"A surplus is a surplus and should be welcomed."
One of the most closely watched indicators of a country’s economic situation is its BOP (Balance of Payments). The payments involved here are payments and financial remittances by the country to the world and payments and financial remittances to the country by the world. As the world’s balance suggests, BOP is a net figure; it is what remains when the outgoings are deducted from the incomings. Thus, BOP can be either a positive or a negative figure.
What are those payments and remittances? The answer is contained in the latest BSP (Bangko Sentral ng Pilipinas) report on this country’s BOP. The report covers the 10-month period ended in October 2020.
“Based on preliminary data, (the cumulative balance of payments surplus of $0.31 billion for the period January-to-October 2020) was supported mainly by higher net foreign borrowings by the national government and a lower merchandise trade deficit, along with sustained net inflows from direct foreign investments, personal remittances, and trade in services,” BSP reported.
Contained the central bank: “For October the country’s overall BOP position posted a surplus of $3.44 billion, mainly reflecting the BSP’s income from its investments abroad, (interest on) the national government’s foreign-currency deposits from its borrowings and inflows from the BSP’s foreign exchange operations. These inflows were partly offset, however, by the national government’s payments of its foreign currency obligations.”
A BOP is made up of two accounts, to wit, the current account, and the capital account. The BSP report speaks of “merchandise trade deficit” and “trade in services”; these are current-account items. All the rest of the items mentioned in the BSP report – “net foreign borrowings by the national government,” “net inflows from foreign direct investments,” “personal remittances,” ”the BSP’s income from its investments abroad,” “(interest on) the national government’s foreign-currency deposits from its borrowings,” “inflows from the BSP’s foreign exchange operations” and “the national government’s payments of its foreign-currency obligations” – are components of the BOP’s capital account. Any item that is not related to trade whether of merchandise or of services is a capital-account item.
The almost 80 percent 2020-over-2019 increase in this country’s BOP over 2020’s first ten months was largely the result of a confluence of two felicitous happenings, namely, “higher net foreign borrowings by the national government” and a “lower merchandise trade deficit.” These twin developments, both pandemic-related, do not represent a net gain for the Philippine economy: The first has raised this country’s gross-domestic-product-to-debt ratio and the second, by involving a drop in production-related imports, has been indicative of an economy in recession.
But a BOP surplus is a BOP surplus and should be welcomed. The surplus made possible a $3.4 billion rise in this country’s GIR (gross international reserve); this stood at $103.4 billion on October 31, 2020.
The trend in the BOP is almost certain to have continued until the end of 2020.