MANILA, Philippines - American banking giant Citigroup said investors would still recognize the Philippines’ strong international reserves rather than the setback in the balance of payments (BOP) position last month with foreign exchange outflows exceeding inflows, resulting in a $125-million deficit.
Citi economist Jun Trinidad said in their Emerging Markets Daily that investors would continue to look at the strong overseas Filipino workers’ report remittances instead of the BOP deficit recorded last month.
“Better than expected OFW remittances in January would have a larger impact in sustaining market sentiment,” Trinidad stressed.
Latest data from the Bangko Sentral ng Pilipinas (BSP) showed OFW remittances grew higher than expected in January as it went up 8.5 percent to $1.372 billion from $1.265 billion in the same month last year. This, as remittances from the US finally increased after declining for 12 straight months since it was battered by the financial crisis.
The BSP expects OFW remittances growing by six percent to a new record level of about $18.1 billion this year. Last year, remittances went up 5.4 percent to a record $17.348 billion from $16.426 billion in 2008 and exceeded the revised four percent growth forecast set by the central bank.
On the other hand, the country’s gross international reserves (GIR) reached a new all-time high of $45.7 billion in February, from $45.591 billion in January, due to inflows mainly from the central bank’s foreign exchange operations, income from investments abroad and gold holdings.
The BSP also anticipates the GIR hitting a new high of between $47 billion and $48 billion this year on the back of government’s strong external liquidity position. In 2009, the country’s reserves jumped close to 20 percent to a record $45.033 billion from $37.55 billion in 2008 due to strong inflows, government deposits and the increasing value of the central bank’s gold holdings.
However, the country’s BOP position registered a deficit in February as the National Government settled its maturing foreign obligations amounting to about $1.4 billion, resulting to more foreign exchange outflows. This was a complete reversal of the $469-million surplus posted in the same month last year and $1.233 billion surplus booked in January.
As a result, the country’s BOP surplus was cut by half to $1.108 billion in the first two months of the year from $2.204 billion in the same period last year. The BOP, which refers to the difference of foreign exchange inflows and outflows on a particular period, represents the country’s transactions with the rest of the world.
The BSP expects the BOP position to post a surplus of between $3 billion and $4 billion this year. Last year, the country’s BOP surplus reached a record level of $5.295 billion from a surplus of $89 million in 2008.
“We suspect the higher GIR may have been a result of BSP’s unwinding of its net forward book, which stood at $13.2 billion in January. OFW remittance flows exceeding $1 billion a month managed to cushion the BOP deficit in February. A larger trade deficit as the economy expands and net capital outflows coming mainly from external debt service payments contributed to net outflows,” Trinidad said.
He pointed out that the the modest BOP deficit would not cause trading positions to shift to long dollar positions and that the higher stock of foreign exchange reserves would probably dominate trading sentiment rather than one month’s BOP deficit.
“For the first two months of the year, the condition of a BOP surplus was intact at $1.1 billion,” he added.