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January-April 2002 BOP Yields $1.891 Billion Surplus

07.25.2002

BSP Governor Rafael B. Buenaventura reported today that the country’s balance of payments (BOP) for the first four months of the year yielded a surplus of $1.891 billion, a reversal from the $755 million deficit recorded in the comparable period last year. Behind this development was the continued surplus in the current account and the strengthening of the capital and financial account.

The current account surplus widened by 79.7 percent to $2.484 billion from the level registered in the comparable period last year. This was attributed mainly to the higher net inflow in the income account, the reduced net outflow in the services account and the sustained surplus in the goods account.

In the goods account, exports rebounded in April, after more than a year of continued decline, with a year-on-year growth of 23.2 percent. This brought total exports for the first four months of 2002 to $10.577 billion or an increase of 0.6 percent compared to last year’s level. Contributing to the turnaround was the robust growth in exports of machinery and transport equipment, processed food and beverages, and sugar and products, exports of which continued to surpass their performance last year. More importantly, exports of electronics turned in an impressive year-on-year growth of 29.9 percent in April after fourteen consecutive months of contractions, bringing down the cumulative decline in electronics exports to 2.4 percent. The stronger export performance reflected the increased demand from Asian markets particularly Taiwan, China, Korea, Malaysia and Hongkong. Demand from these markets helped to offset lower exports to the U.S. and Japan, the country’s traditional export destinations.

Meanwhile, imports of goods grew three months in a row beginning February after seven successive months of slump, climbing a high of 18.8 percent in April. Total imports for January-April 2002 reached $9.890 billion, up by 3.0 percent from the level a year ago. Imports of capital goods and raw materials and intermediate goods, particularly materials and accessories for the manufacture of electrical equipment, expanded by 8.8 percent and 5.6 percent, respectively, following inventory build-up by producers/manufacturers in anticipation of greater production demand ahead.

Higher remittances from overseas Filipino workers (OFWs) continued to be the main factor behind the more than twofold increase in the income account to $1.962 billion in January-April 2002. Remittances from OFWs, which comprised about 90 percent of gross income receipts, expanded by 45.3 percent to $2.827 billion during the review period. The growth in remittances reflected in part the 4.4 percent increase in the number of newly deployed OFWs during the first four months.

The trade-in-services for the first four months of 2002 registered a net outflow of $315 million, 47.5 percent lower than the net outflow recorded in the comparable period in 2001. The narrowing of the deficit was traced mainly to lower net payment of transportation services and of miscellaneous business, professional and technical services that contracted by 39.2 percent and 65.0 percent, respectively, from the comparable levels last year. Higher net receipts from travel services, which accelerated by 8.0 percent to $325 million also contributed to bring down the net service outflow during the period in review. Prospects for the country’s tourism industry remain positive following the on-going promotion efforts of the government to attract tourists and the relatively improving peace and order situation in the South

The net outflow of the capital and financial account for the period in review was down to only $506 million from $2.311 billion in January-April 2001. This developed following higher net direct investments inflows and the reversal of the portfolio investment account to a net inflow from a net outflow last year.

From a net outflow of $884 million in January-April 2001, portfolio investments for the first four months of 2002 reversed to a net inflow of $1.691 billion due to increased non-residents’ investments in resident-issued foreign denominated debt securities, particularly government-issued medium-term bonds. Meanwhile, non-residents’ investments in equity securities were highest in April 2002 at $175 million, bringing the cumulative portfolio investments in equity securities to $297 million. This level was more than twice that posted last year. This reflected renewed investor confidence in the local equities market.

Meanwhile, net inflows of direct investments nearly doubled to $1.504 billion compared to $808 million posted in the comparable period last year. Behind this was the remarkable increase in non-residents’ investments in equity capital and higher intercompany loans extended by parent companies to their local subsidiaries. Non-residents’ direct equity investments expanded by almost six times to $672 million during the first four months of 2002. The bulk of these investments represented the $557 million worth of shares in a local brewery company purchased by a Japanese firm in March 2002. The rest were directed to other manufacturing companies, services industries, and financial institutions. Meanwhile, intercompany loans to local subsidiaries by their parent companies rose by 26.5 percent to $711 million.

The net outflow in the other investment account went up by 65.4 percent to $3.696 billion in the first four months of 2002 due mainly to the higher net deposits abroad by resident banks’ to cover their clients’ import payments and to diversify their portfolio.

As of end-April 2002, the BSP’s GIR reached $17.1 billion, up by 9.2 percent from the level in end-December 2001. At this level, reserves were adequate to cover 5.5 months’ worth of imports of goods and payment of services and income. Using other reserve coverage measures, the level of reserves was 3.2 times the level of the country’s short-term external debt based on original maturity or alternatively, 1.5 times the amount of short-term external debt based on residual maturity.

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