PH balance of payments books biggest deficit

MANILA, Philippines – The country’s balance of payments (BOP) – the summary of a country’s transactions with the rest of the world – went back to a deficit in August due to the volatility in financial markets, particularly the devaluation of the Chinese yuan and the global stock market rout.

Data released by the Bangko Sentral ng Pilipinas (BSP) Friday, September 18, showed the BOP booked a deficit of $450 million in August, a complete reversal of the $114 million surplus registered in August 2014 – the biggest deficit since January 2014. At the time, the Philippines booked a deficit of $4.48 billion after the US Federal Reserve started its quantitative easing measures aimed at boosting its economy.

The BOP components include trade, foreign direct and portfolio investments, and remittances from Filipinos abroad. Surplus means more money went into the economy. A deficit means otherwise, as in the case of the August BOP position.

The country’s BOP position in August reflected the decision of the People’s Bank of China to devalue the Chinese yuan on August 11 and the blood bath in the global stock market on August 24, BSP Deputy Governor Diwa Guinigundo said.

The Philippine Stock Exchange Index was dragged down by a global stock market rout on August 24 as it booked its 11th biggest recorded drop of 6.7% to close at 6,791.01. (READ: PH stock exchange records longest trading halt)

Hot money

More foreign portfolio investments or "hot money" got pulled out of the Philippines after a global stock market rout in August prompted investors to cash in on their profits.

Hot money refers to speculative capital flows that move very quickly in and out of markets.

Foreign portfolio investments yielded a net outflow of $542.52 million in August, a complete reversal of the net inflow of $483.45 million in August 2014.

Hot money inflows into the Philippines fell 46% to $1.11 billion in August from $2.07 billion in the same month in August.

Outflows inched up by 4.7% to $1.66 billion from $1.58 billion.

Balanced

Despite the deficit in August, the country’s BOP position booked a surplus of $1.59 billion in the first 8 months of 2015 compared to a deficit of $3.53 billion in the same period in 2014.

Data also showed foreign direct investments (FDIs) plunged 40% to $2.02 billion in the first half of 2015 from $3.37 billion in the same period in 2014.

On the other hand, the amount of cash sent home by Filipinos living and working abroad grew 4.8% to $14.16 billion from January to July, compared to $13.51 billion in the same period last year.

Cash remittances from overseas Filipinos inched up by 0.5% to $2.08 billion in July from $2.07 billion in the same month last year – the slowest growth booked since the 0.5% growth recorded in January.

Overall, the BSP is forecasting the country booking a BOP surplus of $2 billion this year compared to a deficit of $2.86 billion in 2014. It is also expecting FDIs to hit $6 billion and the net portfolio investments to reach $1.4 billion this year. – Rappler.com