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BOP Surplus in July Narrows the Cumulative Seven-Month Deficit

10.24.2003

BSP Governor Rafael Buenaventura announced today that the balance of payments deficit for the first seven months of the year narrowed to $239 million as the July 2003 external position reverted to a surplus of $377 million. The robust external performance in July was underpinned by the reversal of the capital and financial account to a net inflow and the sustained surplus in the current account.

Governor Buenaventura reported that the current account for the first seven months posted a $1,064 million surplus. This level, however, was 56.9 percent lower than the comparative level last year. The strong income account, largely on account of OFW remittances, more than offset the reversal of the trade-in-goods into deficit and the increased net outflow in the services account.

OFW remittances ended the seven-month period at $4,521 million, up by 6.0 percent from the level in the previous year’s level. The increasing share of higher-paid professionals such as engineers, caregivers, clerks, and food service workers among the deployed workers made up for the lower deployment of land-based workers due to the SARS epidemic, the temporary suspension of deployment in Hong Kong due to the wage issue and the first quarter geopolitical conflict.

Meanwhile, the trade-in-goods balance in the first seven months reversed to a deficit of $1,534 million from a surplus of $197 million in the same period last year reflecting largely the first quarter frontloading of imported raw materials and crude oil during the height of the US-Iraq conflict. Imports of goods grew by 9.3 percent to reach $21,060 million outpacing exports, which inched up by less than half a percent to $19,526 million.

The trade-in-services account registered a net outflow of $948 million, 47.4 percent higher compared to the level in the same period in 2002. Fears of the SARS epidemic in the second quarter and the lingering security concerns dampened world tourism as net inflows from travel declined by 32.0 percent to $395 million following the drop in the number of tourists coming from the U.S., Japan, Korea, Hong Kong, Taiwan, Singapore and Australia.

Likewise, the capital and financial account in the first seven months of 2003 remained in deficit at $2,083 million despite the net inflow realized in July. This was a significant turnaround from the $504 million surplus posted in the same period in 2002 as the absence of firmer indications of a sustained global economic recovery postponed investment plans.

The dampened global investor sentiment was quite evident in the performance of the direct investment account as it yielded a $10 million net inflow, substantially lower than the level last year. Non-residents’ investments in equity capital declined notably to $139 million compared to $760 million in the comparable period last year. Moreover, the net outflow of other capital representing repayment of intra-company loans further eroded the direct investment account.

The portfolio investment account fared relatively better as it managed a $1,005 million surplus, albeit lower than the $1,280 million surplus in the comparable period a year ago. Non-residents’ investment in equity securities dropped given the weak corporate performance, driving foreign funds to fixed-income instruments such as the bond issues particularly of the National Government.

Meanwhile, the other investment account posted a substantially larger net outflow of $3,085 million compared with the $1,640 million net outflow registered in the first seven months of last year due in turn to net repayment of maturing loans.

The BSP’s gross international reserves (GIR) reached $16.1 billion as of end-July 2003, slightly lower than the end-December level of $16.2 billion. Nonetheless, the reserves level was adequate to cover 4.5 months’ worth of imports of goods and payment of services and income. The level of reserves was also equivalent to 2.6 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.

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