BOP: from negative to positive

PHILIPPINES - In Brief 17 Sep 2019 by Romeo Bernardo

---

The latest balance of payments (BOP) accounts, which record residents’ transactions with non-residents for the first half of 2019, reveal quite a reversal: from net outflows of $3.3 billion in 1H18 to net inflows of $4.8 billion 1H19. The data show that this large difference, totaling $8 billion, is due to the following:Table 1.Balance of Payments, Jan-Jun (US$ mn)Source: BSP*positive (negative) balance indicates net outflows (inflows)Over $2 billion is traced to the more than halving of the current account deficit to $1.7 billion in 1H19. During the period, the trade in goods deficit was almost unchanged from 1H18 while service exports and income receipts, each rose by over $1 billion. Tepid goods trade reflects flat growth rates of exports (partly due to ongoing trade tensions) and imports (partly due to stalled public investments)About $3.2 billion is traced to the more than doubling of financial inflows to $5.7 billion in 1H19. The main cause of this is higher inflows is portfolio investments, a large part of which may be traced to increased government borrowings from the international capital market. In comparison, net FDI inflows were less than half of 1H18.Another $2.8 billion may be traced to a reversal in “errors and omissions” (EO), a residual item that, per the IMF, reflects “the imbalances resulting from imperfections in source data and compilation of the balance of payments accounts,” and in country studies, has been linked to capital flight, smuggling activities and other unrecorded cross-border transactions. In 1H19, the EO item reversed into a positive $777 million from a negative $2.1 billion in 1H18. A positive EO is not typical based on past BOP stat...