BSP sees higher current account deficit for 2018

MANILA, Philippines — The country’s external payments position is expected to remain in the red this year and next year amid the  country’s strong demand for capital equipment and raw materials to support the expanding economy, according to the Bangko Sentral ng Pilipinas.

Dennis Lapid, director of the central bank’s Department of Economic Research (DER), said in a press conference the country’s current account (CA) deficit is expected to widen to $6.4 billion or 1.9 percent of gross domestic product (GDP) this year and further to $8.4 billion or 2.3 percent of GDP next year.

The revised projection is more than double the previous forecast of $3.1 billion or 0.9 percent of GDP announced last May.

The CA position measures the net transfer of real resources between the domestic economy and the rest of the world. It consists of transactions in goods, services as well as primary and secondary income.

This would be the widest shortfall since the CA deficit of 2.3 percent of GDP in 2001.

The BSP sees exports growth slumping to one percent this year before improving to 10 percent next year, while imports would grow slower to 10 percent and nine percent during the same period.

Likewise, the growth in remittances is also expected to ease to three percent for 2018 and 2019. Both business process outsourcing (BPO) and tourism receipts are expected to grow strongly.

On the other hand, Lapid said foreign direct investment (FDI) inflows would decline from $10.4 billion this year to $10.2 billion next year, while foreign portfolio investments or hot money would yield a higher net outflow of $100 million this year and $200 million next year.

As a result, the BSP is now expecting a wider balance of payments (BOP) deficit of $5.5 billion or 1.6 percent of GDP instead of the original forecast of only $1.5 billion or 0.4 percent of GDP.

For 2019, the BOP deficit is seen thinning to $3.5 billion or one percent of GDP.

The BOP is the difference in total values between payments into and out of a country over a period. A deficit means more foreign exchange flows out of the country to pay for the importation of more goods, services and capital than what flows in from exports.

Redentor Paolo Alegre, head of the BSP’s Department of Economic Statistics, said the Philippines booked a CA deficit of $6.5 billion or 2.7 percent of GDP in the first nine months, reversing the $968 million or 0.4 percent of GDP surplus recorded in the same period last year.

Alegre said the shortfall was brought about primarily by the continued widening deficit in the trade-in-goods account despite the higher net receipts posted in the trade-in-services, primary and secondary income accounts.

Likewise, he added the BOP deficit reached $5.1 billion in the first three quarters from $1.4 billion in the same period last year

However, BSP Assistant Governor Francisco Dakila said the weakening external position is still manageable as the deficits could be traced to the strong imports of raw materials and capital equipment used for production in support of the country’s growing economy and massive infrastructure build up.

“This widening of the CA is due to improved perception of the prospects of growth for the economy. So we are not seeing any widening of the trade account to unsustainable levels,” Dakila said.

Aside from the twin deficits in trade and current account, the peso slumped to its weakest level in 14 years, piercing the 54 to $1 level this year amid the normalization path of the US Federal Reserve.

The BSP sees the gross international reserves (GIR) level declining to $76 billion this year equivalent to 6.7 months worth of imports this year before recovering to $77 billion or 6.3 months worth of imports.