The BSP reported today that for the first two months of 2003, the country’s balance of payments (BOP) reflected the effects of global uncertainty surrounding the then impending U.S.-Iraq war as it yielded a lower surplus of $55 million, compared with the $654 million surplus posted in the same period last year. In terms of component, the weakening of the overall BOP position was due to the lower current account surplus which offset the narrowing of the deficit in the capital and financial account.
A lower current account surplus of $409 million in January-February 2003 was traced to the weakening of the trade-in-goods account coupled with the increase in the net services outflow.
Exports of goods for the first two months of the year posted a modest growth of only 3.2 percent to reach $5,291 million, while imports of goods soared by 31.7 percent to $5,557 million. The moderation in the growth of exports of goods was brought about by the weak demand from the country’s major trading partners due to the continued global uncertainties.
Imports of goods surged by 31.7 percent to reach $5,557 million. The robust upturn in imports was attributed to three major developments: a) inventory build-up for raw materials and oil products in anticipation of the Iraq war; b) the continued upgrading by local companies of their computer systems and telecommunications technologies; and c) the increased local demand for Asian and sports utility vehicles.
Meanwhile, the trade-in-services account for January-February 2003 posted a net outflow of $242 million, 63.5 percent higher compared to the level in the comparable period in 2002. The deterioration was due to the combined effect of the decline in services receipts and the rise in services payments. Notably, the net inflow from travel declined by almost 40 percent to $110 million, due to external and domestic factors such as the contraction in global income and security concerns. The government, however, has embarked on an aggressive promotional campaign to revitalize the tourism industry in the Philippines. Meanwhile, the increase in the net outflow of transportation services was due largely to higher freight expenditures.
Net inflows in the income account grew by 11.4 percent to $813 million due to the combined effects of higher OFW remittances and lower net outflow of investment income. OFW remittances expanded by 5.5 percent to $1,141 million relative to level in January-February 2002. The increase in remittances can be partly attributed to the slight increase in deployment of OFWs during the period in review to 165,907 from last year’s level of 165,198, as well as the increase in the deployment of highly skilled OFWs such as teachers, architects, and caregivers.
The portfolio investments account in the first two months of the year remained in surplus but registered a lower net inflow of $541 million compared to the net inflow of $697 million last year. The 22.4 percent decline was due mainly to the higher investments by resident banks in foreign-issued debt securities for portfolio diversification, which more than offset the increase in non-residents’ investments in resident issued foreign-denominated debt securities particularly the National Government issues. The government issued $822 million worth of foreign currency-denominated bonds consisting of $500 million RP global bonds issued in January and $322 million RP euro bonds in February this year.
Meanwhile, transactions under the direct investment account were very minimal in the first two months of the year, reflecting the cautious mood among investors brought about by the weak prospects for global economic recovery and geopolitical uncertainties. The direct investment account posted a net outflow of $8 million, a reversal from the net inflow of $203 million in the same period last year.
The net outflow in the other investments account was halved from $1,473 million to $736 million during the review period. This developed largely on account of reduced holdings of foreign currency and withdrawals of foreign deposits by local banks, which were used to fund investments in foreign-issued debt securities.
The BSP’s gross international reserves (GIR) reached $16.1 billion as of end-February 2003. This level was slightly lower relative to the end-December level of $16.2 billion. The BSP’s GIR was adequate to cover 4.5 months’ worth of imports of goods and payment of services and income. The level of reserves was also 2.9 times the amount of the country’s short-term external debt based on original maturity or, 1.4 times the amount of short-term external debt based on residual maturity.