External payments gap narrows in July

By Melissa Luz T. Lopez
Senior Reporter
DOLLARS outflows continued to outpace inflows in July, the central bank reported on Monday, even as it noted that the resulting balance of payments gap was smaller than the preceding month’s and year-ago shortfalls.
The country’s balance of payments (BoP) position settled at a $455-million deficit last month, smaller than June’s $1.177-billion gap and the $678-million shortfall recorded in July 2017, according to the Bangko Sentral ng Pilipinas (BSP).
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.
July marked the seventh straight month of a deficit in external payments, although the latest tally was the smallest since April’s $270-million shortfall.
In a statement, the central bank attributed the continued outflows to payments made by the national government on maturing foreign debt, as well as the BSP’s regular foreign exchange operations.
“These were partially offset, however, by net foreign currency deposits of the national government and income from the BSP’s investments abroad during the month,” the central bank said.
The BSP uses its foreign currency reserves to temper sharp swings in the peso-dollar rate as part of “tactical intervention” to keep the currency competitive.
The local unit traded weaker than P53 to the greenback last month to average P53.4329, compared to the P50.6382 rate in July 2017.
July flows brought year-to-date BoP to a $3.712-billion deficit, more than double the $1.384-billion gap recorded in 2017’s first seven months.
“The higher cumulative BoP deficit for the period may be attributed partly to the widening merchandise trade deficit for the first half 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 BSP explained.
Imports grew by 13.2% as of end-June to outstrip a 3.2% decline in merchandise exports, according to the Philippine Statistics Authority.
The BSP expects a $1.5-billion BoP deficit this year as of their May review. If realized, this would be wider than the $863-million actual deficit logged as of end-2017. Still, the level is seen “manageable,” equivalent to 0.4% of gross domestic product.
“A better-looking BoP always looks positive to the market. It is also good for the Philippines and the better BoP standing communicates a steady economic footing,” said Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines.
“However, I think that with regard to the government’s current BoP target, it needs some serious rethinking at this point,” he added.
“An adjustment wouldn’t necessarily mean bad, but it can rather communicate that the current managers are very aware of where the economy is at and is going.”