Strong remittances and business process outsourcing receipts pushed the balance of payments surplus to $2.3 billion in the first 10 months, exceeding the full-year target of just $2 billion, data from Bangko Sentral ng Pilipinas show.
Bangko Sentral said the BoP surplus in the January-October period reversed the $3.4-billion deficit registered in the same period last year.
Bangko Sentral Governor Amando Tetangco Jr. said the BoP surplus was recorded at $469 million in October, or much higher than $24 million a year ago. It was also up 114 percent from a $219-million surplus in September.
Tetangco said the October BoP surplus was driven by deposits of the national government of its proceeds from a foreign loan and income from investments of Bangko Sentral assets.
“But on the other side of the equation, you got debt service payments also, particularly the national government. So that partially offset the inflows. But on a net basis, there was an increase that led to the BoP surplus for October,” Tetangco said at the sidelines of the Management Association of the Philippines’ event in Makati City, where he was awarded the MAP Management Man of the Year 2015.
BoP mirrors the country’s financial transactions with the rest of the world. A surplus means more money is coming into the country than what is leaving the domestic market.
Tetangco also downplayed any significant impact of the imminent interest rates hike by the US Federal Reserve next month on the Philippines’ overall BoP position, citing the country’s strong macroeconomic fundamentals.
“The Fed lift-off has been expected for some time now and it still has to happen. In the meantime, the financial markets, in anticipation of the lift-off, have experienced some volatilities. If there is an actual lift-off, there could still be some reactions but I think since the markets have been expecting this, the impact should not be that significant,” Tetangco said.
He said investors tended to discriminate between economies that were doing very well on the macroeconomic side, which would be beneficial for the Philippines, “because we continue to have sound macroeconomic fundamentals, sustained growth, low inflation, external surplus, sufficient reserves, a likely better third-quarter GDP growth, and robust banking system.” Deputy Governor Diwa Guinigundo said there was always a probability of reversing the BoP surplus but “one can also argue that the market has already factored in the December 2015 interest rates lift-off.”
“So what else could surprise the market? Maybe a knee-jerk reaction is to move out of EMs [emerging markets] like the Philippines but we always say that the strong macroeconomic fundamentals can be a good factor for keeping capital in the EMs particularly in the Philippines,” Guinigundo said.
Guinigundo said Bangko Sentral remained optimistic that the BoP surplus would be sustained in the rest of the year.
“Yes, in fact we can… that BoP will remain in positive territory. Perhaps very close to $2 billion… Hopefully the [Fed] lift-off would not be a critical factor in driving out capital from the emerging markets,” Guinigundo said.