THE Bangko Sentral ng Pilipinas (BSP) reported on Monday that the country is back to earning dollars in July, reducing the June dollar deficit to a one-off blip for the year.
Data from the Central Bank showed that the economy incurred a balance of payments (BOP) surplus of $248 million in July this year, reversing the $404-million deficit seen in the previous month. The July 2019 print is also an improvement from last year’s $455-million deficit in the same month.
A country’s BOP is one of the more important external indicators of its economy. A surplus in the BOP 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 given the time period.
The July surplus is also a continuation of the country’s monthly surplus record for the entire 2019—one which has only been disrupted by the June deficit number.
In June, the Central Bbank blamed the “substantial outflow” in the June BOP on the principal and interest payments of the national government on its foreign exchange obligations. This could have been larger, the BSP said, if not partially tempered by the NG’s net foreign currency deposits, the BSP’s foreign exchange operations and income from its investments abroad during the month.
For July, the BSP said the recovery came from improvements in the BSP’s foreign exchange operations and income from its investments abroad, as well as in the National Government’s (NG) net foreign currency deposits. These inflows were offset partially, however, by outflows which were reflected in the payments made by the NG on its foreign exchange obligations during the month in review.
Overall, the country’s seven-month cumulative BOP stands at $5.04 billion in the January-to-July period of 2019. This is a substantial recovery from the $3.7-billion deficit seen in the same first seven months in 2018.
Remittances may be key
Just last month, ING Bank economist Nicholas Antonio Mapa said the coming months could still be turbulent for the BOP position, largely due to the trade balance deficit forecasted for 2019.
We could see some bouts of BOP deficits going forward given that we are almost all but certain that the current account remains in the red [owing to the trade gap], with BOP subject to the ebb and flow of the financial account,” he said.
Earlier comments from Security Bank chief economist Robert Dan Roces, meanwhile, said remittances sent to the Philippines will patch up these holes in the economy.
“From another macro perspective, the higher remittances may further stabilize the country’s BOP [Balance of Payments] position by serving as a good source of fiscal cushion,” he said.
Just last week, the BSP reported that in June —when the country’s BOP posted a deficit for the first time—remittances to the Philippines also contracted for the first time in 2019.
Cash remittances reached $2.29 billion in June this year. This is the lowest monthly remittance volume to the country for the year. It is also 2.9 percent lower than the remittances sent by OFWs in the same month last year. For the coming months, ING’s Mapa said the Philippines can expect increased flows of remittances particularly as the “ber” months approach.