BOP surplus expands to US$2.8 Billion in Q3 2020

The country’s balance of payments (BOP) position continued to register a surplus amounting to US$2.8 billion in Q3 2020, more than three times the US$778 million surplus recorded in the same quarter last year.

BOP is the record of all international trade and financial transactions made by a country’s residents.

A BOP surplus means the country exports more than it imports. It provides enough capital to pay for all domestic production. The country might even lend outside its borders. A surplus boosts economic growth in the short term.

A BOP deficit means the country imports more goods, services, and capital than they export. It must borrow from other countries to pay for its imports.

The increase in BOP position was underpinned by the reversal to a surplus of the current account, attributed mainly to the narrowing of the trade in goods deficit as imports of goods recorded a higher decline than exports of goods.

Merchandise trade continued to slow as risks and uncertainties surrounding the COVID-19 health crisis affected domestic and global economic activities.

Meanwhile, the financial account posted higher net outflows due to the surge in net outflows of portfolio investments, even as the other investment account reversed to net inflows and the net inflows of direct investments rose.

 

Current Account. The current account posted a surplus of US$4.1 billion in the third quarter of 2020, a reversal of the US$356 million deficit recorded in Q3 2019. This resulted primarily from the decline in trade in goods deficit and the increase in net receipts of secondary income, which more than compensated for the lower net receipts of primary income and trade in services.

Capital Account.  Net receipts in the capital account fell to US$11 million in Q3 2020 from US$20 million in Q3 2019. This resulted primarily from the lower net receipts of capital transfers by the National Government (NG) amounting to US$14 million from US$21 million in Q3 2019.

Financial Account.  The financial account recorded net outflows of US$646 million in Q3 2020, 65.1 percent higher than the US$391 million net outflows registered in Q3 2019. This outcome stemmed mainly from the significant increase in net outflows of portfolio investments, which was tempered partly by the reversal of other investments to net inflows and the increase in net inflows of direct investments.

 

JAN-SEPT PERFORMANCE 

The BOP position for the first three quarters of 2020 registered a surplus of US$6.9 billion, 23.6 percent higher than the US$5.6 billion surplus registered in the same period a year ago. This development was underpinned by the reversal of the current account to a surplus on account mainly of the reduced deficit in the trade in goods account.

Global and domestic demand remained weak due to subdued economic activity and supply chain bottlenecks stemming from continued mobility restrictions across countries.

The financial account posted net outflows during the review period, a turnaround from the net inflows recorded in the same period last year.  In particular, the portfolio investment account reversed to net outflows as investor sentiment remained cautious amid uncertainties surrounding the pandemic even as global economic activity showed signs of recovery. The other investment account recorded increased net outflows, while the direct investment account posted higher net inflows.

Current Account.   The current account registered a surplus of US$8.7 billion in the first nine months of 2020, a reversal of the US$3 billion deficit posted in the same period last year. This outturn resulted primarily from the hefty reduction in the trade in goods deficit, which more than offset the decline in net receipts of trade in services, and primary and secondary income.

Capital Account. The capital account posted lower net receipts of US$23 million
in the first nine months of 2020 from US$66 million in the same period last year. This was brought about by the net payments for the acquisition of nonproduced nonfinancial assets of US$19 million and decreased receipts of other capital transfers to the NG amounting to US$41 million.

Financial Account.  The financial account posted net outflows of US$3.9 billion in the first three quarters of 2020, a reversal of the net inflows of US$5.1 billion in the same period last year. This was largely driven by the turnaround in portfolio investments to net outflows from net inflows and the increase in net outflows of other investments. These outflows were partly mitigated by the increase in net inflows of direct investments.

 

GROSS INTERNATIONAL RESERVES

The country’s gross international reserves (GIR) amounted to US$100.4 billion as of end-September 2020, markedly higher than the US$85.6 billion level recorded a year ago.

At this level, the reserves adequately covered 10.7 months’ worth of imports of goods and payments of services and primary income. It was also equivalent to 9 times the country’s short-term external debt based on original maturity and 5.2 times based on residual maturity.

This year-on-year increase in reserves reflected inflows arising largely from the Bangko Sentral ng Pilipinas’ (BSP) foreign exchange operations and income from its investments abroad, the NG’s foreign currency deposits with the BSP, and revaluation adjustments on its gold holdings and foreign currency-denominated reserves.

 

EXCHANGE RATE

For the third quarter and the first three quarters of the year, the peso appreciated against the baskets of currencies of major trading partners (MTPs) and trading partners in advanced (TPI-A) and developing (TPI-D) countries in nominal and real terms as seen in the table below, indicating a slight loss in external competitiveness against these trade baskets of currencies for the said periods.