As a result of Phl’s investment grade status higher BOP surplus expected

MANILA, Philippines - The expected surge in portfolio inflows may drive up the country’s balance of payments (BOP) surplus this year, the Bangko Sentral ng Pilipinas (BSP) said yesterday.

“That is a logical conclusion,” BSP Assistant Governor Ma. Cyd Tuaño-Amador told reporters when asked if a wider BOP surplus could be expected this year after the credit rating upgrade last week.

The central bank, she said, will consider in its BOP forecasts review this month the recent investment grade stamp granted by Fitch Ratings to the country. The Philippines is now rated BBB-, one notch up from BB+.

BOP is a measure of all inflows against all outflows in an economy. The BSP originally expects BOP to record $3 billion in surplus this year. As of February, the surplus already hit $1.083 billion.

Among others, Amador said monetary officials see “growth” in foreign direct investments (FDI) especially with the upgrade. FDI is forecast to hit $2.2 billion this year after posting a five-year high of $2.033 billion last year.

Portfolio inflows could also get some boost, Tuaño-Amador said, although she was quick to point out that an investment grade rating may have “already been incorporated” by some fund managers.

These inflows — also called hot money for the ease they enter and exit financial markets—are expected to hit $3 billion net inflow this year. As of February, hot money reached $1.482 billion.

“We are also hoping that with the upgrade, (investors) will be enjoined to take a more permanent commitment to the Philippine economy,” Amador explained.

She clarified though that BSP will balance expectations of more inflows with outflows on its review of assumptions.

In a text message, BSP Deputy Governor Diwa Guinigundo said the original BOP forecasts took into account a wider trade deficit— meaning more imports than exports— as the global economy recovers.

The Philippine economy, on the other hand, is seen to “sustain growth and therefore increase import propensity” to satisfy domestic and export needs.