Net inflows reverse Q4 2017 BOP to surplus

The country’s balance of payments position (BOP) rebounded in the fourth quarter of 2017, yielding a surplus of $505 million, after recording a deficit of $662 million in the previous quarter. The surplus was also a reversal from the $2.1 billion deficit registered in the same quarter a year ago.

This outcome was a result of the net inflows (or net borrowing by residents from the rest of the world) in the financial account even as the current account posted a deficit. In particular, the financial account balance reversed to net inflows of $2 billion from net outflows of $1.1 billion due to net inflows of direct and portfolio investments, which more than offset the net outflows recorded in the other investment account.

By contrast, the current account registered a higher deficit of $3.3 billion due to the widening trade-in-goods deficit. Economic activity continued to strengthen on both global and domestic fronts leading to upbeat investor sentiment which helped shore up the country’s foreign direct investments. External demand also improved and kept exports of goods on an upward path.

Meanwhile, imports of goods continued to expand in support of the government’s big infrastructure projects that reflect robust domestic economic activity.

Despite the positive outcome, the BOP position for the full year 2017 registered a deficit of $863 million, more than double the $420 million deficit recorded in 2016.

This development was underpinned mainly by the increased deficit in the current account during the year, despite the reversal in the financial account to net inflows from net outflows in the previous year.

The current account deficit of $2.5 billion stemmed mainly from the widening trade-in-goods deficit that was brought about by increased imports of goods that support domestic capital formation and production. The financial account posted US$2.2 billion net inflows on the back of the surge in net inflows of direct investments, which more than compensated for higher net outflows of portfolio investments, even as net outflows of other investments declined significantly during the year.

Notwithstanding the BOP deficit in 2017, the country’s gross international reserves (GIR) increased to $81.6 billion as of December, from $80.7 billion as of December 2016.

At this level, reserves could adequately cover eight months’ worth of imports of goods and payments of services and income. It was also equivalent to 5.7 times the country’s shortterm external debt based on original maturity and 4.1 times based on residual maturity. The year-on-year increase in reserves was due to inflows arising from the NG’s net foreign currency deposits, revaluation adjustments on the BSP’s foreign currency-denominated reserves and gold holdings, as well as its income from investments abroad. These were partially offset by outflows from the BSP’s foreign exchange operations. /