Robust Current Account Sustains BOP Surplus in Q3 2013
Manila—(PHStocks)—Bangko Sentral ng Pilipinas—The country’s balance of payments position yielded a surplus of $1.2 billion in Q3 2013 even as this was lower than the $4.5 billion surplus recorded in the comparable quarter a year ago. Although tempered by the increase in net outflows in the financial account, the current account surplus sustained the BOP surplus.
The current account surplus improved significantly during the quarter, buoyed by robust net receipts of primary and secondary income as well as of services.
Global growth prospects have improved as economic activity in major advanced economies, particularly the U.S., Japan, and some core economies in the euro area have started to recover. The strengthening demand from the county’s major trading partners resulted in slightly higher exports in Q3 2013 relative to Q3 2012. Meanwhile, the country’s strong macroeconomic fundamentals boosted direct investment flows into the country during the quarter.
The sustained surplus in the BOP allowed the accumulation of gross international reserves to $83.5 billion as of end-September 2013, representing a 1.8% increase (or $1.5 billion) relative to the year-ago GIR level of $82 billion. At this level, reserves could sufficiently cover 12 months’ worth of imports of goods and payments of services and income. It was also equivalent to 8.9 times the country’s short-term external debt based on original maturity and 5.9 times based on residual maturity.
Third Quarter 2013 Developments
Current Account. The current account registered a surplus of $3.2 billion (equivalent to 5% of GDP) in Q3 2013, significantly higher by 42.5% than the $2.2 billion surplus in Q3 2012. The continued strong performance of the current account was supported by higher net receipts of secondary income and services along with the reversal of the primary income balance from net payments to net receipts. These factors more than offset the higher deficit in trade in goods.
The deficit in trade in goods increased slightly by 2.7% to $3.1 billion in Q3 2013 compared to the $3 billion deficit recorded in the same quarter last year. This developed as the increase in imports ($801 million) exceeded that of exports ($719 million).
Net services receipts amounted to $796 million in Q3 2013, higher than the $777 million recorded in the comparable quarter a year ago. The modest 2.5% gain was on account of increased net receipts from other business services, particularly technical, trade-related and other business services.
The primary income account balance reversed to net receipts of $275 million in Q3 2013 from $372 million net payments in Q3 2012. The reversal was attributed largely to the: a) increase in receipts from earnings of resident overseas Filipino (OF) workers; and b) reduction in net payments in investment income.
Net receipts in the secondary income account grew by 7.6% to $5.2 billion compared to the year-ago level of $4.9 billion. This developed on account of the 7.1% expansion in personal transfers to reach $4.9 billion during the quarter in review.
Capital Account. The capital account yielded $26 million net receipts during the review quarter, 21.4% lower than the $33 million recorded in the same quarter a year ago. This was due primarily to the decrease in capital transfers to the NG.
Financial Account. The financial account registered net outflows (or net lending of residents to the rest of the world) of $1.2 billion in Q3 2013, more than twofold the $510 million net outflows recorded in the same period in 2012. This was driven mainly by the 30.9% decline in inflows stemming from residents’ net incurrence of liabilities which more than compensated for the 7.6% drop in outflows from residents’ net acquisition of financial assets.
The direct investment account posted $589 million net inflows (or net borrowing by residents from the rest of the world) in Q3 2013, significantly higher than the $42 million net inflows recorded in the same quarter last year. This developed as residents’ net incurrence of liabilities (or foreign direct investments) aggregating $1 billion, exceeded their net acquisition of financial assets amounting to $428 million.
Portfolio investments registered net outflows of $217 million (indicating net lending of residents to the rest of the world) in Q3 2013, a turnaround from the $61 million net inflows posted in the same quarter in 2012. Net outflows in the portfolio investment account resulted mainly from residents’ net repayment of liabilities amounting to $330 million, which were partly offset by their net disposal of financial assets totaling $113 million.
Net outflows of other investments (indicating net lending of residents to the rest of the world) reached $1.6 billion in Q3 2013, notably higher than the $595 million recorded in the same quarter last year. This resulted mainly from higher net acquisition of financial assets by residents amounting to $3.1 billion coupled with a decline in their net incurrence of liabilities amounting to $1.5 billion.
January-September 2013 Developments
The BOP position for the first three quarters of 2013 yielded a surplus of $3.8 billion. This was lower, however, than the $5.8 billion surplus in the comparable period last year. The sustained favorable external payments position emanated mainly from the marked improvement of the current account surplus due to the higher net receipts from secondary income and services, along with the lower deficit in trade in goods. This development was in contrast to the trend observed in the financial account, which reversed to net outflows from net inflows in the same period a year ago. The significant turnaround was caused primarily by the net outflows in other investments, resulting from the combined effects of higher net acquisition of financial assets and lower net incurrence of liabilities. Partly offsetting these net outflows were the higher net inflows of direct and portfolio investments.
Current Account. The current account recorded a higher surplus of $9.1 billion (4.6% of GDP) in the first nine months of 2013 compared to $4.9 billion (2.8% of GDP) a year ago. The 84.2% increment was underpinned by robust net receipts from secondary income and services, and the narrowing of the trade in goods deficit. The lower net payments posted in the primary income account also supported the considerable improvement of the current account.
The trade in goods deficit was reduced by 11.4% as goods exports declined at a slower pace compared to that of imports. Major contributors to the decline in exports and imports were electronic products and semi-processed raw materials, respectively.
The surplus in the services account grew significantly by 57.6% to $3.9 billion in the first three quarters of the year, on account mainly of the higher net receipts from technical, trade-related, and other business services which increased by 26.6%.
The primary income account registered lower net payments of $294 million in the first nine months of 2013 compared to $975 million in the comparable period a year ago.
Net receipts in the secondary income account increased by 6%, propped up mainly by the 5.3% growth in remittances of non-resident OF workers, which reached $13.7 billion.
Capital Account. Net receipts in the capital account reached $72 million in the first three quarters of 2013, 18.2% lower than the $88 million registered in the same period a year ago. This was due mainly to lower capital transfers to the NG.
Financial Account. The financial account yielded net outflows amounting to $1.4 billion in January-September 2013, a turnaround from net inflows of $3.6 billion in the comparable period in 2012. Net outflows emanated mainly from the other investment account while higher net inflows were recorded in the direct and portfolio investments.
The direct investment account yielded net inflows amounting to $1.4 billion, higher by about 65.5% than the level posted in January-September 2012 as the rise in residents’ net incurrence of liabilities outpaced those of their net acquisition of financial assets. Foreign direct investments remained robust driven by the increase in non-residents’ investments in debt instruments.
The portfolio investment account recorded a moderate increase in net inflows in the first three quarters of 2013 to reach $1.7 billion. Net inflows resulted from residents’ net incurrence of liabilities (or foreign portfolio investments) of $1.1 billion coupled with net disposal of their foreign financial assets amounting to $650 million. The primary sources of net portfolio investment inflows were residents’ net resale to non-residents through secondary market trading of bonds originally issued offshore by the NG and non-residents’ net subscription of debt securities issued by residents.
The other investment account posted net outflows of $4.6 billion in the first three quarters of 2013, a sharp reversal of the $1 billion net inflows recorded last year. Residents’ net acquisition of financial assets consisted mainly of their net placements of currency and deposits in foreign banks and loans extended by local banks to non-residents.