BOP slips into $67-M deficit in November

The country’s balance of payments (BOP) plummeted into a $67-million deficit in November, bringing the year-to-date position to a slightly lower surplus of $7.782 billion.

Data from the Bangko Sentral ng Pilipinas (BSP) indicated that after hitting a $1.19-billion surplus in October, the monthly BOP surplus was wiped out completely last month as outflows outpaced foreign exchange inflows for the second time this year. The BSP reported that outflows in November trimmed the January to November surplus but only by a small margin.

BSP Governor Amando M. Tetangco Jr. expects the surplus to reach $9 billion this year, surpassing the $6.3-billion target for the year.

Tetangco said inflows are much stronger than originally anticipated and the emerging scenario also points to a stronger surplus.

“The emerging scenario is likely to exceed the 2007 projection and that’s a surplus of between $8 billion and $9 billion,” Tetangco said.

According to Tetangco, the already robust balance of payments position would be boosted further by increased inflows as markets recovered from the risk-aversion that caused investments to pull out in the third quarter.

As the US Federal Reserve Board decided to cut its rates by another 25 basis points, global liquidity is expected to expand and the bulk of these funds would go into emerging markets like the Philippines.

Since the country’s use of foreign exchange for the rest of the year was already included in earlier projections, Tetangco said the BOP surplus would be much higher than expected based on the strength of inflows.

“There are still significant amounts of scheduled payments by the National Government, government owned corporations and the private sector,” Tetangco said. “But these payments are already factored in to our earlier projections.”

The country’s gross international reserves (GIR) is projected to reach at least $33 billion this year, Tetangco said, adding that strong inflows would continue to boost the country’s reserves over the next five years.

Although the country’s reserve was not nearly as large as the major markets in the region, Tetangco said it was on a trajectory that would bring the total stock to over $30 billion over the medium term.

However, monetary officials have warned that strong foreign exchange inflows are beginning to cause stress on the Philippine economy that would require immediate intervention.

Preliminary studies by the BSP indicated that the economy was beginning to show early symptoms of the so-called Dutch disease which could result in the sharp contraction of the economy if not addressed properly.

The so-called Dutch Disease broadly refers to the harmful effects of large inflows of foreign currency, beginning with loss of competitiveness that could ultimately trigger a decline in the manufacturing sector.

According to the BSP, it has already looked at whether the same phenomenon is beginning to show as a result of strong forex inflows from investments and remittances but said the first analysis showed no sign of the disease.