The Bangko Sentral ng Pilipinas (BSP) reported yesterday that despite heavy government borrowing from the foreign credit market, debt servicing put so much strain on the international reserves that the BOP sustained a $127-million deficit in August alone.
The latest BOP shortfall plummeted dramatically from only $95 million from January to July last year.
The BSP explained that the decline was caused by debt servicing and imports in August, offset only slightly by remittances from overseas Filipino workers (OFWs).
Huge payments made by the National Government (NG) and the National Power Corp. (Napocor) were still too big to be offset by remittances from overseas workers even when combined with foreign investments.
"We got the deficit due mainly to debt repayments in the capital accounts," BSP Deputy Governor Amado M. Tetangco Jr said.
The August BOP has brought the country closer to the projected full-year BOP deficit of $505 million. Originally, the BSP expected a $660 million deficit but it was later upgraded to $505 million.
The country’s foreign currency reserves went up slightly as of end-August but even with the $450-million global bond issue by the national government, there were not enough foreign reserves to offset the outflow caused by huge interest payments.
The BSP said the country’s gross international reserves (GIR) at the end of August amounted to $15.964 billion, up slightly from $15.953 billion at the end of July.
At this level, the BSP said the end-August GIR was good for a 4.3-month worth of import cover for goods and payments of services and income. This was also equivalent to 2.2 times the country’s short-term debt based on original maturity and 1.3 times based on residual maturity.
Short-term debt based on residual maturity refers to outstanding short-term external debt on original maturity plus principal payments on medium- and long-term loans of the public and private sectors falling due within the next 12 months.
The BSP expects the GIR to dip to as low as $14 billion this year but government borrowing has been strong early in the year, due mostly to the funding requirements of the Napocor which had to be sourced externally.
The NG is expected to return to the market before the end of the year to fill in NPC’s remaining funding requirement. Because the power company has not been able to access the market on its own, the NG has to borrow for itself and then re-lend to NPC.
The BSP said it expects the overall BOP to be better than expected by yearend but only because of an anticipated slowdown in imports which means that there would be less need for dollars.
The BSP has been reviewing its BOP projections after getting the initial feedback from export industries.