BOP position swings to $3.7B surplus in 2023

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By Keisha B. Ta-asan, Reporter

The country’s balance of payments (BoP) position swung to a surplus in 2023, exceeding the projection of the central bank, amid higher inflows of remittances, trade in services, and national government foreign loans.

Data from the Bangko Sentral ng Pilipinas (BSP) on Friday showed the full-year BoP stood at a surplus of $3.67 billion in 2023, a turnaround from the $7.26 billion deficit in 2022.

Last year’s excess was also more than three times (233%) the $1.1-billion expectation of the BSP.

“This development reflected mainly the improvement in the balance of trade alongside the higher net inflows from personal remittances, trade in services, and foreign borrowings by the National Government (NG),” the BSP said.

The BoP shows a glimpse of the country’s transactions with the rest of the world. A surplus shows that more funds came into the country, while a deficit means more money fled.

In December alone, the BoP surplus rose by 4.9% to $642 million from the $612-million excess in the same month in 2022. It was also a turnaround from the $216-million shortfall in November 2023..

“The BOP surplus in December 2023 reflected inflows arising mainly from the NG’s net foreign currency deposits with the BSP, net income from the BSP’s investments abroad, and the BSP’s net foreign exchange operations,” the central bank said.

The BoP surplus in December was largely due to the maiden issuance of the government’s Sukuk bonds last month, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a note.

The Philippines raised $1 billion from the sale of 5.5-year Sukuk bonds in early December. The net proceeds from the Sukuk bonds completed the government’s external funding target that will be used for general purposes, including budgetary support.

Continued growth in dollar inflows to the country also supported the BoP, which mitigated the impact of a wider trade deficit in recent months, Mr. Ricafort said.

The Philippines’ trade-in-goods deficit jumped by 26.3% to $4.69 billion in November, from the $3.72-billion gap a year ago, latest data from the local statistics agency showed. It marked the widest trade deficit in seven months.

At its end-December position, the BoP reflects a gross international reserves (GIR) level of $103.8 billion, inching up by 1.07% from the $102.7 billion as of end-November.

The level of dollar reserves is enough to cover 7.8 months of imports of payments and services and primary income. It is also about six times the country’s short-term external debt based on original maturity and 3.8 times based on residual maturity.

“Going forward, any improvement in BoP data and in GIR data for the coming months could help provide greater cushion/support/buffer for the peso exchange rate versus the US dollar especially against any speculative attacks,” Mr. Ricafort said.

Better BoP data could also help strengthen the country’s external position, he added.

China Banking Corp. Chief Economist Domini S. Velasquez said anticipated rate cuts from central banks globally will help the country’s BoP position this year.

The BSP is widely expected to start cutting borrowing costs in the second half of the year amid easing inflation.

The Monetary Board hiked interest rates by 450 basis points (bps) from May 2022 to October 2023. This has brought the key policy rate to 6.5%, the highest in 16 years.

Inflation stood at 3.9% in December from 4.1% in November, settling within the 2-4% government target for the first time in nearly two years. Year-to-date, inflation averaged 6%.

The central bank projects a BoP surplus of $400 million this year, equivalent to 0.1% of the economy.