BOP surplus dips to 4-year low of $88 million in 2008

The country’s balance of payments (BOP) surplus thinned to a four-year-low of $88 million in 2008, a small fraction of the $8.557-billion surplus in 2007 due to the inexorable outflow of foreign exchange from the country.

The 2008 BOP surplus is the worst since the start of 2005 when the year opened with a $277-million deficit in January.

The Bangko Sentral ng Pilipinas reported that the monthly BOP position plummeted back into deficit in December at $276 million and this led up to the dismal yearend level.

Despite the increase in holiday remittances from overseas Filipinos, the BSP said the outflow of foreign exchange from portfolio investment withdrawals as well as imports drained the reserves drastically.

The December deficit was a surprise, however, because monetary officials have been expecting the BOP position to bounce back after posting a gargantuan $1.195-billion deficit in November.

According to BSP Governor Amando M. Tetangco Jr., the National Government went to the international credit market to borrow over $1.3 billion but the loan proceeds would not be booked until January.

The foreign borrowing of the NG, however, was not in the original program for 2008 and would have been for the sole purpose of beefing up the reserves and pre-funding its foreign borrowing requirement for 2009.

Instead, the NG was able to raise $1.5 billion as scheduled in January, just narrowly missing what could have been a punishing market as US economic data emerged to show an even more dismal market.

The decision of fiscal officials not to go into the market until this January left the country’s yearend BOP position at $88 million.

The BSP had originally projected the BOP surplus to reach at least $2.5 billion this year but the global financial turmoil and the resulting risk-aversion of investors worldwide forced monetary officials to revise this projection.

By mid-year, the BSP had downgraded its projected BOP position to a surplus of $1.3 billion but even this was further revised to a projected surplus of $500 million by yearend as oil prices continued to spiral out of control.

Central bank officials said the massive withdrawal of foreign portfolio investments contributed to the decline in the BOP surplus which aggravated weakening export receipts and inflows from foreign direct investments.

After soaring to $3.5 billion in 2007, foreign portfolio investments drained out of the country in 2008 with over $1.4 billion in net outflows as sentiments reversed dramatically over the 12-month period.

Gross inflows for the whole year reached $8.3 billion but net outflows were higher, reaching $9.7 billion.

Total outflows of portfolio investments actually dropped by 19 percent but since inflows were significantly lower than 2007, net inflows turned negative in 2008.

Outflows of foreign exchange also surged as oil prices remained elevated last year, using up a significant portion of the country’s reserves. The weakness of the peso likewise made imports more expensive, offsetting inflows that came from exports.

Even with the decline in hot money inflows in 2008, however, the country’s reserves still soared to $37.1 billion at the end of 2008, sustaining the recovery that foreign exchange inflows made in November as a result of inflows from government borrowing and other inflows.

The BSP said the annual increase in the 2008 GIR level was a result of inflows from the BSP’s foreign exchange operations, income from its investments abroad and deposits made by the National Government from its borrowings.

The NG had deposited proceeds from its global bonds offer and other foreign borrowings during the year.

Also, the BSP said the reserves also benefited from the surge in gold prices which gave the central bank revaluation gains from its gold holdings throughout the year.

According to the BSP, the inflows were only partly offset from payments of maturing foreign currency-denominated obligations of the BSP and the National Government.–Des Ferriols, Philippine Star