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Q4 2018 BOP Position Registers Higher Surplus; Full-Year 2018 BOP Position Deficit Increases

03.15.2019

The country’s balance of payments position (BOP) recorded a surplus of US$2.8 billion in Q4 2018, markedly higher than the US$505 million surplus posted in the same quarter of the previous year. This positive development stemmed mainly from the higher net inflows (i.e., net borrowing by residents from the rest of the world) in the financial account, mainly other investments and portfolio investments. These net inflows during the quarter surged on the back of strong investor confidence on the country’s sound macroeconomic fundamentals. Meanwhile, the current account remained in deficit, albeit lower, due to the the higher imports of raw materials and intermediate goods and capital goods as domestic economic activity continued to progress.

As a result of these developments, the country’s gross international reserves (GIR) amounted to US$79.2 billion as of end-December 2018, lower than the US$81.6 billion level recorded in
end-December 2017. At this level, reserves may sufficiently cover 7 months’ worth of imports of goods, and payments of services and primary income. It was also equivalent to 4.9 times the country’s short-term external debt based on original maturity and 3.6 times based on residual maturity. The year-on-year decline in reserves was on account largely of the outflows arising from the BSP’s foreign exchange operations as well as the NG’s payments for its foreign exchange obligations.
 
Fourth Quarter 2018 Developments

Current Account. The current account recorded a deficit of US$2.4 billion in Q4 2018, 2.8 percent lower than the US$2.5 billion deficit registered in Q4 2017. The continued deficit in the current account was due to the widening of the trade-in-goods deficit, even as the net receipts of primary and secondary income and trade-in-services increased during the quarter.

The trade-in-goods deficit increased to US$13.3 billion in Q4 2018 from US$12.5 billion in Q4 2017 due to the 3.1 percent expansion in imports of goods and the 0.7 percent decline in exports of goods. Exports of goods decreased slightly to US$12.6 billion in Q4 2018 from US$12.7 billion in Q4 2017, owing to sluggish demand from the country’s trading partners, particularly in newly industrialized economies such as Hong Kong, South Korea, and Singapore. By commodity group, the decrease in exports of goods stemmed mainly from lower shipments of mineral products. Exports of mineral products decreased by 28.9 percent owing to the decline in shipments of gold and copper metal as a result of the fall in their world market prices. Imports of goods rose to US$25.9 billion in Q4 2018, higher than the US$25.1 billion in the same quarter a year ago. The 3.1 percent growth was driven by increased imports of mineral fuels and lubricants, raw materials and intermediate goods, and capital goods.

Net receipts of trade-in-services rose by 8.2 percent, amounting to US$2.5 billion in Q4 2018 from US$2.3 billion net receipts in Q4 2017. This increase stemmed mainly from higher net receipts in other business services, particularly technical, trade-related, and other business services, coupled with lower net payments of travel services.

The primary income account registered net receipts of US$1.3 billion in Q4 2018, higher by 53.6 percent than the US$857 million net receipts in Q4 2017. This was attributed mainly to the 26.1 percent decline in net payments of investment income, particularly dividends on direct investments (by 14.5 percent) and interest expense on long-term portfolio investments (by 27.7 percent). Also contributing to the upturn in the primary income account was the higher compensation inflows from resident overseas Filipino (OF) workers, amounting to US$2.2 billion and the higher interest receipts on reserve assets totaling US$338 million during the quarter.

Net receipts in the secondary income account amounted to US$7.1 billion in Q4 2018, 4.1 percent higher than the US$6.8 billion net receipts in Q4 2017. This increase was on account of the 4 percent improvement in net receipts of personal transfers, amounting to US$6.7 billion, the bulk of which comprised of non-resident OF workers' remittances, totaling US$6.5 billion from US$6.3 billion in Q4 2017.

Capital Account. The capital account registered net receipts of US$20 million in Q4 2018, a 16.9 percent increase from the net receipts of US$17 million recorded during the same quarter in 2017.

Financial Account.  The financial account recorded higher net inflows (i.e., net borrowing of residents from the rest of the world) of US$3.8 billion in Q4 2018 compared to the US$3.6 billion net inflows recorded in Q4 2017. This resulted mainly from the increase in net inflows of other investments and portfolio investments.
    
The direct investment account yielded net inflows of US$797 million in Q4 2018, albeit lower than the US$2.5 billion net inflows in the same quarter in 2017. This resulted from the marked reduction in residents’ net incurrence of liabilities (i.e., foreign direct investments (FDI)) to US$1.7 billion during the quarter from US$3.7 billion in Q4 2017. Non-residents’ net investments of equity capital and in debt instruments issued by their local affiliates declined in Q4 2018 to settle at US$367 million (from US$2.1 billion) and US$1.1 billion (from US$1.4 billion), respectively.

Portfolio investment net inflows rose to US$1.3 billion in Q4 2018 from US$1 billion net inflows in Q4 2017. In particular, residents’ net incurrence of liabilities (i.e., foreign portfolio investments (FPI)) more than doubled to reach US$2.5 billion in Q4 2018 as net inflows arising from non-residents’ net placements in debt securities increased to US$2.1 billion in Q4 2018 from US$1.1 billion in Q4 2017. This stemmed mostly from the decline in resident private corporations’ net repayment of long-term debt securities to US$49 million from US$1.1 billion in Q4 2017.

The other investment account posted higher net inflows of US$1.7 billion in Q4 2017 compared to the US$170 million net inflows in the same period in 2017. This developed as residents’ net disposal of financial assets reached US$309 million in Q4 2018 from net acquisition of US$1.1 billion in Q4 2017. In particular, residents’ net placements of currency and deposits abroad fell by 77.7 percent to US$368 million in Q4 2018 from US$1.6 billion in the comparable quarter in 2017. The higher net inflows of other investments also stemmed from the 6.5 percent increase in residents’ net incurrence of liabilities to US$1.4 billion from the Q4 2017 level. This was due mainly to the expansion in resident banks’ net availment of loans from non-residents, which surged to US$3.4 billion in Q4 2018 from US$1.2 billion in Q4 2017.

January-December 2018 Developments

The BOP position for full-year 2018 posted a deficit of US$2.3 billion, significantly higher than the US$863 million deficit recorded a year ago. This development was brought about by the rise in the current account deficit as the trade-in-goods deficit continued to widen. Meanwhile, the financial account net inflows were markedly higher during the year, boosted by the reversal of the other investment account to net inflows from net outflows last year, along with the reduced net outflows of portfolio investments. This positive outcome more than offset the lower net inflows of direct investments.

Current Account. The current account yielded a deficit of US$7.9 billion (2.4 percent of GDP) in 2018, higher than the US$2.1 billion deficit (0.7 percent of GDP) registered in 2017. This developed as the widening deficit in the trade-in-goods account more than offset the higher net receipts posted in the trade-in-services, and primary and secondary income accounts.

The trade-in-goods deficit for full-year 2018 rose by 21.9 percent to US$49 billion, reflective of the 9.4 percent expansion in imports of goods and the 0.3 percent decline in exports of goods. Exports of goods dropped to US$51.7 billion in 2018 from US$51.8 billion in the previous year owing mainly to lower export shipments of coconut and mineral products. Imports of goods expanded to US$100.7 billion in 2018 from US$92 billion in 2017. The 9.4 percent increase was attributed to higher imports across all major commodity groups, notably raw materials and intermediate goods, indicating increased domestic   production activity. Imports of raw materials and intermediate goods grew by 16.7 percent to reach US$37.6 billion, supported by increased importation of manufactured goods (20.4 percent) and higher purchases of materials and accessories for the manufacture of electronic products (60 percent). Imports of mineral fuels and lubricants, capital goods, and consumer goods expanded by 21.3 percent, 5 percent, and 7.6 percent, respectively.

Net receipts in the trade-in-services account aggregated US$10.5 billion in 2018, 20.7 percent higher than the US$8.7 billion net receipts posted last year. This developed on account largely of increased net receipts in technical, trade-related and other business services; manufacturing services; and telecommunications services, combined with lower net payments in travel services.

The primary income account posted net receipts of US$3.8 billion in 2018, 19.2 percent higher than the US$3.2 billion net receipts in 2017. The growth was attributed to the 4.6 percent increase in net compensation inflows amounting to US$8.1 billion from US$7.8 billion last year. Another growth driver was the 5.7 percent decline in net payments of investment income, arising from decreased interest payments on other investments (by 99.3 percent) and portfolio investments (by 7.9 percent). Similarly, net payments of dividends to portfolio investors abroad were lower during the year (by 8.1 percent). Moreover, the 28 percent improvement in interest receipts on reserve assets (US$1.2 billion in 2018 from US$949 million in 2017) also contributed to the overall growth of the primary income account.

Net receipts  in the secondary income account registered a 2.6 percent growth in 2018 to reach US$26.8 billion. The improvement was attributed largely to the 2.8 percent increase in remittances of non-resident OF workers amounting to US$24.8 billion during the year.

Capital Account.  The capital account recorded lower net receipts of US$65 million in 2018. This resulted from the reversal to gross acquisition of non-produced non-financial assets of US$10 million from gross disposal of US$1 million a year ago.

Financial Account.  The financial account continued to register net inflows of US$7.8 billion in 2018, more than double the US$2.8 net inflows recorded in 2017. This resulted from the reversal of the other investment account to net inflows from net outflows in 2017, and lower net outflows of portfolio investments during the year. These more than compensated for the lower net inflows of direct investments.

Net inflows of direct investments amounted to US$5.9 billion in 2018, lower by 15.8 percent than the US$7 billion net inflows recorded in 2017. This was due mainly to the 4.4 percent decline in FDI brought about by the drop in non-residents’ net equity placements by 33.3 percent to US$2.3 billion in 2018. Capital infusions during the year were channeled to the manufacturing, financial and insurance, real estate, electricity, gas, steam and air conditioning supply, and arts, entertainment, and recreation industries. These were sourced mostly from Singapore, United States, Hong Kong, Japan, and China. Net investments in debt instrument totaled US$6.7 billion during the year from US$6 billion in 2017. Meanwhile, residents’ net investments abroad rose to US$3.9 billion in 2018, up by 19.5 percent from its level in 2017. This was due to the surge in residents’ net placements in debt instruments issued by foreign affiliates, which more than doubled to reach US$3 billion in 2018 from US$1.4 billion in 2017.

Net outflows of portfolio investments in 2018 amounted to US$858 million, 65 percent lower than the US$2.5 billion net outflows posted in 2017.  This stemmed mainly from the reversal of FPI to net inflows of US$3.4 billion from net outflows of US$796 million in 2017. In particular, non-residents’ net placements in debt securities issued by local banks and the NG amounted to US$1.5 billion and US$3.1 billion in 2018, respectively.

The other investment account posted net inflows of US$2.8 billion in 2018, a turnaround from US$1.8 billion net outflows posted in 2017. This developed on account of residents’ net disposal of financial assets which amounted to US$669 million (from net acquisition of US$2.3 billion) and increase in residents’ net incurrence of liabilities to US$2.1 billion in 2018 (from US$508 million). In particular, residents’ net withdrawal of currency and deposits abroad amounted to US$1.3 billion from net placements of US$1.5 billion in 2017. Net loan availment by residents from foreign creditors reached US$3.1 billion in 2018 from the US$676 million net repayments in 2017.

Revised 2017 BOP data
 
The 2017 BOP data have been revised to reflect updates from various data sources and post-audit adjustments. The revised 2017 BOP data with accompanying technical notes are posted in the BSP website.

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