BOP gap breaches $2 B, overshoots BSP target

The country’s overall balance of payments (BOP) position incurred a deficit of $2.08 billion in the first five months, a dramatic rise from only $706 million in the same period last year, due in part to the rapid rise in merchandise trade deficit brought about by the sustained rise in imports of raw materials and capital goods, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

The BOP shortfall in the first five months already surpassed the revised deficit set by the BSP for the year. The BSP has revised upwards its 2018 BOP deficit to $1.5 billion from the original target of $1 billion.

“The higher cumulative BOP deficit for the period may be attributed partly to the widening merchandise trade deficit for the first four months of the year that was brought about by the sustained rise in imports of raw materials and capital goods to support domestic economic expansion,” the central bank said in a statement.

The country’s trade deficit swelled to $12.2 billion in the first four months from $7.65 billion in the same period last year.

Imports booked a year-to-date growth of 10.5 percent, while exports declined by 6.2 percent.

Despite the wider BOP deficit, BSP Governor Nestor Espenilla Jr. said the country’s external payments position remains manageable as it has built sufficient liquidity buffers against global headwinds.

“The BOP is reliably supported by strong structural foreign exchange inflows, specifically revenues from the IT-BPO industry and from remittances of overseas Filipinos,” he said.

A declining BOP position could result in the thinning of the country’s foreign exchange buffer that serves as protection against external shocks.

The BSP said the latest BOP position is consistent with the gross international reserve (GIR) level of $79.2 billion as of end-May, providing ample liquidity buffer and is equivalent to 7.6 months’ worth of imports of goods and payments of services and primary income.

It is also equivalent to 6.2 times the country’s short-term external debt based on original maturity and 4.3 times based on residual maturity.

For May alone, the deficit reached $583 million, almost 10 times the $59 million deficit recorded in the same month last year and was the highest in almost a year or since hitting $678 million in July last year.

“Outflows in May 2018 stemmed mainly from foreign exchange operations of the BSP and payments made by the national government for its maturing foreign exchange obligations,” the BSP said.

However, the central bank said the outflows were partially offset by net foreign currency deposits of the national government and income from the BSP’s investments abroad.

The BOP is the difference in total values between payments into and out of a country over a period. A deficit means more foreign exchange flows out of the country to pay for the importation of more goods, services and capital than what flows in from exports.