The country’s International Investment Position improved as of end-September 2016 amid the tepid growth in the global economy in view of expected modest acceleration of global economic growth in the coming quarters.
Preliminary IIP data showed that the country’s net external liability position1 declined by 15.2 percent (or by $4.9 billion) relative to its position at end-June 2016. This developed as total external financial assets increased by $2.0 billion (or by 1.2 percent) and total external financial liabilities decreased by $2.9 billion (or by 1.5 percent).
As of end-September 2016, total external financial liabilities amounted to US$194.1 billion, while total external financial assets stood at $166.9 billion. The improvement in the IIP reflected stronger balance of payments position in Q3 2016 as the country’s BOP registered a surplus of $1.0 billion.
The increase in total external financial assets during the quarter was driven mainly by higher direct investments (by 3.8 percent), particularly residents’ net placements in equity and investment fund shares and debt instruments (intercompany lending) issued by non-resident affiliates. Meanwhile, the country’s reserve assets increased by 1.0 percent from end-June 2016.
Decreases in other investments, particularly loans (by 1.4 percent) and trade credits and advances (by 18.1 percent) accounted for the decline in external financial liabilities during the quarter. In addition, Foreign Portfolio Investments (FPI) fell by 1.3 percent due mainly to the negative price revaluation of non-residents’ holdings of domestic equity securities as the Philippine Stock Exchange Index (PSEi) declined by 2.1 percent during the quarter.
On a year-on-year basis, the country’s net external liability position likewise improved as of end-September 2016 declining by 5.4 percent (or by $1.5 billion). The lower net external liability position was brought about by the $14.6 billion uptick in total external financial assets (or by 9.6 percent), which exceeded the increase in total external financial liabilities of $13.0 billion (or by 7.2 percent).
The expansion in total external financial assets was driven mainly by the build-up in the country’s reserve assets and direct investments. Meanwhile, the growth in total external financial liabilities was due mainly to increases in non-residents’ direct and portfolio investments.
Across sectors, only the Bangko Sentral exhibited a net external asset position as of end-September 2016. Meanwhile, the other major sectors – Deposit-taking Corporations except the Central Bank (Banks), the General Government, and Other Sectors posted net external liability positions as they remained net users of foreign resources. All sectors registered an improvement in their net external positions.
The BSP continued to account for the largest share of the Philippines’ total external financial claims on the rest of the world at 52.0 percent. The BSP’s external financial assets totaled US$86.8 billion, 1.0 percent higher than $86.0 billion recorded as of end-June 2016. The BSP’s gross international reserves also grew by 1.0 percent to reach US$86.1 billion as of end-September 2016. The rise in reserves was due mainly to higher net foreign currency deposits by the National Government (NG), foreign exchange operations of the BSP, and income from the BSP’s investments abroad.
By type of instrument, 51.6 percent of residents’ total external financial assets were reserve assets held by the BSP. Investments in debt instruments (or intercompany lending) and equity capital issued by non-resident affiliates accounted for 15.9 percent and 11.0 percent, respectively. Residents’ investments in debt securities issued by non-residents and residents’ deposits in banks abroad were 8.8 percent and 7.2 percent of the total, respectively.
The Other Sectors’ total external financial liabilities reached US$123.0 billion as of end-September 2016, almost two-thirds (63.4 percent) of the country’s total external liabilities. These mostly consisted of non-residents’ placements in equity capital in local affiliates (34.3 percent), equity securities issued by local corporates (30.6 percent), and debt instruments issued by residents (16.7 percent).
The country’s total external financial liabilities to the rest of the world consisted mostly of non-residents’ investments in equity securities issued by local corporations (25.7 percent), non-residents’ placements of equity capital in resident affiliates (23.2 percent), and residents’ availment of foreign loans (22.5 percent).