The current account balance as a ratio of GDP has increased from 1.9 percent in 2004 to 4.5 percent in 2010. The current account position has shifted to structural surpluses in large part due to the resilience of overseas remittances, increased services receipts from business process outsourcing, and steady tourism receipts. These sources of foreign exchange inflows have been more stable than investment flows. Driven by the surplus in the current account and the improvement in capital and financial account, the balance of payments has also registered surpluses since 2005.
However, merchandise exports growth performance was relatively volatile, reflecting the country's vulnerability to global developments. The annual average export growth for 2004-2010 was 6.5 percent, which was pulled up by the 34.8-percent growth in 2010 as the global economy began to recover.
Meanwhile, the exports of services have been on an uptrend, mainly on account of transportation, travel, and other business, technical, and professional services. Merchandise imports outpaced exports, with more than 60 percent of total imports consisting of raw materials and intermediate goods, and capital goods.
Overseas Filipino (OF) remittances have been steadily growing even when the global financial crisis broke out. In 2010, remittances coursed through banks amounted to US$18.8 billion, an increase by 8.2 percent from the level recorded in previous year.
The country's favorable external position has also been supported by the continued improvement in the country's external debt profile. The Philippine external debt-to-GDP ratio was 63.3 percent in 2004. As of September 2010, this ratio was down to 33.1 percent. The long-dated maturity structure of the country's foreign currency debt has helped to limit rollover and foreign exchange risks.
With the strong external payments performance, international reserves have risen, providing strong coverage for both imports and short-term external debt. At end-December 2010, the gross international reserves (GIR) stood at US$62.4 billion, based on preliminary data. This level of GIR could cover 10.3 months of imports of goods and services, and was equivalent to 10.8 times the country's short-term external debt based on original maturity and 5.7 times based on residual maturity. The comfortable level of foreign exchange reserves provides a strong cushion that helps the economy withstand external shocks.
As a result of the strong external liquidity position, the Philippine peso has remained broadly stable. The trends in the real effective exchange rate (REER) show that the peso has lost some competitiveness against major trading partners compared to six years ago. In the last two years, however, the peso gained competitiveness against baskets of competitor currencies (both broad and narrow) owing to the narrowing of the inflation differential, which offset the nominal appreciation of the peso.