BOP deficit swells to $7.3 billion in 2022

MANILA, Philippines — The country’s balance of payments (BOP) deficit swelled to a record-high $7.3 billion in 2022, as the elevated global commodity prices brought about by geopolitical tensions further widened the gap between imports and exports.

Bangko Sentral ng Pilipinas (BSP) data showed that the full-year 2022 BOP deficit of $7.26 billion was a sharp reversal from the $1.35 billion surplus in 2021.

This is the highest BOP deficit recorded after the $2.9 billion posted in 2014. Last year’s shortfall, nonetheless, is still significantly lower than the $11.2 billion expectation of the BSP.

“This was due to the widening trade in goods deficit as goods imports continued to surpass goods exports,” the BSP said.

“This is on the back of the increase in international commodity prices and resumption in domestic economic activities,” it said.

Global commodity prices, particularly oil, soared last year following the Ukraine-Russia war. This has crept into other commodities such as food as the tension between the two countries restricted trade across many economies.

The Philippine economy also further opened last year, thus, more business activities resulted in a pick-up in imports.

The BOP is the difference in total values between payments into and out of the country over a period.

A deficit means that more dollars flowed out to pay for the importation of more goods, services and capital than what came in from exports, remittances from overseas Filipino workers (OFWs), business process outsourcing (BPO) earnings and tourism receipts.

The BOP posted a surplus in December alone at $612 million, but this was still 38 percent lower than the $991 million surplus in December 2021.

Still, the surplus during the last month of 2022 reflected inflows arising mainly from the BSP’s net foreign exchange operations and net income from its investments abroad.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said this was also due to the seasonal increase in OFW remittances, exports, BPO revenues, foreign tourism receipts and other structural inflows during the latter part of the holiday season.

“These were partly offset by some net payment of foreign debts, BSP foreign exchange operations, and also still the continued trade deficit and net imports,” Ricafort said.

The December BOP surplus allowed the reduction of the full-year gap from the record $7.9 billion as of end-November.

Moving forward, Ricafort believes that the BOP data could still improve with the continued growth in the country’s structural inflows as the economy reopens further.

He noted that the proceeds from the recent global bond issuance of the government, which raised $3 billion, may be added to the country’s BOP and gross international reserves (GIR).

The BSP earlier said the BOP deficit may ease to $5.4 billion this year.

The central bank also reported that the country’s GIR level increased to $96.1 billion as of end-December last year from $95.1 billion the month before. This is slightly above the BSP expectation of a GIR level of $93 billion for end-2022.

The BSP maintained that the foreign exchange buffer represents a more than adequate external liquidity buffer equivalent to 7.3 months’ worth of imports of goods and payments of services and primary income.

It is also about 5.9 times the country’s short-term external debt based on original maturity and 3.9 times based on residual maturity.

For this year, the country’s GIR level is seen declining to $93 billion.