Stable BOP position to help economy grow amid pandemic

Finance Undersecretary and chief economist Gil Beltran said keeping the balance of payments manageable will help the economy bounce back immediately from the devastating impact of the COVID-19 pandemic.

Beltran issued the statement following the release of data showing the current account—one of the main components of the balance of payments—reverted to a surplus of $4.4 billion in the first half (2.6 percent of gross domestic product) from a deficit of $2.5 billion (1.4 percent of GDP) in the same period last year on lower gap in trade in goods.

“The current account reverted to a surplus from a deficit last year as the economy slowed down, bringing down import demand with it. As a result, the peso strengthened from end-2019 level of P50.8/$1 to P48.3/$1 as of mid-September 2020,” Beltran said in a report over the weekend.

“Maintaining good fundamentals by keeping both the budget deficit and balance-of-payments manageable, keeping interest rates at the level that sustains investments, keeping inflation at the lower end of the inflation target and allowing the exchange rate to maintain its competitive level will allow the country to recover promptly as the lockdowns set up to battle the pandemic are eased,” Beltran said.

The current account is the balance of exports and imports of goods, services and income balances. This is the equivalent of the investment-saving gap, an indicator closely monitored by credit rating agencies.

Beltran said this indicates that the economy is back to a net lender status despite increased borrowing by the government.

The current health crisis made the economy contract by 9 percent in the first half. As a result, economic managers revised their GDP estimate this year to a deeper 5.5-percent contraction from an earlier estimate of a 2-percent to 3.4-percent decline.

The Bangko Sentral ng Pilipinas said the overall balance of payments position posted a surplus of $657 million in August, up from the surplus of $493 million a year ago.

This brought the surplus in the first eight months to $4.77 billion, although this was lower than the $5.53-billion surplus a year ago.

“The BOP surplus in August 2020 reflected mainly the inflows from the BSP’s foreign exchange operations and income from its investments abroad,” the BSP said in a statement.

“The current BOP surplus was supported mainly by foreign borrowings by the national government along with lower net deficit in merchandise trade. These outcomes offset fully the impact of higher net outflows of foreign portfolio investments, and lower net inflows from foreign direct investments, trade in services, and personal remittances,” it said.

The BOP position reflected the record gross international reserves level of $98.95 billion as of end-August. At that level, the GIR represents a more than adequate external liquidity buffer, which can cushion the domestic economy against external shocks. This is equivalent to 9.8 months’ worth of imports of goods and payments of services and primary income.

It is also about nine times the country’s short-term external debt based on original maturity and 5.4 times based on residual maturity.

Topics: Finance Undersecretary and chief economist Gil Beltran , balance of payments , BOP , Philippine economy , COVID-19 pandemic
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