was also equivalent to 5.6 times the country’s short-term external debt based on original maturity and
3.8 times based on residual maturity.

Revised 2016 BOP data
The 2016 BOP data have been revised to reflect updates from various data sources and
post-audit adjustments. The revised 2016 BOP data with accompanying technical notes are posted in the BSP website.

 

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