BOP deficit widens to $2 billion in Q2



By Rose de la Cruz


The country’s balance of payment deficit widened to $2 billion in the second quarter of 2018 compared to $1.2 billion in the first quarter. This also reversed the $289 million surplus recorded in Q2 2017.


The deficit was due mainly from the current account, which reversed to a deficit of $2.9 billion as the trade-in-goods deficit widened and the net receipts in the primary income account declined. Imports of goods continued to expand driven primarily by increasing domestic production and consumption brought about by the country's solid growth dynamics.


Meanwhile, the financial account posted net inflows (or net borrowing by residents from the rest of the world), albeit lower than the level posted in the same quarter last year. Net inflows of direct investments remained strong with positive investor sentiment on the country's macroeconomic fundamentals. However, these inflows were partly tempered by the reversal of portfolio investments to net outflows (from net inflows last year), along with the increase in net outflows of other investments during the quarter.


The country's gross international reserves (GIR) also dipped to $77.5 billion as of end-June 2018, lower than the $81.3 billion level registered in end-June 2017. At this level, reserves may sufficiently cover 7.1 months' worth of imports of goods, and payments of services and primary income. It was also equivalent to 6.4 times the country's short-term external debt based on original maturity and 4.3 times based on residual maturity.


The year-on-year decrease in reserves was due mainly to outflows arising from the BSP's foreign exchange operations, revaluation losses on foreign currency-denominated reserves, and the National Government's payments for its foreign exchange obligations.


Current account


The current account reversed to a deficit of $2.9 billion in Q2 2018 from a $157 million surplus registered in Q2 2017. This development was due to the higher trade-in-goods deficit and the lower net receipts in the primary income account, even as the trade-in-services and secondary income account posted increased net receipts during the quarter.


The trade-in-goods deficit widened to $12.9 billion in Q2 2018 from $9.1 billion in Q2 2017 because of the double-digit growth in the imports of goods at 16 percent, combined with the decline in exports of goods at 1.7 percent. Exports of goods decreased to $12.8 billion in Q2 2018 from $13.1 billion in Q2 2017 owing to the sluggish demand from the country's trading partners, specifically Japan and South Korea.


The modest decline in exports of goods was due to the 16 percent drop in shipments of mineral products to $1 billion in Q2 2018 from $1.2 billion in Q2 2017, particularly the exports of copper concentrates, copper metal and other mineral products. Lower exports of fruits and vegetables, sugar products, and coconut products were also registered during the quarter.


This development more than offset the growth in the exports of manufactured goods, which comprised about 79 percent of the total goods exports. Manufactured goods exports grew by 2.6 percent, owing to the 24.4 percent increase in shipments of non-consigned electronic products, notwithstanding the 86.3 percent decline in exports of wood manufactures. Imports of goods expanded in Q2 2018 to reach $25.7 billion, compared to $22.2 billion in Q2 2017. The 16 percent growth was spurred by increases posted across all major commodity groups, notably imports of raw materials and intermediate goods, which increased to $9.9 billion in Q2 2018 from $7.9 billion in Q2 2017.


The 24.9 percent expansion was boosted by higher purchases of semi-processed raw materials (31.3 percent), particularly materials and accessories for the manufacture of electronics (107.6 percent), manufactured goods (26.7 percent), notably iron and steel (44 percent), and chemicals (15.9 percent). Imports of mineral fuels and lubricant rose by 34.5 percent to reach $3.1 billion in Q2 2018 from US$2.3 billion in Q2 2017 due to higher imports of petroleum crude. Imports of consumer goods increased by 17.3 percent to $4.4 billion due to higher purchases of both durable and non-durable goods. Imports of capital goods grew by 6.8 percent to $7.3 billion due primarily to increased importation of power generating and specialized machines. Net receipts of trade-in-services totaled $2.8 billion in Q2 2018, higher than the $2 billion net receipts in the same quarter a year ago.


The 40.3 percent growth in net services receipts was driven by the higher net receipts registered in technical, trade-related, and other business services; manufacturing services; and computer services, combined with lower net payments in transport services. Bulk of the net receipts in technical, trade-related, and other business services, as well as computer services was comprised mainly of earnings from business process outsourcing (BPO) related transactions.


Export earnings from BPO services totaled $5.5 billion in Q2 2018, which was 8.1 percent higher than the $5.1 billion receipts in Q2 2017. The primary income account recorded net receipts of $613 million in Q2 2018, lower than the $864 million net receipts in Q2 2017. The 29.1 percent shortfall was due to the increase in net payments of investment income during the quarter.


Net payments of investment income rose by 30.6 percent due mainly to increased dividends paid to foreign direct investors and higher interest payments by the National Government (NG) on long-term portfolio investments. By contrast, higher net interest receipts on reserve assets (27.2 percent) were registered in Q2 2018.




Compensation inflows mostly from resident overseas Filipino (OF) workers also increased (4.4 percent) amounting to $2.1 billion. Net receipts in the secondary income account totaled $6.5 billion in Q2 2018, higher than the $6.4 billion net receipts in Q2 2017. The 2.1- percent improvement was due to the increase in net receipts of personal transfers, which more than offset the decline in net receipts of current transfers to the NG (72 percent).


Net receipts of personal transfers amounted to $6.3 billion, the bulk (about 97 percent) of which comprised of non-resident OF workers' remittances totaling $6.1 billion. Capital Account. The capital account registered net payments of $1 million in Q2 2018, a turnaround from the net receipts of $18 million recorded during the same quarter in 2017. This development was due to lower receipts from other capital transfers to the NG, along with the gross acquisition of non-produced non-financial assets of US$3 million in Q2 2018 (from net disposal of US$2 million a year ago).

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