Strong Current Account Continues to Support BOP Surplus in 2013

Manila—(PHStocks)—Bangko Sentral ng Pilipinas (BSP)—The country’s balance of payments position yielded a surplus of $1.3 billion in Q4 2013 as the current account continued to post a positive balance. This was, however, lower than the $3.4 billion BOP surplus recorded in the comparable quarter a year ago. The continued strength of the current account in Q4 2013 was mitigated by the reversal of the financial account balance to net outflows during the quarter from net inflows in the same quarter a year ago.

Global activity strengthened and world trade picked up in the latter part of the year arising from firmer signs of recovery in advanced economies, particularly the U.S., Japan, and some core economies in the euro area. As external demand broadly improved, the country’s exports of goods continued to rebound in Q4 2013. However, volatilities in the global environment stemming mainly from the U.S.’ decision to reduce its bond-buying program in 2014, and the subdued economic sentiment in the euro area continued to weigh down on financial markets affecting capital flows in emerging economies, including the Philippines.

With the sustained surplus in the BOP, the country’s gross international reserves reached $83.2 billion as of end-December 2013. This reflected however, a reduction of $644 million relative to the year-ago GIR level of $83.8 billion as the surplus in the BOP was more than offset by revaluation adjustments in gold and foreign currency-denominated reserve holdings of the Bangko Sentral ng Pilipinas (BSP). This level of reserves could amply cover 11.5 months’ worth of imports of goods and payments of services and income. It was also equivalent to 7.4 times the country’s short-term external debt based on original maturity and 5.4 times based on residual maturity.

Fourth Quarter 2013 Developments

Current Account.  The current account posted a surplus of $3.7 billion (equivalent to 5.0 percent of GDP) in Q4 2013, higher by 21.8 percent than the $3 billion surplus in Q4 2012. In particular, the solid growth in net receipts of secondary income combined with reduced deficit in trade in goods increased the current account surplus even as the primary income and services accounts recorded lower net receipts.

The trade in goods account posted a deficit of $4.4 billion in Q4 2013, 14.9 percent lower than the $5.2 billion deficit registered in the same quarter the previous year. The improvement was driven mainly by the growth in exports of goods at 5.8 percent which was in stark contrast with the decline in imports of goods at 0.9 percent.

Net services receipts decreased to $1.6 billion in Q4 2013 compared to the $2.5 billion net receipts registered in Q4 2012. The 36.2 percent decline was caused largely by decreased net receipts from other business services, particularly technical, trade-related and other business services (arising from the decline in receipts from both BPO-related transactions and manufacturing services), as well as the increased net payments in travel, maintenance and repair, and construction services.

The primary income account recorded net receipts of $127 million in Q4 2013, lower than the $459 million net receipts in Q4 2012. The 72.3 percent decline was caused primarily by higher net payments of investment income even as earnings of resident overseas Filipino (OF) workers increased by 8.9 percent to reach $1.8 billion.

Net receipts in the secondary income account rose by 20.9 percent to $6.4 billion relative to the previous year’s level of $5.3 billion. The favorable development was underpinned by the 11.8 percent expansion in personal transfers to reach $5.5 billion in Q4 2013. Comprising almost 98 percent of personal transfers, non-resident OF workers’ remittances of $5.4 billion was 9.3 percent higher than the $4.9 billion remittances in the same quarter in 2012.

Capital Account.  Net receipts in the capital account reached $27 million during the review quarter, slightly higher by 5 percent than the $26 million recorded in the same quarter a year ago. This was due mainly to the capital transfers to the National Government (NG).

Financial Account.  The financial account posted net outflows (or net lending of residents to the rest of the world) of $1.6 billion in Q4 2013, a reversal of the $3 billion net inflows recorded in the same period in 2012. Driving the trend was the surge in residents’ net acquisition of financial assets coupled with a marked decline in residents’ net incurrence of liabilities.

The direct investment account yielded $168 million net outflows in Q4 2013, 68 percent lower than the $525 million net outflows posted in the comparable period a year ago.  This developed as residents’ net acquisition of financial assets amounting to $894 million exceeded their net incurrence of liabilities (or FDI) of $725 million. The net acquisition of financial assets, however, is 15.7 percent lower than that recorded in the fourth quarter of 2012. Meanwhile, foreign direct investments (net incurrence of liabilities) expanded by 35.8 percent on account of the significant rise in non-residents’ net placements in domestic debt instruments issued by their local affiliates.

The portfolio investments account likewise posted net outflows of $948 million in Q4 2013, a reversal of the $877 million net inflows recorded in the same quarter of the previous year. This development reflects the sensitivity of portfolio flows to changes in the monetary policies in advanced economies, particularly the US Federal Reserve’s decision to reduce its monthly bond buying program starting January 2014.  Net outflows of portfolio investments came mainly from residents’ net repayment of liabilities to foreign portfolio investors amounting to $1.2 billion, which more than offset their net disposal of financial assets of $251 million.

The other investments account similarly registered net outflows of $515 million, a reversal of the $2.7 billion net inflows recorded in Q4 2012.  Net outflows resulted mainly from higher net acquisition of financial assets by residents amounting to $1 billion and the decline in their net incurrence of liabilities amounting to $519 million.

January-December 2013 Developments

The BOP position for January-December 2013 yielded a surplus of $5.1 billion, bolstered by the appreciable increment in the current account surplus. This was, however, lower than the $9.2 billion BOP surplus recorded in the comparable period in 2012. The current account continued to perform strongly due mainly to higher net receipts from secondary income and services, combined with lower deficit in trade in goods. By contrast, the financial account recorded net outflows, a reversal of the previous year’s net inflows due to net outflows in other investments along with lower net inflows in portfolio investments. This development was tempered by the turnaround of direct investments to net inflows from net outflows last year.

Current Account. The current account surplus rose markedly to $9.4 billion (3.5 percent of GDP) for the full-year 2013 compared to $7 billion (2.8 percent of GDP) in 2012. The 35.6 percent expansion stemmed from higher net receipts from secondary income and services, and lower trade in goods deficit. This favorable outcome more than offset the net payments recorded in the primary income account, which recorded a reversal from the net receipts posted in 2012.

The trade in goods deficit registered a moderate improvement of 2.1 percent as the contraction in imports of goods (by $2 billion) outpaced that of exports of goods (by $1.6 billion). Exports of goods dropped by 3.6 percent to $44.7 billion in 2013 compared to $46.4 billion in 2012 due primarily to the contraction in shipments of manufactured goods from the previous year’s level. Meanwhile, imports of goods fell by 3.1 percent to reach $63.3 billion in 2013, on account of lower imports of raw materials and intermediate goods, and mineral fuels and lubricants.

The surplus in the services account improved by 10.4 percent to $6.8 billion in 2013, due mainly to higher net receipts from telecommunications, computer, and information services (by 4.1 percent); and personal, cultural, and recreational services (35.3 percent). These increments, together with lower net payments for travel, transport (largely lower freight services due to the decline in goods imports), insurance and pension, financial, and government goods and services more than compensated for the lower net receipts from other business services, particularly technical, trade-related and other business services (on account of decreased receipts in manufacturing services), and construction services as well as increased net payments in maintenance and repair services, and charges for the use of intellectual property.

The primary income account reversed to net payments of $254 million for the full year 2013 compared to $197 million net receipts a year ago. The reversal was due mainly to higher net payments of investment income amounting to $7.1 billion compared to $6.2 billion the previous year.

Net receipts in the secondary income account increased by 9.6 percent to $21.4 billion, boosted mainly by the 7.3 percent growth in workers’ remittances of non-resident OF workers, which reached $19.3 billion in 2013.

Capital Account.  The capital account realized net receipts of $115 million in 2013,
21.8 percent higher than the $95 million registered in the same period a year ago. This was due mainly to the increase in capital transfers to the NG.

Financial Account.  The financial account registered net outflows of $635 million in January-December 2013, a turnaround from the $6.7 billion net inflows recorded in the previous year.  Residents’ net acquisition of financial assets reached $4.9 billion, exceeding their net incurrence of liabilities of $4.3 billion. Net outflows were posted in the other investment account, which were mitigated partly by inflows of portfolio and direct investments. Volatile capital flows during the year reflected sensitivity of financial markets to external developments.  In particular, net inflows of portfolio investments declined as risk appetite for emerging market assets was weighed down by the tepid recovery in the euro area as well as changing expectations on the US monetary policy.

The direct investment account registered net inflows of $218 million in 2013, a reversal of the $958 million net outflows posted in 2012.  This marked improvement was due to the 20 percent growth in residents’ net incurrence of liabilities (or foreign direct investments) coupled by a 12.7 percent decline in their acquisition of financial assets. Foreign direct investments remained robust at $3.9 billion, buoyed by investors’ confidence on the country’s sound macroeconomic fundamentals.

The portfolio investment account yielded net inflows of $1.3 billion in 2013, lower by 58.7 percent than the level a year ago.  Net inflows resulted from residents’ net disposal of their foreign financial assets amounting to $963 million and net incurrence of liabilities (or foreign portfolio investments) of $362 million.

The other investment account realized net outflows of $2.3 billion in 2013, reversing the $4.5 billion net inflows recorded the previous year. Residents’ net acquisition of financial assets amounted to $2.6 billion during the period from a net disposal of $1 billion last year. Meanwhile, residents’ net incurrence of liabilities fell by 91.1 percent to settle at $308 million from the year-ago level.

Revised BOP Data Series (2005-2012)

Following the implementation of the compilation framework based on the International Monetary Fund’s (IMF) Balance of Payments and International Investment Position Manual, 6th Edition (BPM6) in March 2013, the BSP is also releasing the backtracked BOP monthly data series from 2005-2010 (with accompanying technical notes) in the BSP website. Apart from the conversion to BPM6 format, the revisions to the backtracked BOP data series mainly reflected the use of new data sources and estimation methodologies to generate more accurate and reliable BOP statistics.

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