BSP to keep CA deficit manageable at below 1%

MANILA, Philippines -  The Bangko Sentral ng Pilipinas (BSP) is keeping the projected shortfall in the country’s current account (CA) position at a manageable level to support a sustained economic growth.

BSP Governor Nestor Espenilla Jr. said monetary authorities have no intention to see the CA go higher than one percent of the country’s gross domestic product (GDP). 

“For us, (the) CA deficit should remain manageable. Actually having a current account deficit at this stage of our economic development is not bad but it shouldn’t be too large. So to us what is a concept of a manageable CA deficit is it should be no more than one percent of GDP over the next few years,” he said.

The CA position is an important indicator about the economy’s health. It is the sum or the balance of trade in goods and services less imports as well as the net income from abroad and net current transfers.

The Philippines booked a CA surplus of $601 million or 0.2 percent of GDP last year, 92 percent lower than the $7.3 billion surplus equivalent to 2.5 percent of GDP recorded in 2015.

For 2017, the BSP expects the country to book its first CA deficit in 15 years at $600 million or 0.6 percent of GDP instead of a surplus of $800 million or 0.6 percent of GDP.

“First of all what we need to take a look at is we are not talking about a blow away CA deficit. Then we have to look into what’s driving the CA deficit,” Espenilla said.

The economy is investment and export led and the Duterte administration has launched a Build Build Build program to ramp up infrastructure spending, according to Espenilla.

“By definition the developing country is short of savings and needs a lot of investments. And that’s what we are doing now. We’re trying to use the savings of the world to accelerate our investment ambitions. So what’s important is the quality of investments that we are doing,” he said.

The government has committed to spend as much as P9 trillion to roll out crucial infrastructure projects until 2022.

“What’s behind it is ramping up of investments. These investments, properly executed, should enlarge our productive capacity and our ability to export and produce goods and services. So you have to look at the CA deficit not as a linear progressive widening but it should correct overtime,” Espenilla said.

BSP managing director Francisco Dakila Jr. said the projected CA deficit this year is manageable as it is way below the benchmark of three to four percent of GDP.

“There have been some concerns in the shift to a CA deficit even when we meet with investment fund managers. This should be put into perspective that the threshold at which you worry about a CA deficit being unsustainable, the benchmark would be around three to four percent of GDP,” he said.