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Current Account Remains in Surplus in First Quarter of 2003; Overall BOP Posts a Deficit


The BSP reported today that the country’s balance of payments (BOP) posted a deficit of $557 million in March, bringing the cumulative BOP position for the first quarter of 2003 to a deficit of $502 million. This was a reversal from the $2,157 million surplus posted in the comparable period last year. The continued surplus in the current account moderated the net outflow in the capital and financial account.

The current account remained in surplus at $338 million with the sustained OFW remittances more than offsetting the net outflows in the trade-in-goods and services accounts. The current account surplus posted a year ago was $1,683 million.

Net inflows in the income account for January-March 2003 grew by 8.4 percent to $1,152 million due mainly to higher OFW remittances which expanded by 10.0 percent to $1,839 million relative to the level in the same period last year. This favorable development can be attributed partly to the 2.5 percent increase in the number of deployed OFWs as well as the deployment of OFWs in higher-paying jobs. Major deployment destinations for these OFWs were the Americas, Middle East, Asia and Europe. The bulk of OFW remittances, which comprised about 91 percent of gross income receipts, came from the U.S., Saudi Arabia, Japan, Hong Kong, U.K. and Singapore.

Meanwhile, the trade-in-goods balance reversed to a deficit of $579 million from a surplus of $761 million in the same period last year. This developed on account of the continued strength in imports of goods, which grew by 24.4 percent to reach $8,881 million surpassing the 5.1 percent growth of exports at $8,302 million. The surge in imports was attributed largely to inventory build-up for raw materials and oil products in anticipation of the possible supply disruption as a result of the rising tension in the Middle East. On the other hand, the modest improvement in exports of goods reflected in part the pick-up in consumer confidence as external demand for electronics, machinery and transport and garments, the country’s major export performers, continued to pick up.

The trade-in-services account for January-March 2003 posted a net outflow of $401 million, 63.0 percent higher compared to the level in the comparable period in 2002. The deterioration was due mainly to the combined effects of the decline in travel receipts and the rise in freight payments. There was a marked decline in the net inflow from travel to $162 million, from the year-ago level of $257 million. The slowdown in the global economy, the tension in the Middle East, the outbreak of severe acute respiratory syndrome (SARS) in the Asian region and domestic security concerns contributed to lower travel receipts.

Meanwhile, the capital and financial account reversed to a net outflow of $312 million from a net inflow of $2,027 million posted in the same period in 2002 as investors kept a more cautious stance following a weak global economic outlook. Though the portfolio investment account continued to remain in surplus during the quarter, this was offset by the net outflows in direct investments.

The portfolio investments account in the first three months of the year registered a net inflow of $443 million compared to the net inflow of $1,833 million last year. Non-residents’ investments in the first quarter of 2003 amounted to $965 million, down by 52.2 percent from the previous year’s level. Non-residents’ investments in both equity and debt securities contracted reflecting investors’ risk aversion following heightened global uncertainties.

The direct investment account posted a net outflow of $51 million, a turnaround from last year’s surplus of $803 million. The reversal mainly reflected the cautious investment climate due to geopolitical uncertainties. Non-residents’ investments in equity capital plummeted to only $15 million compared to a high of $668 million in the same period last year. Newly infused capital during the quarter amounted to only $55 million, significantly below the $672 million posted in the same period last year. The bulk of these investments was channeled mainly to the manufacturing and construction industries as well as financial intermediation services. Also contributing to the weak performance of the direct investment account was the $49 million net outflow in other capital representing net repayment of intercompany loans.

The other investment account posted a larger net outflow of $697 million compared with the $605 million net outflow registered in the first quarter of last year. Largely accounting for the increase in net outflow was the higher net repayment of loans, particularly maturing borrowings and interbank placements.

The BSP’s gross international reserves (GIR) reached $16.0 billion as of end-March 2003. This level was slightly lower than the end-December level of $16.2 billion. The BSP’s GIR was adequate to cover 4.4 months’ worth of imports of goods and payment of services and income. The level of reserves was also 2.6 times the amount of the country’s short-term external debt based on original maturity or, 1.3 times the amount of short-term external debt based on residual maturity.

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