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Philippines' International Investment Position Registers a Lower Net External Liability Position as of end-March 2020 from the Previous Quarter

06.30.2020

Based on preliminary data, the country’s international investment position (IIP)1 registered a lower net external liability position of US$9.8 billion as of end-March 2020, compared to US$34.8 billion in end-December 2019.2 This developed as total external financial liabilities (or non-residents’ outstanding claims on Philippine residents) declined by 10.4 percent to US$207.7 billion while external financial assets (residents’ outstanding claims abroad) rose, albeit marginal by 0.4 percent, to US$197.9 billion. The 71.8 percent drop in the net external liability position quarter-on-quarter reflected net outflows in the financial account of the country’s balance of payments (BOP) following investors’ risk aversion amid uncertainties surrounding the impact of the corona virus (COVID-19) pandemic, and payments made on the country’s external debt.3  

Specifically, the country’s total external financial liabilities as of end-March 2020 decreased by US$24.2 billion from the end-December 2019 level due to net outflows of portfolio investments as reflected by the decline in the PSE Composite Index (PSEi), and net repayments of foreign loans in other investments, coupled with downward revaluation adjustments during the quarter. 4   

Meanwhile, the country’s total external financial assets rose marginally by US$780 million from the previous quarter, as residents’ other investments abroad and the reserve assets of the Bangko Sentral ng Pilipinas (BSP) increased.5

Similarly, on a year-on-year basis, the country’s net external liability position as of end-March 2020 posted a decline of 76.2 percent from US$41.4 billion in end-March 2019. This was attributed mainly to the combined effects of higher residents’ external financial assets and lower external financial liabilities owed to non-residents.

By sector, the BSP and the Banks registered net external asset positions of US$88.4 billion and US$1.9 billion, respectively. Meanwhile, the Other Sectors and General Government recorded a net external liability position during the quarter.6

On the assets side, the BSP continued to hold the largest share of the country’s total external claims on the rest of the world at 45.3 percent, amounting to US$89.7 billion as of end-March 2020. This was followed by the Other Sectors with external financial assets totaling US$74.6 billion (37.7 percent) and Banks with US$33.6 billion (17.0 percent).

By type of instrument, reserve assets held by the BSP amounting to US$88.9 billion accounted for almost half (44.9 percent) of the country’s total external financial assets. This was followed by residents’ direct investments in debt instruments totaling US$33.1 billion (16.7 percent) and equity capital amounting to US$23.3 billion (11.8 percent). The country’s other major financial assets include residents’ holdings of foreign debt securities (11.3 percent), foreign currency and deposits (7.6 percent), and loans extended to non-residents (5.8 percent).

On the liabilities side, the Other Sectors accounted for US$131.9 billion or 63.5 percent of the country’s total external financial liabilities as of end-March 2020.  The General Government’s external liabilities stood at US$42.8 billion, while that of the Banks’ amounted to US$31.7 billion, comprising 20.6 percent and 15.3 percent of the country’s total external financial liabilities, respectively. The BSP, on the other hand, accounted only for 0.6 percent of the country’s total external financial liabilities at US$1.3 billion.

By instrument, the country’s outstanding financial liabilities to the rest of the world comprised mostly of non-residents’ investments in equity capital (22.8 percent) and foreign loans availed by residents (22.1 percent). These were followed by non-residents’ investments in debt instruments (19 percent), equity securities (17.4 percent), and debt securities issued by residents (14.6 percent).

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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  The balances of the IIP components are preliminary as these were based on partial and preliminary data and estimates, considering the operational constraints of our data sources amid the community quarantine.
3  The financial account of the country’s BOP recorded net outflows of US$3.8 billion during the quarter. Meanwhile, the outstanding external debt declined by 2.6 percent to US$81.4 billion as of end-March 2020 from US$83.6 billion as of end-December 2020.
4 The PSEi declined from 7,815.26 in end-December 2019 to 5,321.23 as of end-March 2020.
5  Reserve assets of the BSP is synonymous to the BSP gross international reserves.
6  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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