Current account gap narrows sharply in Q2

MANILA, Philippines — The country’s current account (CA) deficit narrowed sharply to $145 million in the second quarter, the Bangko Sentral ng Pilipinas (BSP) said.

Despite the improvement, BSP Deputy Governor Francisco Dakila Jr. said the country’s CA position would remain in deficit for the rest of the year.

For the first half, the deficit thinned to $1.74 billion from $3.75 billion in the same period last year.

This developed as a result of the higher net receipts in the primary income to $2.5 billion from $ 1.5 billion, trade-in-services to $5.9 billion from $4.9 billion, and secondary income accounts up to $13.3 billion from $13.2 billion.

On the other hand, the deficit in the trade-in-goods account posted a marginal increase to $23.5 billion from $23.3 billion.

The capital account registered higher net receipts of $33 million from $30 million.

The financial account registered higher net inflows of $5.7 billion in the first half, more than double the $2.5 billion net inflows recorded in the same period in 2018.

This was due to the reversal in portfolio investments to $4.4 billion net inflows from $2.6 billion.

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.

Dakila said the deficit recorded in the first half was equivalent to one percent of gross domestic product (GDP) in the first half of the year.

“The CA will not swing into a surplus this year. The deficit is lower than what we had projected,” Dakila said.

The BSP expects a record CA deficit of $10.1 billion this year, 27.8 percent wider than the $7.9 billion shortfall recorded last year.

The projected deficit is equivalent to 2.8 percent of gross domestic product (GDP) for this year from 2.1 percent of GDP a year ago.

Authorities see the country booking a wider CA deficit due to stronger imports to support the growing domestic economy as well as weak global growth and the trade war between the US and China.

Dakila said the shortfall remains manageable amid the strong inflows of foreign direct investments (FDI) as well as foreign portfolio investments or hot money.

The country’s GDP growth eased to a four-year low of 5.5 percent in the second quarter from 5.6 percent in the first due mainly to the delayed passage of the 2019 national budget.

Economic managers still expect the Philippines to book a GDP growth of between six and seven percent this year from last year’s 6.2 percent.