January-June 2019 BOP Position Reverses to a Surplus

The country's balance of payments position (BOP) for the first half of 2019 recorded a surplus of US$4.8 billion, a turnaround from the US$3.3 billion deficit posted in the same period last year. The surplus was a result primarily of the marked increase in net inflows in the financial account combined with the narrowing of the the deficit in the current account.

January-June 2019 Developments

Current Account. The current account deficit in the first half of 2019 narrowed to US$1.7 billion from US$3.8 billion in the same period last year. This developed as a result of the higher net receipts in the primary income (US$2.5 billion from US$1.5 billion), trade-in-services (US$5.9 billion from US$4.9 billion), and secondary income accounts (US$13.3 billion from US$13.2 billion) and as the deficit in the trade-in-goods account posted a marginal increase (US$23.5 billion from US$23.3 billion).

Capital Account. The capital account registered higher net receipts of US$33 million in the first six months of 2019 from US$30 million in the same period last year. This resulted following lower payments made on acquired non-produced nonfinancial assets at US$9 million compared to the US$20 million recorded in the previous year.

Financial Account. The financial account recorded higher net inflows (or net borrowing of residents from the rest of the world) of US$5.7 billion in the first half of 2019 compared to US$2.5 billion net inflows posted in the same period in 2018. This was due to the reversal in portfolio investments to US$4.4 billion net inflows from US$2.6 billion net outflows, which compensated for lower net inflows in the direct investment account (US$1.8 billion from US$3.7 billion) and the reversal of the other investment account to net outflows of US$496 million (from US$1.4 billion net inflows).

Second Quarter 2019 Developments

The BOP position registered a surplus of US$991 million in Q2 2019, a reversal of the US$2 billion deficit recorded in the same quarter last year. The surplus stemmed from the net inflows (i.e., net borrowing by residents from the rest of the world) in the financial account, albeit lower, mainly on account of the reversal of portfolio investments to net inflows and the sustained net inflows in the direct investment account. The financial account continued to post net inflows on the back of the positive growth outlook as the country's macroeconomic fundamentals remained stable. Meanwhile, the current account registered a lower deficit due to the narrowing of the trade-in-goods deficit combined with increased net receipts of trade-in-services, and in the primary and secondary income accounts during the quarter.

Current Account. The current account registered a deficit of US$145 million in Q2 2019, a 95.6 percent reduction from the US$3.3 billion deficit registered in the same quarter in 2018. This developed on account mainly of the lower deficit in the trade-in-goods account (US$11.3 billion from US$12.8 billion). Increased net receipts of trade-in-services (US$3.3 billion from US$2.2 billion), and secondary

(US$6.7 billion from US$6.6 billion) and primary income (US$1.2 billion from US$712 millon) also contributed to the improvement of the current account in the second quarter of the year.

Capital Account. The capital account's net receipts expanded by 15.4 percent to US$18 million

in Q2 2019 from US$16 million recorded during the same quarter in 2018.

Financial Account. In the financial account, net borrowings of residents with the rest of the world declined by 86.6 percent to US$225 million from US$1.7 billion in Q2 2018. The marked decline in net inflows stemmed from the reversal of the other investment account to net outflows (US$1.8 billion from net inflows of US$48 millon) and decline in net inflows of direct investments (US$666 million from US$2.7 billion). Meanwhile, portfolio investments reversed to net inflows of US$1.3 billion from net outflows of US$1 billion.

Gross International Reserves

The country's gross international reserves (GIR) amounted to US$84.9 billion as of end-June 2019, higher than the US$77.5 billion level registered in end-June 2018. At this level, reserves sufficiently covered 7.4 months' worth of imports of goods, and payments of services and primary income. It was also equivalent to 5.5 times the country's short-term external debt based on original maturity and 3.9 times based on residual maturity. The year-on-year increase in reserves reflected the NG's net foreign currency deposits, inflows from the BSP's foreign exchange operations as well as income from its investments abroad, and revaluation adjustments on its foreign currency-denominated reserves. This was partially offset by the NG's payments for its foreign exchange obligations.

Exchange Rate

For the second quarter and the first six months 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 tables below. As such, the peso lost external competitiveness against these trade baskets of currencies for the said periods.

Revised 2018 BOP data

The 2018 BOP data have been revised to reflect updates from various data sources and post-audit adjustments. The revised 2018 BOP data with accompanying technical notes are posted in the BSP website.

Source: Bangko Sentral ng Pilipinas (BSP)