PHL BOP posts $752-million deficit in January

THE country’s transactions with the rest of the world yielded a dollar deficit in January as the national government withdrew foreign currency from the Bangko Sentral ng Pilipinas’s (BSP) reserves to pay for its international debt obligations and as trade also recorded a deficit at the start of the year.

The BSP reported on Thursday that the country’s balance of payments (BoP)—or the summary of its transactions with the rest of the world—hit a deficit of $752 million in January.

This is the first BoP deficit of the country since March 2020 and the largest deficit since January last year.

Despite the global economic turmoil brought about by the restrictions needed to curb the pandemic, the Philippines’s BoP managed to stay in surplus territory in 2020, ending the year with a $16-billion surplus.

The deficit in January 2021, however, was smaller compared to the $1.36-billion deficit seen in the same month in 2020.

The Central Bank attributed this to the outflows mainly from the foreign currency withdrawals of the national government from its deposits in the BSP to pay its foreign currency debt obligations.

The BSP said the outflows could have had a larger effect on the BoP, if not for the BSP’s income from its foreign exchange operations and investments abroad.

Rizal Commercial Banking Corporation (RCBC) economist Michael Ricafort, in his analysis, said the BoP deficit could also be a result of the wider trade deficit in recent months amid some pick-up in imports.

Ricafort thinks the coming months could see the Philippines’s BOP reverting to surpluses if the country records a narrower trade deficit in the coming months—if foreign investments rise and if dollar inflows from remittances and business-process outsourcing  receipts continue to be stable over 2021.

Additional foreign borrowings by the national government, potential foreign fund-raising activities by the biggest local companies and conglomerates or an increase of foreign direct investments to the country after the CREATE Bill is signed into law will also push the country’s BOP back to surplus territory.

The BoP is usually considered as an important economic indicator in an economy as it shows the level of earnings or expenses of the Philippines with its transactions with the world. A deficit means that the country made more dollar expenses than its earnings during the period.