Balance of payments surplus projected at $500 million in 2009

MANILA, Philippines - The Philippines is expected to end this year with a balance of payments (BOP) surplus of $500 million, boosted mainly by the slowdown in trade and the reduction in the prices of imported food, oil and petroleum products.

Deputy Governor Diwa Guinigundo said the BSP has finalized its projected balance of payments position for 2009 after months of review that took account of the rapid movements in global prices.

According to Guinigundo, the BSP came up with an estimated $500-million BOP surplus for this year, a marked improvement from the $88-million surplus in 2008 but only a small fraction of the 2007 surplus of $8.557 billion.

The 2009 BOP surplus was based on the assumption that the country’s gross international reserve would amount to $40 billion this year, higher than last year’s $37.1 billion.

The Development Budget and Coordinating Committee is expected to announce its revised official targets and projections today at the year-end economic briefing and according to the source, the committee has already accepted the BSP’s BOP projections for the year.

The BOP is keenly watched by both credit rating agencies and investors since it was one of the major determinants of the country’s ability to continue servicing its external debt and other payments.

But even with the drastic slowdown in remittances this year, the BSP said earlier that the BOP surplus could even exceed $500 million especially if oil prices would continue to drop.

The BSP had originally projected that the BOP surplus would reach $2.3 billion but the slowdown in exports, remittances, investments and other inflows would weight down the reserves, offsetting the relief from lower oil prices.

Earlier, BSP Governor Amando M. Tetangco Jr. said the BOP surplus would be supported by inflows from the National Government’s commercial borrowing as well as the proceeds from official development assistance (ODA) that were booked early this year.

But the central bank chief said weakening imports would also ease some pressure on the country’s reserves sine global demand was expected to fall even more dramatically this year.

As global consumption slows down, the country’s import-dependent exports would also weaken and this would hit the BOP from two opposing sides: on the one hand, there would be less dollar outflows paying for imported components and on the other, there would also be less inflow from exports.

In January, the BSP reported that the BOP surplus rose to $1.735 billion as the National Government deposited the proceeds of its $1.5-billion commercial borrowing in January.

The country’s gross international reserves (GIR) reached $39.6 billion at the end of January, rising by $2 billion from the end-2008 level as government borrowing boosted reserves.

With oil prices drastically down and imports also softening up, the BOP surplus was significantly larger than the January 2007 surplus of $259 million and the second highest surplus level since 2004.

But the sharp increase resulted from one-time inflow from deposits made by the national government which completed various foreign borrowing activities at the end of December and early January.