Dollar flow reversal relieves pressure on local currency
By Paolo G. Montecillo
Philippine Daily Inquirer
3:59 am | Thursday, March 20th, 2014
MANILA, Philippines—The country’s foreign income balance improved substantially in February following record outflows the month before, relieving pressure on the depreciating peso amid financial market volatility.
Data released by the Bangko Sentral ng Pilipinas (BSP) showed the country’s balance-of-payments (BOP) position at a small surplus last month, representing a turnaround from the record-high deficit in January.
The BOP position is a record of all transactions between the Philippines and the rest of the world. A surplus means more money entered the country than the amount that left, helping bolster the supply of much-needed foreign exchange circulating in the economy.
The country’s BOP surplus in February stood at $345 million, improving from the $4.48-billion deficit the previous month.
This brought down the country’s year-to-date deficit to $4.135 billion.
“The BOP surplus is partly a result of the BSP’s foreign exchange operations and investment income from abroad,” BSP Deputy Governor Diwa C. Guinigundo said.
Foreign exchange deposits by the national government also contributed to the rebound in February, the official added.
He said the BSP expects inflows to continue in the coming months of the year on the back of sustained remittances from migrant workers and the recovery in the local export sector.
The country earns foreign exchange from investments, and revenue from exports, the business process outsourcing (BPO) sector, and tourist receipts.
Latest numbers for foreign portfolio investments or “hot money”—so far the only piece of data that is part of the BOP—showed a net outflow of $361.09 million at the end of February. This was an improvement from the record $1.8-billion net outflow the month before.
The biggest source of income, however, are remittances from overseas Filipino workers (OFW), which accounted for 8.4 percent of gross domestic product (GDP) last year.
Dollars that end up in the local financial system are used to pay for imported goods and for debt payments for both the government and the private sector. Foreign exchange is also needed by local businesses for their dollar-denominated expenses.
A shortage of dollars in the economy would force companies and the government to buy foreign exchange from abroad, which weakens the peso.
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Tags: balance of payments (BOP) , foreign income , Philippines
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