Angelo Taningco
Economist, Treasury Group

Philippine balance of payments (BOP) incurred a deficit for the fourth-straight month in April, allowing the economy’s gross international reserves (GIR) to slip below $80 billion for the first time in more than 3 years. We assert that the persistent BOP deficit is attributed to the widening trade-in-goods deficit and has caused the peso to depreciate relatively sharply since the start of the year. We continue to expect the BOP deficit to expand for the most part of 2018, leading us to adjust upward our BOP deficit forecast to $2.3b (−0.7% of projected GDP). In turn, we also revise up our end-2018 USD/PHP forecast to 52.50 from 52.25.

BOP deficit for April was recorded at $270 million despite foreign portfolio investments (FPI) posting net inflows of $279m for the month. We conjecture that last month saw a trade-in-goods deficit that has likely outweighed FPIs. As a result, the cumulative BOP deficit expanded to $1.5b in the first four months of the year, already above the central bank’s 2018 BOP deficit forecast of $1.0b and our initial full-year BOP deficit forecast of $1.2b, which we estimate to be at 0.3% of GDP. We continue to expect BOP to record deficits throughout the year on the basis of persistent net imports, leading us to adjust upward our full-year BOP deficit projection to $2.3b (−0.7% of GDP); still, we deem this level to be manageable as it accounts for less than 1% of national income.

As a consequence of April’s BOP deficit, foreign reserves have gone down for the month. The central bank has revised down its end-Apr GIR to $79.6b from $80.1b, indicating a $0.9b slippage from end-Mar. This is the first time in more than 3 years that the GIR level is below $80.0b. This decline in foreign reserves led the import and short-term external debt covers to slide to 7.8 months (from 7.9) and 5.4 times (from 5.5), respectively; still, we assess foreign reserves to be more than adequate in meeting the economy’s external obligations.

Figure: Balance of Payments & Foreign Reserves

($ million)

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