Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the improved external sector accounts in the third quarter compared to the second quarter suggests that the worst is indeed over as far as the country’s inflows are concerned.
‘’As we monitor the impact of the pandemic on the external accounts, it can be observed that the effects were mostly felt during the second quarter of 2020, particularly during the months of April and May, as stricter lockdown measures were imposed by the government as part of its efforts to fight the spread of the (COVID-19) virus,” said Diokno on Friday. ‘’As we entered into the third quarter of the year, preliminary data from July to September suggest that the worst is over,’’ he stressed.
The country’s balance of payments (BOP) remained in surplus position of $6.878 billion as of end September, supported by the National Government’s (NG) higher net foreign borrowings as well as the lower merchandise trade deficit, sustained net inflows from foreign direct investments (FDI), personal remittances, and trade in services.
Cash remittances as of end-September totaled $21.886 billion, down 1.4 percent year-on-year and much better than the five percent contraction earlier projected by the BSP, noted Diokno. FDI net inflows also increased for the fourth consecutive month “owing to investors’ renewed confidence as the BSP’s accommodative monetary policy stance and the NG’s fiscal support to mitigate the impact of COVID-19 gained traction, along with the easing of lockdown measures starting in the third quarter 2020,” he said. As of end-August, net FDI amounted to $4.4 billion.
Diokno reiterated that for 2020, the BOP is seen to be in a better position at $8 billion surplus than previously predicted, which was only $600 million surplus. The revised higher BOP surplus was because of the improvement in the current account after what Diokno described as a “strong rebound” in overseas Filipino remittances as economies around the world resumes activity.
It is the same in the financial account, and the BSP expects net inflows as well for FDI and foreign portfolio investments this year. “Foreign investment inflows for the rest of the year are expected to be supported by expectations of a better-than- initially-anticipated global economic performance for the year; the reopening of advanced economies with investment interest in the Philippines; the country’s investment-grade credit standing; and the country’s expected gradual economic recovery,” said Diokno.
The BSP chief, however, explained that a BOP in surplus does not mean that the pandemic did not have any impact on the external sector.
“The significant surplus in the current account stems from the sizable decline in imports, which outpaced the decline in exports, leading to a narrower trade deficit. (But) on a positive note, there is a stark difference between the behavior of the external accounts in the second quarter (the height of the lockdown) and the third quarter. It was like night and day, which suggest that the worst is over,” said Diokno.