BoP deficit narrows to $196M in Feb.

THE DEFICIT in the Philippines’ balance of payments (BoP) narrowed sharply to $196 million in February from the $895-million gap recorded a year earlier, data from the Bangko Sentral ng Pilipinas (BSP) showed.

“The BoP deficit in February 2024 reflected outflows arising mainly from the National Government’s (NG) payments of its foreign currency debt obligations,” the BSP said in a statement late on Tuesday.

Month on month, the BoP deficit was slimmer than the $740-million deficit recorded in January.

February also marked the second straight month the BoP position stood at a deficit.

The BoP measures the country’s transactions with the rest of the world at a given time. A deficit means more funds fled the economy than what went in, while a surplus shows that more money entered the Philippines.

For the first two months, the Philippines’ BoP position swung to a $936-million deficit, a reversal of the $2.2-billion surplus in the same period a year ago.

“Based on preliminary data, this cumulative BoP deficit reflected mainly the continued trade in goods deficit coupled with the NG’s net repayments of its foreign loans,” the BSP said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said that the BoP deficit in February was due to the narrower trade gap and higher foreign debt repayments.

The country’s trade-in-goods balance stood at a $4.22-billion deficit in January, sharply narrowing from the $5.56-billion deficit in January a year ago.

“Improvement likely traced to a much narrower trade deficit after last year’s (deficit), we saw outsized deficits due to pricey imports,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message.

Mr. Ricafort also noted the BoP surplus during the same period last year was primarily due to the government’s dollar bond offering. In January 2023, the Philippine government raised $3 billion from its US dollar bond issuance.

At its end-February position, the BoP reflected a final gross international reserve level of $102 billion, lower than $103.3 billion as of end-January.

The dollar reserves were enough to cover six times the country’s short-term external debt based on original maturity and 3.6 times based on residual maturity.

It is also equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income.

An ample level of foreign exchange buffers safeguards an economy from market volatility and is an assurance of the country’s capability to pay debts in the event of an economic downturn.

For the coming months, Mr. Ricafort said that the BoP position could improve, noting the steady growth in OFW remittances, business process outsourcing (BPO) revenues, foreign tourism receipts, among others.

“There’s a good chance of a surplus for 2024, based on factors such as increasing exports, foreign investments, and higher remittances from overseas workers,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

“While foreign loans can provide a temporary boost, the country needs to ensure they are used for productive investments to avoid future strain on the BoP,” he added.

This year, the BSP expects the country’s BoP position to end at a $700-million deficit, equivalent to 0.1% of GDP.