The indications are such that the Philippines will likely end the year with a better than expected external sector and, thus, in a position better able to weather possible complications arising from an anticipated interest-rate hike by the US Federal Reserve (the Fed) in December.
This was seen from latest data from the Bangko Sentral ng Pilipinas (BSP) showing the balance of payments in a state of surplus in October totaling $469 million. The excess indicates the Philippines generated far more foreign currency earnings than it spent during the period.
According to the BSP, the excess in the balance of payments was the largest since June.
The October BOP proved more than twice that reported the previous month when this stood at only $219 million and significantly stronger than the $24 million surplus reported last year.
This brought the 10-month surplus above the government’s initial target of $2 billion for the year.
Data from the central bank show the BOP from January to October aggregating $2.276 billion, or a turnaround from a deficit reported in the 10-month period last year at $3.41 billion.
At the sidelines of award ceremonies organized by the influential Management Association of the Philippines (MAP) naming BSP Governor Amando M. Tetangco Jr. as Management Man of the Year for 2015, he said the surplus was basically due to the deposits of the national government and income from the deployment of BSP assets.
Tetangco further said the surplus could have been higher were these not offset by debt service payments of the national government.
The central bank governor likewise said while there are expectations of financial market volatilities as the US Fed make interest rate adjustments in December, the impact on the BOP should not be large or substantial.
“The Fed liftoff has been expected for some time now and it still has to happen. In the meantime, the financial markets, in anticipation of the liftoff, have experienced some volatility. If there is an actual liftoff, there could still be some reactions but, I think, since the markets have been expecting this, the impact should not be that significant,” Tetangco said.
Further, central bank Deputy Governor for the Monetary Stability Sector Diwa C. Guinigundo said while there is always the probability that the BOP is threatened due to market shifts, such as the Fed liftoff, the markets have since priced in the likelihood of normalization from the world’s largest economy.
“There’s always a probability, although, one can also argue that the market has already factored in the December 2015 interest-rates liftoff, so what else could surprise the market? Maybe a knee jerk reaction is to move out of EMs [emerging markets] like the Philippines, but we always say that the strong macroeconomic fundamentals can be a good factor for keeping capital in the EMs, particularly in the Philippines. There could be some short-term volatilities but overtime, it should fade away,” Guinigundo said.
Going forward, the deputy governor said while they haven’t finished the review of new targets for end-2015, which is set for release this year, the BOP were to end the year as a surplus “very close to $2 billion.”