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BOP Deficit Narrows in the 3rd Quarter; January-September Cumulative Deficit at $783 Million

12.19.2003

The balance of payments (BOP) position for the third quarter of the year posted a lower deficit of $167 million compared to the $978 million deficit in the same quarter in 2002. The significant improvement was attributed mainly to the July 2003 surplus of $377 million as both the current and the capital financial accounts performed strongly, cushioning the destabilizing impact of the July 27 mutiny on the rest of the quarter. These developments brought the cumulative BOP position for the first nine months of 2003 to a deficit of $783 million, reversing the year-ago surplus of $751 million.

The current account surplus for the third quarter increased significantly to $1,063 million, almost twice the surplus of $538 million in the same period in 2002. This notable outturn was due to the combined effect of higher net inflows in the income and transfers accounts and the lower deficit in the goods and services accounts. However, these favorable developments were not sufficient to compensate for the sluggish performance in the first semester, resulting in a lower current account surplus of $1,852 million for the first nine months of 2003.

The third quarter OFW remittances of $1,783 million brought the nine-month cumulative OFW remittances to $5,663 million or an increase of 5.1 percent from the comparable period last year. Higher-paid land-based workers and increase in deployed sea-based workers more than made up for the decline in the total deployed Filipino workers.

Meanwhile, as import drop outpaced the contraction in exports in the third quarter, the resulting trade-in-goods deficit of $66 million was significantly lower than the year-ago deficit of $178 million. Nonetheless, the reduction failed to match the large deficit of first semester following the frontloading in imports during the Iraq war. Trade-in-goods deficit for the first nine months widened to $1,375 million from last year’s shortfall of $62 million.

Meanwhile, the deficit in the trade-in-services account narrowed in the third quarter 2003 to $255 million from the year-ago deficit of $404 million. The 36.9 percent improvement was a reversal of the contractions posted in the first two quarters and was mainly attributed to higher receipts from travel and communication services. Net inflows from travel in the third quarter were 25.4 percent higher at $252 million as fears of the SARS epidemic subsided. This development moderated the trade-in-services deficit for the first nine months, which at $1,102 million was still 18.1 percent higher than last year’s $933 million deficit.

Similar trend was noted in the capital and financial account as the lower net outflow in the third quarter helped temper further deterioration of the nine-month cumulative deficit of $3,503 million from last year’s level of $864 million.

The National Government’s flotation of RP global bonds amounting to $750 million and renewed interest in equities market as gleaned from the rise in the Philippine Stocks Exchange composite index, strengthened the portfolio account in the third quarter. However, the cumulative level was not at par with the third quarter performance since the cumulative net inflow of $22 million was significantly lower than the year-ago net inflow of $1,153 million.

Likewise, the deficit in the other investment account in the third quarter was reduced significantly by 48.8 percent than last year’s level due in part to the turnaround from withdrawal to placement of deposits by non-residents in local banks. However, the positive development in the third quarter failed to offset the large net outflows in the previous two quarters as the nine-month balance remained in deficit at $3,586 million, or 18.5 percent higher than last year’ net outflow of $3,026 million. The net repayment of loans by local banks and the National Government resulted in the substantial widening of the net outflow was   

Meanwhile, the direct investment account for the third quarter of 2003 weakened significantly to $58 million due to the combined effect of the increased equity participation by residents in foreign firms, which more than doubled to $57 million (from $21 million), and the decline in non-residents investments in equity capital to $126 million (from $173 million in the comparable period last year). While a number of Philippine companies have joined the rest of global investors in establishing their presence across Asia, inflows of equity to the Philippines have been minimal as investors waited for firmer signs of economic recovery and for political stability to be restored. Further cutting down investments was the $11 million net outflow in the other capital, representing net repayment of intra-company loans. These developments led to the decline in net direct investments for the first nine months to only $68 million from $1,021 million in the comparable period in 2002.

The BSP’s gross international reserves (GIR) as of end-September 2003 was steady at $16.2 billion, adequate to cover 4.5 months’ worth of imports of goods and services and income. Using other reserve coverage measures, the level of reserves was 2.5 times the amount of the country’s short-term external debt based on original maturity or, alternatively, 1.3 times the amount of short-term external debt based on residual maturity.

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