Diokno not worried about CA deficit

MANILA, Philippines — The Bangko Sentral ng Pilipinas is not worried about the widening current account (CA) shortfall as the country has enough buffers to finance increasing importation of raw materials and capital equipment.

BSP Governor Benjamin Diokno said the Philippines has strong foreign exchange inflows from foreign direct investments (FDI), tourism receipts, and earnings from the information technology – business process outsourcing (IT-BPO) to pay for imports.

“We continue to receive, I think on average about $60 billion from overseas Filipino remittances, IT-BPO income, and plus the increasing receipt from the tourism industry. And to add to that, the Philippines has attracted a lot of interest from foreign investors,” he said.

Diokno said FDI inflows averaged about $10 billion over the last two years or three times higher than the average for the last eight years.

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.

The Philippines incurred a record CA deficit of $7.9 billion or 2.4 of gross domestic product (GDP) last year, almost four times the $2.1 billion shortfall or 0.7 percent of GDP in 2017 due to a wider trade deficit as a result of the massive infrastructure build up being undertaken by the Duterte administration.

The shortfall was the highest on record since the $4.4 billion current account deficit or 5.1 percent of gross domestic product recorded during the height of the Asian financial crisis in 1997. The figure also exceeded the central bank’s full-year deficit target of $6.4 billion or 1.9 percent of GDP.

 “As I said we have some buffers, hefty buffers. So I am not at all worried about the current account deficit especially because it is less than three percent of our economy,” Diokno said.

The BSP chief said the country’s balance of payments (BOP) position with a deficit of 0.7 percent of GDP is manageable and provides resilience against external headwinds.

“Running a current account deficit is not necessarily a cause for concern given the underlying trends. Our external position continues to be adequately supported by structural sources of foreign exchange inflows such as overseas Filipinos’ remittances, IT-business process outsourcing revenues, as well as increasing tourism receipts,” he said.

In upgrading the country’s credit rating to BBB+ or a notch below the much coveted “A” scale, S&P Global Ratings said another key rating strength for the Philippines is the country’s external position.

The debt watcher said the CA deficit rose to a multi-year high due to rising capital goods imports stemming from the government’s continuing ambitious infrastructure push.

“Nevertheless, we expect robust services exports mainly tourism, health care, maritime, and business process outsourcing and large remittance inflows will cushion the impact of rising investment, keeping the deficit stable at about two percent of GDP,” S&P said.

The rating agency added the proposed rationalization of tax incentives under the Trabaho bill could affect foreign investor sentiment, depending on the final stipulations of the bill and the timing of its implementation.

“We believe this poses some downside risk to the outlook on FDI in the Philippines,” it said.

For 2019, the BSP sees a CA deficit of $8.4 billion or -2.3 percent of GDP.