Confidence in the country’s external position continues to increase based on the Bangko Sentral ng Pilipinas’s (BSP) latest report that the Philippines recorded a multibillion-dollar surplus in the first five months of the year.
Data released by the BSP on Wednesday showed that the country’s balance of payments (BoP) from January to May hit a surplus of $5.19 billion, a reversal of the $2.1-billion deficit recorded by the Philippines a year ago.
The BSP attributed the strong performance of the BoP to strong remittance inflows from overseas Filipinos, net inflows of foreign portfolio investments and more foreign direct investment inflows into the Philippines during the period. The BoP surplus is the highest since 2011, when the country incurred a surplus of $5.23 billion also in the January-to-May period.
The country’s BoP is the summary of the dollar transactions with the rest of the world. A surplus in this economic indicator means the country earned more dollars than what it spent during the time period while a deficit means the economy lost more dollars than what it earned.
Boosting the five-month BoP performance was the $928-million surplus recorded in May alone. This is the fifth consecutive month of BoP surplus and the second-highest monthly surplus for the year. It is also a reversal of the $583-million deficit seen last year.
The BSP said the BoP surplus for May stemmed mainly from the national government’s (NG) net foreign currency deposits, and the BSP’s foreign exchange operations and income from its investments abroad. These were offset partially, however, by the payments made by the NG for its foreign exchange obligations during the month in review.
While last year’s Philippine external position has weakened due to lingering domestic and global issues, the Asean+3 Macroeconomic Research Office (Amro) said the major risks to the country’s economy are now fading, thus further lowering the risk of capital flight seen last year.
In its Asean+3 Regional Economic Outlook 2019, the regional think tank Amro said: “The major risks facing the Philippine economy are mostly short-term ones. Externally, escalating global trade tensions remain the major risk. Domestically, elevated inflation and pockets of financial vulnerabilities are the main concerns. Global trade tensions and a slowdown of the global economy may exert significant drag on Philippine economic activity.”
“As global financial conditions have eased, the pressure from short-term capital outflows has dissipated…overall, risks appear to be moderating,” it added.
The slump in the country’s BoP in 2018, was attributed largely to the high import bill of the country, as the administration embarked on its “Build, Build, Build” program— a government initiative to overhaul the country’s infrastructure.
While the infrastructure reform agenda caused the Philippines to bleed dollars in 2018, its long-term effects are actually expected to boost the dollar earnings of the country through higher foreign investments.
In his welcome remarks for the Amro-BSP Joint Seminar on Building Capacity and Connectivity for the New Economy held at the BSP Complex in Manila on Wednesday, BSP Governor Benjamin Diokno said: “The Philippine government is working conscientiously to deliver critical services and facilities which include efficient transport systems, and low-cost and reliable source of power to the whole archipelago.”
“This will enhance the attractiveness of the country as an investment destination by further improving the local business environment and reducing the cost of doing business,” Diokno added.