BoP deficit tops $3B in first half ‘blowout’
THE country’s balance of payments (BoP) deficit further widened in June, the Bangko Sentral ng Pilipinas (BSP) reported on Thursday, hitting a 19-month high and boosting the year-to-date figure past the $3-billion mark.
The $1.177-billion result followed May’s $583-million shortfall and was also wider than the $569 million recorded a year earlier. It was the largest since November 2016 when the payments position stood at a deficit of $1.670 billion.
“Outflows in June 2018 stemmed mainly from foreign exchange operations of the BSP and payments made by the national government for its maturing foreign exchange obligations,” the Bangko Sentral said in a statement.
These were partially offset by net foreign currency deposits of the national government and income from central bank investments abroad during the month, it added.
June’s result brought the six-month payments balance to a $3.257-billion deficit, significantly wider than the $706 million recorded in the same period last year and more than double the BSP’s full-year deficit forecast of $1.5 billion.
“The higher cumulative BoP deficit for period may be attributed partly to the widening merchandise trade deficit (based on Philippine Statistics Authority data) for the first five months of the year that was brought about by the sustained rise in imports of raw materials and capital goods to support domestic economic expansion,” the central bank noted.
The trade deficit widened by 55.2 percent in January-May to $15.766 billion, from $10.164 billion a year earlier, based on latest available data.
The Philippines ended 2017 with a BoP deficit of $863 million, narrower than the revised $1.038 billion posted in 2016.
In a comment, IHS Markit Asia Pacific chief economist Rajiv Biswas raised concerns over the “significant blowout” of the BoP deficit.
“The deteriorating BoP deficit will add to pressures for further depreciation for the peso, particularly against a backdrop of expected further rate hikes by the US Fed in the second half of 2018 and during 2019,” he said.
The peso, described as Asia’s worst-performing currency this year, fell to a new 12-year low on Thursday, closing at P53.53 against the dollar and down four centavos from the previous day.
On Tuesday (Wednesday in Manila), Fed Chairman Jerome Powell said the Federal Reserve would continue to raise rates gradually as the US economic outlook remained strong despite trade policy uncertainties.
Above all this, Biswas said “the BSP is facing a perfect storm of rising inflation, a weakening peso, higher US interest rates and broader global capital markets outflows from emerging markets, which will increase pressures for further BSP rate hikes in 2018-2019.”
The central bank’s policymaking Monetary Board has so far raised key interest rates by a total of 50 basis points over May and June, bringing the Bangko Sentral’s overnight borrowing, lending and deposit rates to 3.5 percent, 4.0 percent and 3.0 percent, respectively.
The BSP, meanwhile, said the payments balance was consistent with the country’s final gross international reserves (GIR) level of $77.53 billion as of end-June.
“At this level, the GIR represents more than ample liquidity buffer and is equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income,” it added, noting that end-June reserves were also equivalent to 6.2 times the country’s short-term external debt based on original maturity and 4.2 times based on residual maturity.
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