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Philippines' International Investment Position at end-December 2017 Registers Net Liability Position

03.28.2018

Preliminary data on the country’s net international investment position (IIP) as of end-December 2017 showed an overall net liability position of US$43.4 billion, US$7.9 billion higher than the US$35.5 billion recorded as of end-September 2017. The higher negative balance stemmed from the 5.7 percent increase in total external financial liabilities which outpaced the 2.2 percent growth in total external financial assets. As of end-2017, total external financial liabilities reached US$214 billion, while total external financial assets stood at US$170.6 billion.

External financial liabilities increased as foreign portfolio investments (FPI) expanded by 7.8 percent on account of the combined effect of price adjustments and the 4.7 percent growth in the Philippine Stock Exchange Index (PSEi) to 8,558.42 at end-2017. Foreign direct investments (FDI) likewise rose by 7 percent on the back of investor confidence on the country’s sound macroeconomic fundamentals and growth prospects. Moreover, the appreciation of the Philippine peso against the US dollar contributed partly to the overall increase in the country’s external financial liabilities as peso-denominated instruments posted higher US dollar equivalents.

Meanwhile, the country’s external financial assets improved as of end-December 2017 as all components registered growth led by residents’ direct (3.3 percent) and portfolio (6.3 percent) investments abroad. The accumulation in the country’s reserve assets (0.8 percent) likewise contributed to the overall expansion of external financial assets.

On a year-on-year basis, the country’s net external liability position as of end-December 2017 was higher by 55 percent than the prior year’s level of US$28 billion. Net IIP weakened due primarily to the 13.1 percent increase in external financial liabilities which outperformed the 5.8 percent increase in external financial assets. The expansion in liabilities emanated mainly from the influx of FDI which recorded an all-time high level of US$10 billion in 2017. Likewise, the hefty accumulation of FPI, particularly non-residents’ holdings of equity securities that were issued by residents, contributed to the rise in liabilities. The 25.1 percent increase in the PSEi from the 6,840.63 level as of end-2016 reflected the growth in stock prices and the expansion in FPI during the period.

Across sectors, the Bangko Sentral ng Pilipinas (BSP) remained the sole net lender of resources to the rest of the world with a net asset position of US$80.4 billion as of end-December 2017. By contrast, the other major sectors remained net users (borrowers) of foreign resources.

As of end-December 2017, about half (47.9 percent) of the country’s total external financial assets were held by the BSP. The Other Sectors’ external financial assets comprised more than a third (36.6 percent) of the country’s total external financial assets while Banks held the remaining 15.5 percent.

By type of instrument, almost half of residents’ total external financial assets were reserve assets of the BSP. Direct investments in the form of debt instruments (or intercompany lending) and equity capital placements in foreign affiliates accounted for 15.2 percent and 12.8 percent, respectively. The rest were residents’ holdings of debt securities issued by non-residents, currency and deposits abroad, and other assets.

Meanwhile, total external financial liabilities of the Other Sectors accounted for almost two-thirds (65.5 percent) of the country’s total external liabilities at US$140.2 billion as of end-2017. These were mostly in the form of non-residents’ holdings of equity capital and debt instruments issued by local affiliates, equity and debt securities issued by residents, and outstanding loans extended by non-resident creditors to residents. The General Government’s external liabilities comprised 17 percent of the country’s total external financial liabilities while the remaining 16.8 percent were held by Banks.

By type of instrument, the country’s total external financial liabilities to the rest of the world consisted mostly of non-residents’ holdings of equity securities issued by resident corporations (27.6 percent), non-residents’ placements of equity capital in resident affiliates (24 percent), and outstanding loans extended by non-resident creditors (19.2 percent). The remaining liabilities were outstanding intercompany borrowings, non-residents’ investments in resident-issued debt securities, and other liabilities.

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