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NEWS UPDATES 26 August 2009

Philippine central bank revises up dollar surplus

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The central bank of Philippines, Bangko Sentral ng Pilipinas (BSP), is raising its forecast for the country’s dollar surplus this year, citing sustained remittance and capital inflows, the Manil Times reported.

“The original projection of $700 million looks very conservative now,” BSP Governor Amando Tetangco Jr. told reporters.

Based on its most recent report, the BSP said the country’s balance of payments (BOP) surplus rose to $506 million in July from $73 million in June. This brought the seven-month surplus to $2.722 billion, higher than the end-June’s $2.216 billion.

Tetangco said the BSP is set to review its BOP projections given the current figures for remittances and foreign direct investment (FDI).

Remittances, which contribute 10 percent of the country’s economic output, grew by 2.9 percent to $1.5 billion in the first half of the year due to the continued deployment of sea- and land-based workers.

Remittances fuel domestic consumption, which is the main driver of the country’s growth. The BSP also reported actual FDI inflows of $1.07 billion at end-May this year, surpassing the $700 million full year forecast.

Tetangco said remittances could sustain growth of 2 percent to 3 percent every month, thus making it possible for the BSP’s flat growth forecast this year to be surpassed.

Prior to these developments, Tetangco projected the country’s dollar surplus to reach $700 million, with a possible final figure of $1 billion on account of the national government’s additional $750 million borrowings through the issuance of global bonds, or IOUs.

The BOP summarises the country’s economic transactions with the rest of the world to include trade, investments, and other income transfers. A surplus is viewed in a positive light since this means the country is earning more dollars, which helps strengthen the peso and slow down inflation.

The country’s gross international reserves (GIR) level at end-July also exceeded the BSP’s full year target. Partly responsible for the incremental dollar receipts were the proceeds of the government’s $750-million fund-raising last month.

The GIR reached $39.99 billion in the first seven months, higher than the BSP’s $38.5 billion full year projection. The current GIR level could cover 6.9 months of imports of goods and payments of services and income.

The Asian Development Bank (ADB) said the developing Asia should be investing its reserves in productive activities rather than in traditional, risk-free assets. It said foreign exchange reserves of developing Asia have reached excessive levels.

Tetangco said the BSP can only invest its reserves in accordance to its charter.

An adequate reserves level helps keep the peso strong and domestic inflation low. Credit rating agencies also use the GIR when assessing a country’s capacity to meet its debt servicing requirements.

Recently, Moody’s Investors Service upgraded the Philippines’ credit rating to Ba3 from the previous B1 on account of the country’s strong dollar reserves position and the relative immunity of the local banking sector from the global financial crisis.


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