March balance of payments slips into deficit of $472 million

MANILA, Philippines – The country’s balance of payments (BOP) slipped into a deficit level of $472 million at the end of March as government debt payments used up foreign exchange, paring down the first quarter balance to a $1.732-billion surplus.

The Bangko Sentral ng Pilipinas (BSP) reported yesterday that the balance of payments as of March 2009 retreated to a deficit as the National Government (NG) paid off redeemed foreign exchange-denominated bonds during the month.

BSP Governor Amando M. Tetangco Jr. said there were NG bond redemptions that fell into March and this utilized a corresponding amount of foreign exchange that had to be taken out of the country’s international reserve.

Data from the BSP indicated that the National Government paid about $2.1 billion worth of principal debt of which $975 million were ROP bonds (bonds issued by the Republic of the Philippines).

Bonds have a maturity date but they are also redeemable before they are due depending on what the holders want to do with their holdings. Investors worried over the prospects of a default or in need of cash would normally redeem their bonds before they mature.

According to Tetangco, the fall in the country’s BOP from the February surplus of $469 million reflected these redemptions, indicating a total outflow of about $941 million in March.

The BOP in March 2008 was recorded at $405 million while the three-month balance was recorded at $1.713 billion

The BOP is the summary of the country’s transactions with the rest of the world paid out of the foreign exchange reserve generated by the economy. 

The size of the BOP surplus also defined the BSP’s comfort level when it came to managing the volatility in the foreign exchange rate and shielding the peso from excessive fluctuations.

This year, the BSP is projecting a BOP surplus of $700 million—not as impressive as the $8.6-billion surplus recorded in 2007 but a significant improvement from the $88-million level recorded at the end of 2008.

Thus far, the BSP said the country’s international reserves reached $38.87 billion at the end of March as inflows from remittances remained robust enough to avoid the decline predicted by the market.

The BSP said the gross international reserves or GIR remained strong despite weakening inflows from foreign direct and portfolio investments as well as export receipts.

The BSP said the March reserve is equivalent to 6.2 months worth of imports of goods and services and 2.9 times the country’s short-term foreign obligations based on residual maturity.

The March GIR is also slightly higher than the level projected by the BSP which said it expects the country’s reserve to reach at least $37.5 billion this year, as the growth in remittances grinds to a halt this year due to job losses abroad.

With the down-scaling of the projected reserves, the government also revised its projected BOP position from $500 million to $700 million, mainly because of lower oil prices.–Des Ferriols, Philippine Star