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PH dollar surplus shrank in H1 to $1.4B
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PH dollar surplus shrank in H1 to $1.4B

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The Philippines posted a lower dollar surplus in the first half of the year, with the Bangko Sentral ng Pilipinas (BSP) hoping for a reversal of declining foreign direct investments (FDI) and a stronger inflow of remittances to maintain the country’s healthy external position.

Data from the BSP showed the Philippines posted a balance of payments (BoP) position of a $1.4-billion surplus in the six months ending in June, smaller than the $2.3 billion windfall recorded in the comparable period last year.

The BoP summarizes an economy’s transactions with the rest of the world during a certain period.

A BoP surplus arises when more foreign funds enter the economy against those that leave, which may increase the country’s dollar resources that can be used to pay foreign debts and meet import requirements. A deficit means the reverse happened.

At a press conference, BSP Senior Director Redentor Paolo Alegre Jr. said “good” macroeconomic data that came in the second quarter may help reverse the declining FDIs, a key source of dollar and jobs for the Philippines. FDIs are one of the components of the BoP.

Latest figures showed net FDI inflows sagged by 29 percent year-on-year in June to $394 million, the lowest in over four years. These job-generating foreign capital have been falling since April this year.

”The slight [FDI] downtrend may be due to the prevalence of geopolitical risk. And as I mentioned earlier, investors are wary of investing during heightened risk scenarios,” Alegre said.

For his part, BSP Assistant Governor Zeno Ronald Abenoja said it would be better to look at the cumulative FDI figure since this type of inflow tends to “come in tranches” and is “sometimes lumpy.”

”Sometimes you get months where FDI would slow down a bit, but it’s better to look at the longer horizon to really get a good nuance of how much investments we are receiving,” Abenoja said, adding that the six-month FDI inflows are “actually better” than last year.

Respectable

On remittances, another component of the BoP, Abenoja said such inflows have grown “quite substantially in nominal size”, making them a reliable source of dollars and purchasing power in the Philippines.

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This, despite remittances growing at around 3 percent since late 2022, with the BSP projecting the average growth of these inflows to settle at that level again in 2024. That trend made some analysts believe that growth of such transfers might be plateauing already.

But for Abenoja, a 3-percent remittance growth is still “respectable”.

”Back a decade or two decades ago, the size [of remittances] was relatively smaller. So in terms of growth rates, one can grow by almost 10 percent every year because the pace was quite low,” he said.

“But now that we have reached more than $30 billion year in, year out, we are actually expecting the growth rate to be relatively lower than what we saw in previous decades,” he added.


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