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Remittance, outsourcing inflows to help offset growing trade gap

Posted on July 12, 2017

THE STEADY stream of remittance inflows and business process outsourcing (BPO) receipts cushion the country’s external payments position from a ballooning trade deficit, the central bank chief said yesterday.

"Robust remittances from overseas Filipino workers (OFWs) and ample receipts from the BPO sector continue to fuel economic growth." BSP chief Nestor A. Espenilla, Jr.
Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. said the country’s balance of payments (BoP) remains “manageable” even as it remained in deficit. The first five months of 2017 saw the country’s external payments position at a $136-million deficit, reversing the $216-million surplus recorded in 2016’s comparable period.

The BoP gives a picture of the country’s overall transactions with the rest of the world within a specific period. A deficit means funds that left the economy offset those that came in.

“Our external payments position remains very manageable. Robust remittances from overseas Filipino workers (OFWs) and ample receipts from the BPO sector continue to fuel economic growth,” Mr. Espenilla said in his speech during the annual appreciation lunch yesterday in Manila.

BSP Deputy Governor Diwa C. Guinigundo had attributed May’s $59-million BoP deficit to central bank moves to temper foreign exchange volatility as well as payments made by the national government to settle external debt that offset income from investments abroad.

The Philippine Statistics Authority yesterday reported a $2.753-billion balance of trade deficit in May that was more than a fifth bigger than the year-ago $2.24 billion.

Mr. Espenilla said it was not unusual for a growing economy to see rapid growth in imports: “Capital goods imports support a growing economy.”

“That is not a surprising outcome,” he said of latest trade data showing a widening deficit.

Instead, the new BSP chief said robust inflows continue to support the country’s overall external position, coupled with sound macroeconomic fundamentals.

Money sent home by Filipinos working abroad totalled $9.036 billion in the four months to April, 4.2% more than the $8.67 billion seen during the comparable year-ago period and accounting for a third of the BSP’s $28-billion projection for the entire year.

On the other hand, inflows from the BPO industry reached $5.5 billion in the first quarter, up 9.9% from $5 billion recorded in 2016’s comparable three months, according to latest central bank data.

With the wider trade-in-goods deficit seen in the first five months, the central bank expects the country’s BoP position to settle at a $500-million deficit for the year, equivalent to 0.2% of gross domestic product (GDP). In 2016, the BoP stood at a $420-million deficit at 0.1% of GDP.

Mr. Espenilla said the lower ratio of foreign debt to GDP, coupled with “more than adequate” reserves held by the central bank, provide additional buffers against external shocks. Foreign exchange reserves totaled $81.413 billion in June, enough to cover 8.7 months’ worth of the country’s outstanding import payments. -- Melissa Luz T. Lopez