BoP position swings to deficit

The balance of payments swung to a deficit in the first 11 months, pulling down the value of the peso to a near eight-year low, amid a record trade deficit this year.

Data from Bangko Sentral showed the BoP, which reflects the country’s transactions with the rest of the world, posted a deficit of $206 million in January to November, a turnaround from the $2.136-billion surplus a year ago.

The country incurred a record merchandise trade deficit of nearly $20 billion in the first 10 months, as imports continued to outgrow exports. Merchandise trade is the largest component of BoP.

Bangko Sentral said the BoP yielded a deficit of $1.671 billion in November, the biggest shortfall in nearly three years, amid the volatility in the global financial markets triggered by the uncertainty in the US Federal Reserve policy tightening and the unexpected result of the recent US presidential election.

The November deficit was bigger than the $141-million deficit a year ago and the $183-million deficit in October.

It was also the biggest monthly BoP deficit since the $4.48-billion shortfall in January 2014, when foreign capital flowed out of emerging markets, including the Philippines, in reaction to global developments, especially the start of the US Federal Reserve tapering.

BoP summarizes the country’s economic transactions with the rest of the world, with a deficit indicating that foreign exchange payments outstrip inflows.

Persistent BoP surpluses help build up the country’s gross international reserves, an ample supply of which helps prop up the peso against the US dollar and keep domestic inflation at bay.

The peso closed at 49.96 against the greenback Monday, near an eight-year low.

Bangko Sentral earlier revised downward the BoP target this year to a surplus of $500 million from the previous assumption of $2-billion surplus on lower global growth outlook and uncertainty in the US Federal Reserve policy tightening.

Bangko Sentral Deputy Governor Diwa Guinigundo
Bangko Sentral Deputy Governor Diwa Guinigundo said other factors considered for the lower BOP projection were the possible impact of US President Donald Trump’s policies on global trade, reduced concerns on China’s near-term prospects, gradual recovery in oil prices and favorable domestic growth prospects.

“The last quarter of 2016 is particularly challenging. There are lots of unexpected developments in the financial markets... some are unexpected. That is why there are region-wide depreciation in currencies,” Guinigundo said in a news briefing last week.

Current account, which is one of the major components of the balance of payments, is now expected to post a $2.5-billion surplus in 2016, lower than the previous target of $5.8-billion surplus for the year.

Foreign direct investments are expected to post a higher net inflow of $6.7 billion, compared to the previous target of $6.3 billion. FDI net inflows stood at $5.9 billion in the first nine months.   

Foreign portfolio investments or hot money are expected to post a net outflow of $1.1 billion this year, the same target made in May 2016.

Gross international reserves are forecast to end the year at $83.7 billion, down from the earlier estimate to $84.8 billion.

Remittances from overseas Filipinos are expected to decline slightly to $26.6 billion, from $26.8 billion in 2015. Remittances are projected to grow to $27.7 billion next year.

Topics: balance of payments , BoP , Bangko Sentral ng Pilipinas , deficit , Bangko Sentral Deputy Governor Diwa Guinigundo
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