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Philippines' International Investment Position Records a Quarterly Increase in its Net External Liability Position as of end-Q4 2019

05.15.2020

The country’s international investment position (IIP)1 as of end-December 2019 posted a higher net external liability position of US$34.8 billion compared to the level of US$33.5 billion in
end-September 2019.  The 4 percent increase in the net external liability position developed as the rise in total external financial liabilities (or non-residents’ outstanding investments in the Philippines) at 2.2 percent to US$231.9 billion, outpaced that of total external financial assets (or residents’ outstanding investments abroad) at 1.9 percent to US$197.1 billion.  The increase in the country’s net external liability position reflected continued inflows on the back of investor confidence in the Philippine economy.

By contrast, on a year-on-year basis, the country’s net external liability position as of end-2019 was considerably lower by 28.3 percent from US$48.6 billion posted in end-2018. During the year, the country’s external financial assets expanded by 11.9 percent, while external financial liabilities grew only by 3.2 percent.

On a quarterly basis, the country’s total external financial liabilities rose by US$5.1 billion as of end-December 2019 due to transaction inflows, particularly in the form of foreign direct investments (FDI) in equity capital and debt instruments, coupled with positive exchange rate and other valuation adjustments.
 
Likewise, the country’s total external financial assets increased by US$3.7 billion from the previous quarter mainly on account of accumulation of reserve assets, combined with the increase in the amount of residents’ direct investments abroad.

By sector, only the Bangko Sentral ng Pilipinas (BSP) registered a net external asset position during the quarter, ending the year at US$86.8 billion. Meanwhile, the remaining sectors, i.e., the General Government, Deposit-taking Corporations except the Central Bank (Banks), and Other Sectors, recorded a net external liability position.

On the assets side, the BSP continued to hold the largest stock of the country’s external financial assets at 44.7 percent or US$88.1 billion as of end-December 2019. This was followed by Other Sectors2  comprising 38.5 percent or US$75.8 billion of the country’s external financial assets. Banks held the remaining 16.8 percent or US$33.1 billion of the country’s total external financial assets.

By type of instrument, almost half (44.6 percent) of residents’ total external financial assets were reserve assets held by the BSP at US$87.8 billion. Direct investments accounted for about a third of the country’s external financial assets in the form of debt instruments amounting to
US$32.7 billion (16.6 percent) and equity capital and investment fund shares totaling US$25.2 billion (12.8 percent).

On the liabilities side, the Other Sectors accounted for 64.9 percent or US$150.6 billion of the country’s total external financial liabilities as of end-December 2019. The General Government’s external liabilities stood at US$41.2 billion, while that of the Banks’ amounted to US$38.8 billion, comprising 17.8 percent and 16.7 percent of the country’s total external financial liabilities, respectively. The BSP, on the other hand, held a relatively marginal portion of the country’s total external financial liabilities at 0.6 percent totaling US$1.3 billion.

By instrument, the country’s total external outstanding financial liabilities to the rest of the world consisted mostly of investments in equity and investment fund shares under direct investments (23.6 percent) and portfolio investments (22.3 percent). These were followed by foreign loans availed by residents (20.2 percent), and non-residents’ investments in debt instruments (16.7 percent) and debt securities (13.3 percent) issued by residents.

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1 The International Investment Position (IIP) is a statistical statement that shows at a point in time the value of financial assets of residents of an economy that are claims on nonresidents or are gold bullion held as reserve assets; and the liabilities of residents of an economy to nonresidents. The difference between the assets and liabilities is the net position in the IIP and represents either a net claim on or a net liability to the rest of the world. (Balance of Payments and International Investment Position Manual, 6th Edition)

2 Other Sectors cover the following economic sectors: (a) other financial corporations, which include private and public insurance corporations, holding companies, government financial institutions, investment companies, other financial intermediaries except insurance, trust institutions/corporations, financing companies, securities dealers/brokers, lending investor, Authorized Agent Banks (AAB) forex corporations, investment houses, pawnshops, credit card companies, offshore banking units (OBUs); (b) non-financial corporations, which refer to public and private corporations and quasi-corporations, whose principal activity is the production of market goods or non-financial services; and (3) households and non-profit institutions serving households (NPISHs).

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