Payment surplus narrows to $8 million in July

The balance of payments (BoP) posted an $8-million surplus in July, the smallest in more than seven years, amid a surge of inflows from foreign borrowings of the National Government to fund its coronavirus pandemic response, according to the Philippine central bank.

The July figure was lower than the $248-million surplus in July last year and the $80-million excess in June. The payment position has been in surplus for four straight months now.

“The BoP surplus in July 2020 reflected mainly the inflows from the National Government’s foreign loan proceeds that were deposited with the BSP as well as the BSP’s income from its investments abroad,” the central bank said in a statement on Friday.

It said this was partly offset by foreign currency withdrawals by the government to settle some of its maturing foreign debt that month.

The seven-month BoP surplus has fallen by 18% to $4.12 billion from a year earlier.

The central bank also traced the BoP surplus to the lower merchandise trade deficit aside from the forreign borrowings between April and July.

“These positive outcomes negated fully the impact of higher net outflows of foreign portfolio investments, and lower net inflows from foreign direct investments, trade in services, and personal remittances,” the BSP said.

The government has raised $8.83 billion from foreign sources as of Aug. 27 to support its battle against the coronavirus, according to data from the Finance department.

The central bank expects the overall BoP position to post a surplus of $600 million by year-end, or equivalent to 0.2% of the gross domestic product.

Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc. traced the smaller surplus to the sluggish economy.

The country plunged into a recession in the first half after economic output shrank by 16.5% in the second quarter. The economy is expected to shrink by 5.5% this year.

“This describes the lack of economic activity even though it is largely good, because the BoP is a surplus,” Mr. Asuncion said.

“However, the BoP includes the trade balance, foreign portfolio investments and government foreign currency operations and transactions,” he said in an e-mail. “It can be surmised that the benefits of a healthy BoP is not being maximized because of subdued economic growth and prospects.”

Also on Friday, Mr. Diokno said the central bank would cut its gold reserves to 10% of the gross international reserves from 12%.

“Right now, we can buy from small miners,” he told a budget hearing at the House of Representatives. “But we’re not actively buying from the external market,” he added in Filipino.

“Our reserves are so big, we don’t have to buy more gold at this time,” Mr. Diokno said. “In terms of policy, we have excess gold as part of the gross international reserves,” he said in mixed English and Filipino.

Gold has broken above $2,000 an ounce in the world market, with some traders fearing a correction, but many analysts predict more gains as a global coronavirus pandemic spurs investors to buy into gold’s relative safety. — Beatrice M. Laforga

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