THE two main dollar flow indicators of the Philippine economy were off to a bad start this year, as the country’s balance of payments (BOP) recorded a deficit while net portfolio investments left the country in January.
The Bangko Sentral ng Pilipinas (BSP) reported that the country’s BOP—the summary of the Philippines’s total transactions with the rest of the world—took a sharp downturn to a deficit of $1.36 billion, from the December 2019 surplus of $1.57 billion.
The BSP said in a statement that the BOP deficit in January 2020 reflected mainly the outflows arising from the national government’s foreign currency withdrawals, which were used largely to pay its foreign currency debt obligations, as well as net outflows in foreign portfolio investments.
The statement added the outflow could have been larger if not partly offset by inflows representing the BSP’s net foreign exchange operations and income from its investments abroad during the month in review.
In a separate statement, the BSP said net portfolio investment flows to the Philippines, or more popularly known as “hot money,” also deteriorated during the period.
In January, the net outflow widened to $486 million, from $321 million recorded in December 2019. The BSP said the United States received the bulk, or 62.1 percent of total outflows.
Jitters
ING Bank Manila economist Nicholas Antonio Mapa said the outflows in January reflect the “uncertainty in the global environment” as well as “domestic concerns” during the period. Mapa said investors opted to head for the exits while awaiting clarity on those issues.
“January was rather eventful, both here and abroad, with the year opening with an escalation and quick de-escalation in US-Iran tension. This was immediately followed by a volcanic eruption and a pickup in tirades against water utility providers with January closing with brewing fears over a global health emergency,” he said.
“All these developments were to prompt investors to seek relative safe haven for the time being,” he added.
However, Mapa is optimistic that in the months to follow, the Philippines will be able to ride the tide and investments will eventually find their way into the country again.
“In February, we’ve seen a bit of a reversal with foreign inflows returning with the Philippines adjudged as the ‘least affected’ by the economic fallout from COVID-19 [2019-novel coronavirus] compared to our neighbors. Analysts have cited the relative lower exposure to Chinese tourism and trade, helping the Philippines stand out in the Asean crowd,” he said.
However, Mapa noted that remittance flows are now “very vulnerable” given the Philippines’s high concentration in the services industry, with hotel, restaurant and leisure industries likely to take a hit.