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‘Risks to BOP surplus rising, bear watching’

THE Philippines will continue to be a dollar-earning economy in the remaining months of the year, but risks to this surplus are slowly creeping up on the country’s foreign currency inflows.

In a commentary about the country’s balance of payments (BoP), Security Bank economist Robert Dan Roces said the country’s BoP—the summary of all the Philippines’s transactions against the rest of the world— “will continue to see positive fundamental inflows” in the coming months.

Roces said the sustained BoP surplus toward the end of the year will likely be supported by higher receipts in cash remittances from overseas Filipino workers with the approach of the holiday season.

The Bangko Sentral ng Pilipinas (BSP) just recently reported that the country’s BoP surplus continued to do well in the first nine months of the year. For January to September, the BoP surplus was at about $5.56 billion in total. This is a stark reversal of the $5.1-billion deficit seen in the same nine-month period in 2018.

However, a granular look at the data showed that the BoP surplus showed a big surplus drop on a monthly inflow basis—from $493 million in August down to $38 million in September.

Roces said the biggest downside risk to the BoP is the continued underperformance of the foreign direct investments (FDI) toward the country.

FDI—or the type of investment that is often more coveted, as it stays longer in the economy and creates job opportunities for locals—posted a net inflow of $430 million in June 2019, or 48.5 percent lower than the $836-million net inflows recorded in the same month last year.

This is the fourth consecutive month that the monthly FDI inflows has been in decline.

While Roces said FDIs are declining on a global scale, several economists have blamed the uncertainty over government policies—particularly the Corporate Income Tax and Incentives Rationalization Act—for dragging down these investments.

Among other risks to the BoP surplus, Roces said: “We also think that the late pickup in infrastructure spending should increase import demand for capital goods and raise the trade-in-goods deficit by the end of the year.”

However, the economist noted that the surplus position is positive for the peso amid the volatility brought by geopolitical concerns, and that the hefty foreign reserves in the BSP’s coffers will be more than enough to cover the current account deficit.

“This buildup in the reserves will prove beneficial for the BoP position on the back of probable declines in net inflow from FDI,” Roces said.

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