BOP deficit widens to $531 M in Jan

The Philippines booked a balance of payments (BOP) deficit amounting to $531 million in January amid strong outflows, reversing the $917 million surplus recorded in December.

Data from the Bangko Sentral ng Pilipinas (BSP) showed the shortfall last month was the highest since the country recorded a BOP deficit of $678 million in July last year.

The BSP said the shortfall stemmed mainly from foreign exchange operations of the central bank, as well as payments made by the national government for its maturing foreign exchange obligations.

The central bank said the payments were cushioned by net foreign currency deposits of the national government, as well as income from the BSP’s investments abroad in January.

The BOP shows the summary of the country’s transactions with the rest of the world. Components include trade, foreign direct and portfolio investments, and even remittances from Filipinos abroad.

A deficit means the amount of money going out of the country is more than the money coming in, while a surplus means the country imported less goods, services, and capital than it exported.

The country booked a BOP deficit of $863 million last year, more than double the $420 million shortfall registered in 2016, brought about largely by the big reversal in foreign portfolio investments due to external shocks.

The BSP was looking at BOP deficit of $1.4 billion or 0.5 percent of gross domestic product (GDP).

Foreign portfolio investments or hot money are referred to as speculative funds invested in companies listed at the Philippine Stock Exchange as well as government securities controlled by investors who actively seek short-term returns and high interest rate investment opportunities.

The Philippines booked a net outflow of foreign portfolio investments amounting to $205.03 million last year, a complete reversal of the $404.43 million net inflow recorded in 2016.

This was better than the projected net outflow of $2.5 billion after the US Federal Reserve raised interest rates three times last year.

The US central bank penned three more rate hikes this year as it continues to take the normalization path.