Angelo Taningco
Economist, Treasury Group
Philippine balance of payments (BOP) deficit surged to a 19-month high of $1,177 million in June from $583 million in May. On a quarterly basis, BOP deficit soared to a 5-quarter high of $2,030 million in the second quarter (Q2) from $1,227 million in the first quarter (Q1). As a share to GDP, we computed Q2 BOP deficit at 2.5%, higher than Q1’s 1.6%. First half (H1) BOP deficit amounted to $3,256 million, the biggest since H1 2014, which posted BOP deficit of $4,144 million. We estimated the H1 BOP deficit to be at 2.1% of projected GDP.
We posit that the monthly jump in BOP deficit last month was partly induced by widening of trade-in-goods deficit amid sluggish goods exports and robust import demand. Moreover, we think there were outflows of portfolio capital in response to the US rate hike and risk aversion on emerging markets (EMs), which was battered by elevation in global oil prices and US monetary tightening. Similar to Q1, we think the BOP deficit in Q2 was partly a result of a trade-in-goods deficit that outweighed combined receipts from trade in services—which include business process outsourcing (BPO) and travel services—as well as primary and secondary income accounts which encompass overseas Filipino (OF) remittances. Moreover, the Q2 BOP deficit was likely generated by combined outflows of foreign portfolio investment and other investment that likely eclipsed foreign direct investment (FDI) inflows.
We think such news of a relatively huge BOP deficit could lead market participants to expect further peso depreciation over the near-term. However, we expect BOP deficit to narrow by the end of the year; this is in light of incoming US dollar inflows from foreign currency bonds, such as Samurai bonds and US dollar-denominated bonds, being planned by government to be sold in the second half of the year. Moreover, we believe that the current account deficit will not jump to unmanageable levels as the widening trade-in-goods deficit will be cushioned by combined receipts from tourism, BPO, and OF remittances inflows. At this juncture, we are reassessing our full-year BOP deficit forecast of $2.3 billion as the risk to our outlook has tilted more to the upside. In comparison, H1 BOP deficit is already more than doubled that of the central bank’s full-year BOP deficit forecast of $1.5 billion.
Figure: Balance of Payments
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