The Philippines is far from a financial crisis that bedeviled it in the mid-80s and the late 90s despite last year’s deep economic recession.
There is no such debt moratorium that emerged from the years leading to the People Power revolution in 1986 and the Philippines has enough dollar reserves to stem a foreign exchange crisis that engulfed Southeast Asia in 1997. There is no loss of business confidence, either. Investor sentiment remains positive, with many businessmen merely postponing their expansion plans and treating the pandemic a temporary aberration.
Even the negative factors in the economy are a blessing in disguise. A sharp decline in the country’s trade deficit has enabled the country’s balance of payments to post a huge surplus and the gross international reserves to hit a new record level in 2020.
Data from the Philippine Statistics Authority show that the merchandise trade deficit shrank by nearly $19 billion, or 46 percent, in 2020 to $21.839 billion from $40.666 billion in 2019, as the drop in imports was faster than the decline in exports last year amid the pandemic.
The narrower deficit allowed the economy to post a BOP surplus of $16 billion and a gross international reserves of $110.12 billion in 2020, amid the challenging global environment highlighted by the prolonged COVID-19 pandemic.
Data from the Bangko Sentral ng Pilipinas showed the BOP posted a surplus of $4.24 billion in December 2020, up from the $1.57-billion surplus recorded in December 2019.
“The BOP surplus in December 2020 reflected inflows mainly from the BSP’s foreign exchange operations and income from its investments abroad, and national government’s foreign currency deposits with the BSP of proceeds from its issuance of ROP Global Bonds,” the BSP said in a statement.
These inflows were partly offset by the national government’s payments of foreign currency debt obligations, the BSP said. “With the December outturn, the full-year 2020 BOP surplus reached an all-time high of $16.02 billion. This level is more than two times higher compared with the $7.84 billion BOP surplus recorded in 2019,” it said.
The central bank said the higher net foreign borrowings by the government and lower merchandise trade deficit, along with sustained net inflows from personal remittances, foreign direct investments and trade in services, accounted for the favorable performance in 2020.
The BOP position reflects an increase in the final gross international reserves level of $110.12 billion as of end-December, compared with $104.82 billion as of end-November 2020.
“The latest GIR level represents an adequate external liquidity buffer, which can help cushion the domestic economy against external shocks. This is equivalent to 11.8 months’ worth of imports of goods and payments of services and primary income,” the BSP said.
The reserves are about 9.5 times the country’s short-term external debt based on original maturity and 5.4 times based on residual maturity.The BSP expects the balance of payments to post a surplus of $3.4 billion this year.
The strong BOP surplus, supported by narrowing trade deficit, allowed the peso to gain more than 5 percent against the US dollar last year. The local currency was stable at 48 against the greenback in January 2021.
Data from the Philippine Statistics Authority showed the merchandise trade deficit declined by 46 percent in 2020. Exports contracted 10.1 percent in 2020 to $63.77 billion from $70.926 billion in 2019, while imports posted a deeper decline of 23.3 percent to $85.606 billion from $111.593 billion.