Balance of payments surplus for the fifth consecutive month in March, despite the outflow of "hot money"



The COUNTRY balance of payments – which summarizes the Philippine economic transactions with the rest of the world over a given period – yielded a surplus for the fifth consecutive month as net government foreign exchange (NG) inflows and foreign exchange transactions of the central bank, as well as foreign investment income abroad, offset outflow due to the payment of the government's external debt, Bangko Sentral ng Pilipinas (BSP) said on Wednesday.

The central bank reported separately on Friday that foreign portfolio investments – also called "hot money" because of the ease with which they are injected and withdrawn from local markets and part of BP's financial account – have reverted to a net outflow in March. a year ago and the previous month.

BoP recorded a surplus of $ 627 million in March, a reversal from the $ 429 million deficit last year and 46.8% more than the $ 467 million surplus in February.

This led to a cumulative year surplus of $ 3.977 billion, which was a $ 1.227 billion shortfall reversal in the first quarter of last year and compares to the $ 3.5 billion deficit the central bank projected for 2019 and compared to US $ 2.306 billion in 2018.

"BoP's reported position reflected the final level of gross international reserves (GIR) of $ 83.61 billion at the end of March 2019," the central bank said in a statement.

"At this level, GIR represents more than a broad buffer of liquidity and is equivalent to 7.4 months of imports of goods and payments of services and primary income. It also equates to five times the country's short-term external debt based on the original maturity (external debt maturing up to one year) and 3.5 times based on the residual maturity (external debt with original maturity of up to one more year) . payments of principal in medium- and long-term loans from the public and private sectors due in the next 12 months).

BSP deputy governor Diwa C. Guinigundo told reporters by cellphone message: "… [W]We continue to see very encouraging signs in the first two months of the year that OFW (foreign worker) remittances and tourism revenues would continue to be robust, "adding that"[i]External loan flows are also expected to have supported the surplus in the March BoP. "

The BSP said last Monday that the first two months saw the money sent home by the OFWs to grow three percent year on year to $ 4.78 billion.

"If this trend continues, we should be looking at a better BoP position by the end of the year. It should also validate the financability of the current account deficit we have sustained in recent years due to strong economic performance, "Guinigundo said.

In an e-mail, the chief economist of the Security Bank, Robert Dan J. Roces, said that the overskirt masks the negative current account that includes the trade in goods.

The Philippine Statistical Authority reported on 11 April that the country's trade deficit for merchandise rose 16 percent to $ 6.708 billion in February from a deficit of $ 5.63 billion in two comparable months in 2018.

"The surplus reflects the high reserves accumulated by the central bank via capital account; Our gross international reserves are up and foreign investors are returning, having dumped about $ 400 million from February, "wrote Roces.

"However, they mask the negative current account, which measures, among other things, imports and exports, where our imports are high and exports are stagnant," he added.

"In addition, shipments of OFW, also high for the quarter, are part of the current account, which shows that shipments are not sufficient to cover the trade disparity," said Roces.

"On a positive note, our high capital account means we have enough foreign exchange reserves to stabilize the peso. And as long as economic growth remains robust, the export sector receives its support once the budget has been signed, and our economic fundamentals remain solid, we see a sustained surplus for the year. "

In a separate comment, Michael L. Ricafort, an economist at Rizal Commercial Banking Corp. (RCBC), said via text: "The improvement in the BP surplus can be attributed to the sustained recovery in the net foreign portfolio / net external buying in the local financial markets since the beginning of 2019, amid the tendency of flexibilization of both local inflation and of interest rates. "

"The BOP surplus may also reflect the sustained growth of the country's dollar / foreign currency structural inflows, such as shipments of OFW, BPO [business process outsourcing] revenues and revenues from foreign direct tourism, as well as foreign direct investment inflows. "

The central bank also said on Wednesday that net hot spot exits in March closed four straight months of net inflows.

In March, net outflows of $ 739 million were a reversal of net inflows of $ 1.132 billion in the previous year, while gross inflows fell one-third to $ 1.732 billion from $ 2.469 billion, and gross outflows nearly doubled from $ 1.337 billion to $ 2.471 billion.

"About 66.5% of the investments registered during the month were securities listed on the Philippine Stock Exchange (mainly for holding companies, food, beverage and tobacco companies, real estate companies, banks and transportation companies); while 33.4% were for public securities with a stated weight and the balance of 0.1% went to UITFs (mutual investment funds), "the BSP said in a separate statement.

"The United Kingdom, the United States, Singapore, Luxembourg and Hong Kong were the top five investor countries for the month, with combined participation totaling 80.3%."

The central bank added that gross outflows "can be attributed to large outflows of GS weights in the amount of US $ 939 million for March 2019 from the US $ 154 million recorded in February."

"The US continued to be the main destination of the exits, receiving 76.8% of total shipments."

That boosted first-quarter flows to $ 363.4 million, which was less than half the previous year, $ 766.05 million, with gross inflows rising by 1.3% to $ 5.204 billion, from $ 5.137 billion and gross outflows rose 10.7 percent to $ 4.841 billion from $ 4.372 billion. .

Wanted by comments, RCF's Mr. Ricafort replied in a text message: "Some profitable activities in March 2019 may have occurred after substantial market gains in January-February 2019, partly as a result of slower economic growth and the prospects of China, the eurozone and some developed countries … and declines in China's exports and imports largely due to the adverse effects of the persistent US-China trade war and uncertainties related to Brexit. "

"[G]The political risks related to the tensions between India and Pakistan in March 2019 also triggered some profits in the local markets. Some profits from local markets also came after the announcement of the MSCI's rise in Chinese stocks in global benchmarks, "added Ricafort.

In another comment, Nicholas Antonio T. Map, senior economist at ING Bank NV-Manila, said the outflows could reflect investors' monetary policy expectations.

"Portfolio flows continue to help determine the direction of the peso, with output driven primarily by expectations of monetary policy … The March depreciation trend mirrored the exit of bond and stock markets with the perceived BSP to assume perhaps a tone most dovish to support signaling growth prospects after its ultra-aggressive rate of 2018 to end inflation on the supply side, "Mr. Map said in an e-mail response to the questions.

"We can also note that sentiment may help direct the trading for the first two months of the year, seeing strong pressure for peso appreciation, even as interest rate differentials between the US and the Philippines remained unchanged. We note that the direction of the foreign currency is driven by both interest rate differentials and market-attributed probability to an increase in the Fed rate, and thus the peso may remain stable even if the real differentials are maintained as long as investors believe the Fed is on hold for now, "he added.

"In the coming months, we can expect the peso to still have some upward pressure as investors are no longer expecting the Fed to raise rates in 2019, given the recent adjustment to the Fed's outlook on rates. This expectation will help direct the flow of funds to emerging markets, such as the Philippines, even if the differentials remain unchanged or even reduced. "- Reicelene Joy N. Ignacio


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