BOP yields $95-M deficit as of July

The national debt burden ate a huge chunk of the country’s international reserves last month, wiping out the surplus in the first semester and resulting in a $95-million deficit as of end-July.

The Bangko Sentral ng Pilipinas (BSP) said debt servicing pushed the country’s international reserves down to a $163-million deficit in July following a much bigger deficit of $407-million deficit in June.

On a year-to-date basis, the BOP dipped into a deficit of $95 million, in July, from a $68-million surplus in the first six months.

The BSP explained that the decline was caused by debt servicing and imports in July, offset only slightly by a 350-million euro deposit made by the National Government from its foreign borrowing in July.

The July borrowing, however, was relent immediately to the National Power Corp. which needed the money to refinance its own maturing obligations.

Huge payments made by the National Government and Napocor were simply too big to be offset by remittances from overseas workers even when combined with foreign investments.

"We got the deficit due mainly to debt repayments in the capital accounts," said BSP Deputy Governor Amado M. Tetangco Jr. "On a monthly basis, at least our July BOP deficit was lower than the June deficit."

The weakness in the country’s BOP position in the first semester was expected, given the 2.3-percent dip in the country’s gross international reserves (GIR) as of end-June.

The country’s gross international reserves (GIR) dipped below $16 billion for the first time this year, going down 1.2 percent to $15.990 billion as of end-July 2004 as government used its dollar reserves to pay off some of its maturing obligations..

The BSP said the July GIR level was adequate to cover about 4.4 months of imports of goods and payments of services and income. This level was also equivalent to 2.2 times the country‚s short-term debt based on original maturity and 1.3 times based on residual maturity.

Short-term debt based on residual maturity refers to outstanding short-term external debt on original maturity plus principal payments on medium- and long-term loans of the public and private sectors falling due within the next 12 months.

According to the BSP, the decline in the GIR was slightly offset by inflows from the NG’s reopening of its Global Bond issue ($250 million) whose proceeds were deposited with the BSP.

The BSP expects the GIR to dip to as low as $14 billion this year but government borrowing has been strong early in the year, due mostly to the funding requirements of which had to be sourced externally.

The BSP said it expects the overall balance of payments to be better than expected by yearend but only because of an anticipated slowdown in imports which means that there would be less need for dollars.

The BSP has been reviewing its BOP projections after getting the initial feedback from export industries.

Electronic and semiconductor exporters have been warning economic planners that investments were trickling down to a halt with signs of actually flowing out into China but cautionary alarms are drowned out by the huge growth in global economy.

Based on exporters‚ projections, the BSP said it expected exports to grow by at least 10 percent this year, just from the trickle-down effect of the 25 percent growth in global exports.

On the other hand, BSP expects imports to be a little less than the previous year since there was a notable accumulation of stocks in the third and fourth quarter of 2003.