THE Philippine economy posted significant developments in its external position in the first quarter of the year, after climbing back from a dollar deficit by the end of March 2019.
The Bangko Sentral ng Pilipinas (BSP) on Wednesday reported the country’s balance of payments (BOP) position hit $3.8 billion in surplus in the first three months of the year.
The BoP is the summary of the country’s dollar transactions with the rest of the world. A surplus in an economy’s BOP means that the country has earned more dollars than what it spent during the period. The BOP is usually an indicator of an economy’s external health position.
The surplus for the first quarter is a significant development from what was seen in 2018, when the Philippine economy profusely bled dollars throughout the entire year. Comparing its level to the same months in 2018, the $3.8 billion more than reverses the $1.2-billion deficit seen in the same three-month period last year.
The multibillion-dollar surplus came as the country was able to consistently post monthly dollar earnings in the first quarter.
In March alone, in particular, the country’s surplus hit $627 million, up from the previous month’s $467-million surplus and a reversal of the deficit of $266 million seen a year ago.
The BSP welcomed the BOP’s return to surplus territory. In a statement issued on Wednesday, the monetary authority said the surplus in the first three months of the year may be attributed to remittance inflows from overseas Filipinos and the net inflows of foreign portfolio investments (FPI) or the so-called hot money during the period.
For the first two months of 2019, BSP data indicate that cash remittances amounted to $4.78 billion. This reflects a 3-percent rise from the $4.65 billion level in the same January-to-February period last year.
FPI, however, declined to a net inflow of $363.4 million in the first quarter of the year from the $766.05 million in the same quarter last year. This is as March’s transactions hit a net outflow of $739 million, resulting from gross outflows of $2.5 billion and gross inflows of $1.7 billion.
FPI are known as “hot” or “speculative” money because they are easily pulled in and out of the local platforms in the slight change of global and local sentiment.
This type of foreign investment is usually a measure of the global economy’s investing sentiment on the Philippines in short-term prospects for yields, in contrast to foreign direct investments (FDI) which are investments placed in the Philippines in search of long-term yield.
The United Kingdom, the United States, Singapore, Luxembourg, and Hong Kong were the top five investor countries for the month, with combined share to total at 80.3 percent.
Word of caution
Despite the positive development, Security Bank chief economist Robert Dan Roces said the BSP should not easily rest on its laurels and still keep a watchful eye on external development that might affect the economy.
“The surplus reflects the high reserves accumulated by the Central Bank [via the capital account]; our gross international reserves are at an all-time high, and foreign investors are coming back, having poured in around $400+ million as of February,” Roces told the BusinessMirror.
“However, these mask the negative in the current account which measures, among others, imports and exports where our imports are high and exports are stagnant. Moreover, OFW remittances— also high for the quarter—are part of the current account which goes to show that the remittances are not enough to cover for the trade gap,” he added.
On a positive note, Roces said the country’s high capital account means the Philippines has enough forex reserves to stabilize the peso.
“And as long as economic growth stays robust, the export sector gets its support after the budget was signed, and our economic fundamentals remain solid, we see a sustained surplus for the year,” he said.
The local currency has been trading on an appreciation bias in recent weeks. On Tuesday, it closed at 51.765 to a dollar. This is an improvement from the 52.413 to a dollar average trade in March.