(STAR) By Des Ferriols - The country’s balance of payments (BOP) surplus could dip even lower than the projected $2.5 billion for this year.

The BOP is the sum of the country’s transactions with the rest of the world paid out of the foreign exchange reserves. Last year, the country was in a surplus position recorded at $8.6 billion.

This year, however, sources from the Monetary Board said the BOP position could be even lower than latest projections, mainly due to huge outflows of foreign portfolio investments.

Sources said the Monetary Board has asked the Bangko Sentral ng Pilipinas (BSP) to review its projections because they suspect the BOP surplus is being eroded faster than expected.

Of particular concern was the capital accounts where foreign portfolio investments were booked as they enter and leave the country.

In the first half of the year, foreign portfolio investments fled from the country, reversing last year’s $2.552-billion net inflow into a $411.19 million net outflow.

BSP data revealed that gross inflow from January to June amounted to $5.236 billion, about 33 percent lower than last year’s gross inflows of $7.781 billion.

The decline in gross inflows was accompanied by an increase in total outflows amounting to $5.647 billion over the same period this year compared with last year’s total outflow of $5.228 billion.

As a result, the cumulative portfolio investments in the six-month period except the final day of June, was a net outflow of $411.19 million.

BSP Governor Amando Tetangco Jr. however, insisted that the $2.5-billion surplus was still reachable despite heavy outflows, mainly because he believed remittances would take up the slack.

Tetangco also believed portfolio investments would pick up after the BSP raised its policy rates.

In contrast, the Asian Development Bank (ADB) earlier said soaring global food and oil prices also implied adverse terms-of-trade effects for the region’s net importers, resulting in a significant loss of income and narrowing current account surpluses.

The ADB said the country’s aggregate current account surplus is expected to narrow, even closing to balance as the surplus would be eroded by rising import costs and depreciating peso.

“The onslaught of global food and oil prices has led to a terms-of-trade shock in many emerging East Asian economies, particularly those that are net importers of food and fuel,” the ADB report said.

The ADB said the impact was already evident in terms of real income loss, slowing consumption and investment, narrowing trade balances, and depreciating currencies.

As currencies depreciated, the ADB said the negative terms-of-trade effect was unlikely to reverse and might actually intensify over at least the next eight months.

This year, the country’s balance of trade deficit is expected to balloon to $11.5 billion because of surging oil prices and the projected increase in food imports, particularly grains.

According to the BSP’s own estimates, the deficit would widen even further than last year’s $.2-billion deficit, driven mainly by record-high oil prices.

“It’s both because of volume and value of imports which we expect to increase this year,” said Illuminada Sicat, director of the BSP’s Department of Economic Statistics (DES).

According to Sicat, the BSP is expecting exports growth to slow down to five percent this year but imports are projected to grow by 10 percent, creating a larger gap than last year.

Sicat said the BSP had originally projected the trade deficit to reach only $8.7bilion this year, inching up only marginally from last year’s deficit level.

But she said the increase in petroleum prices would push this gap wider. Already, the trade deficit was recorded at $531 million in April, with imports increasing by 11.8 percent year-on-year and reaching $4.855 billion, while exports grew by only 4.9 percent to $4.325 billion.

Chief News Editor: Sol Jose Vanzi

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