Current account surplus narrows to $4.2 billion in 2008

MANILA, Philippines – The country’s current account surplus narrowed to $4.2 billion in 2008 from the $7.1-billion surplus recorded in 2007, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

Iluminada Sicat, director of the BSP’s Department of Economic Statistics attributed the lower current account to the impact of the global financial turmoil.

“The sustained surplus in the current account can be traced to the expansion in net current transfers receipts particularly due to robust remittances and the surplus of net income flows. These positive developments, were, however, dampened by lower net services inflow and the higher trade-in-goods deficit,” she said.

The $4.2 billion is equivalent to 2.5 percent of gross domestic product (GDP) while the $7.1 billion represents 4.9 percent of the country’s total economic output.

The capital and financial account, meanwhile, reversed to a net outflow of $1.9 billion in 2008, a marked turnaround from the net inflow of $3.5 billion in 2007.

Monetary authorities attributed this to cautious investor sentiment in the last quarter of 2008 in the wake of the global economic crisis.

“Both portfolio and other investments posted net outflows, more than offsetting the net inflow in direct investments,” Sicat said.

The portfolio investment account reversed to a net outflow of $2.6 billion from a net inflow of $4.6 billion in 2007, central bank data further showed.

The central bank attributed this development to net bond repayments by the National Government ($831 million), the corporate sector ($1.6 billion), the central bank ($43 million) and banks ($224 million) and to net withdrawals by non-residents of their equity securities holdings in banks and private companies amounting to $1.3 billion.

However, the central bank said maturing debt securities placements abroad by resident banks amounting to $1.5 billion cushioned these outflows.

The other investment account recorded a net outflow of $522 million in 2008 or more than twice the net outflow in 2007 due to net loan repayments by local banks ($487 million) and some private corporations ($2.5 billion); and non-residents withdrawal of currency and deposit with local banks ($204 million).

The current account and the capital account are components of the BOP.

The current account comprises of trade and services while the capital account records long-term and short-term inflows.

The BOP is closely watched by investors as it is a record of the country’s transactions with the rest of the world. A BOP surplus means that there were more dollar inflows than outflows while a BOP deficit means that there were more dollar outflows than inflows.

For 2008, the BOP yielded a surplus of $89 million, significantly lower than the $8.6-billion surplus posted in 2007.

“Both the current account and the capital and financial account posted weaker performances, reflecting the strains in the external environment,” the BSP said.

In the fourth quarter alone, the payments position was at a deficit of $1.5 billion.–Iris C. Gonzales, Philippine Star