BOP reversed to surplus of $62M in July, says BSP

The Philippines’ dollar position returned to a surplus in July after the Bangko Sentral ng Pilipinas (BSP) made a killing with its investments abroad, putting the seven-month tally close to the central bank’s projection for 2024.

BSP data released on Monday showed the country’s balance of payments (BOP) position was at a surplus of $62 million in July, a reversal from the $53-million deficit a year ago. This was also a turnaround from the $155-million BOP gap posted in June.

The July windfall gave the Philippines a year-to-date dollar surplus of $1.5 billion, bringing the cumulative figure closer to the BSP’s projection of a $1.6-billion BOP surplus for the entire 2024.

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.

In a statement, the BSP said the July windfall was mainly due to dollar inflows from its net income from investments abroad, and the national government’s (NG) net foreign currency deposits with the central bank.

Meanwhile, the seven-month BOP surplus was due to smaller dollar outflows from a narrowing trade deficit, and “continued net inflows” from the major dollar engines like remittances, foreign direct investments and trade in services like BPO earnings. The windfall was also due to foreign borrowings by the government and flows of foreign portfolio investments or “hot money” in the country’s bond and equities markets.

Dollar reserves up, too

The return to a BOP surplus, in turn, translated to an increase in the country’s gross international reserves (GIR) to $106.7 billion in July, from $105.2 billion in June.

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The BSP’s reserve assets consist of foreign investments, gold, foreign exchange, reserve position in the International Monetary Fund and special drawing rights. As the term connotes, the GIR serves as the country’s buffer fund in extreme economic conditions when there are no export earnings or foreign loans.

“Going forward, any improvement in BOP data and in GIR data for the coming months could still help provide greater cushion for the peso exchange rate versus the US dollar especially against any speculative attacks,” said Michael Ricafort, chief economist at Rizal Commercial Banking Corp.

By convention, GIR is viewed to be adequate if it can finance at least three months’ worth of the country’s imports of goods and payments of services and primary income. The BSP said the amount of buffer funds as of July can cover 7.9 months’ worth of imports of goods.