STRENGTH in the country’s dollar inflow is expected to be sustained toward the end of the year, a local economist said, as 2019 is looking good for the Philippine economy’s image to foreign investors.
According to Rizal Commercial Banking Corp. (RCBC) economist Michael Ricafort, the recent strength of the country’s balance of payments (BoP)—as seen in the sizeable surplus it incurred in the first five months of the year‚will likely continue toward the end of 2019.
Just recently, the Bangko Sentral ng Pilipinas (BSP) announced that the country’s BoP hit a surplus of $5.19 billion in the first five months of the year, reversing dollar losses in the same January-to-May period last year, when it was at $2.1 billion in deficit.
The strong performance of the BoP in the first five months of the year—which the BSP attributes to strong remittance inflows from overseas Filipinos, net inflows of foreign portfolio investments and the foreign direct investments to the country during the period—is the highest five-month BoP surplus for the country since 2011, when it hit a surplus of $5.2 billion also in the January-to-May period.
The country’s BoP is the summary of the dollar country’s 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 period while a deficit means the economy lost more dollars than what it earned.
Ricafort said this may continue to be the trend toward the second half of the year, as 2019 shapes up to be a good year for the country’s economic dynamics—despite the growth slowdown in the first quarter.
“The BoP surplus could be sustained in the coming months of 2019 amid continued growth in OFW [overseas Filipino workers] remittances, BPO [business-process outsourcing] revenues, foreign tourism receipts,” Ricafort said.
Higher investments due to a confluence of good local economics and global shifts in investor sentiment may also drive dollars toward the country, thereby providing additional boost to the country’s BoP, the economist said.
“FDI [foreign direct investments] and foreign portfolio investments may also improve in the coming months especially after the country’s credit rating upgrade by S&P on April 30, 2019, by one notch to BBB+ [2 notches above the minimum investment grade] that could encourage more foreign investments into the country as some foreign investors search for higher returns in Emerging Market countries with improved economic and credit fundamentals such as the Philippines,” Ricafort said.
“The proceeds of the upcoming $1 billion Samurai/Yen bond issuance of the national government in the third quarter of 2019 is also expected to contribute to BOP surplus in the coming months of 2019,” the economist added.
Amro’s outlook
Earlier, regional think tank Asean+3 Macroeconomic Research Office (Amro) also expressed confidence about the country’s improving economic conditions as compared to the previous year.
In particular, while last year’s Philippine external position has weakened due to lingering domestic and global issues, Amro said the major risks to the country’s economy are now fading, thus further lowering the risk of capital flight as seen last year.
“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,” Amro said in its recent report. “As global financial conditions have eased, the pressure from short-term capital outflows has dissipated…Overall, risks appear to be moderating.”
Image credits: Nonie Reyes