MANILA, Philippines—The entry of more dollars into the Philippine economy due to government loans and the central bank’s overseas investments caused a surplus in foreign currency flows in July and reduced the running deficit for the first seven months of the year.
In a statement, the Bangko Sentral ng Pilipinas (BSP) said the country’s overall balance of payments position posted a surplus of $642 million in July 2021, higher than the $8 million surplus recorded in the same month in 2020.
“The dollar flows surplus for last month reflected mainly the national government’s net foreign currency deposits with the BSP and the BSP’s income from its investments abroad,” the BSP said. It added that these were partly offset by the government’s payments of foreign currency debt obligations and the BSP’s net foreign exchange operations.
The surplus in July reduced the cumulative balance of payments deficit in the January to July 2021 period to $1.3 billion from a deficit of $1.94 billion in the first semester of the year.
But the current year-to-date balance of payments level is a reversal from the $4.12 billion surplus recorded in the same period a year ago.
“Based on preliminary data, this cumulative [dollar flows] deficit was partly attributed to a wider merchandise trade deficit,” the BSP said.
Balance of payments represents the net flows of foreign currency into and out of an economy due to income from overseas, whether payments for product exports or services, investment inflows, or outflows due to imports or capital repatriation, among others.
Sustained balance of payments surpluses tend to strengthen the local currency against the US dollar, while sustained deficits have the opposite effect.
According to the BSP, the latest balance of payments position reflects an increase in the final gross international reserves level to $107.15 billion as of end-July 2021 from $105.76 billion as of end-June 2021.
The latest reserve level represents a more than adequate external liquidity buffer equivalent to 12.2 months’ worth of imports of goods and payments of services and primary income, the BSP said.
It is also about 7.7 times the country’s short-term external debt based on original maturity and 5.2 times based on residual maturity, it explained.
BSP Governor Benjamin Diokno on Wednesday (Aug. 25) said he supported the decision of the International Monetary Fund to allocate more liquidity to the Philippines to augment the country’s already substantial foreign currency reserves.
“We confirm that the Philippines’ share in the Special Drawing Rights allocation amounting to 1.95 billion SDR was credited to the country’s account on Aug. 23, 2021,” he said of the amount that was worth $2.7 billion at the current exchange rate. “We expect this to result in an increase in the country’s gross international reserves.”
“The IMF advises member country authorities that the SDR allocation can be used to boost foreign exchange reserves and reduce reliance on debt, create space for countries to step up effort against the crisis and support reforms to the economy,” Diokno said.
“IMF member countries can exchange their SDRs for hard currencies with other IMF members. The newly allocated SDRs are reflected in the gross international reserves until the national government determines its use,” he said.