Wider current account gap seen as economy recovers

MANILA, Philippines — The Philippines’ current account (CA) deficit may widen again by as much as one percentage point of gross domestic product (GDP) by the end of the year as the economy is seen to recover in the second half, according to a senior official of the Department of Finance.

In a text message, Finance Undersecretary and chief economist Gil Beltran said the CA deficit may settle at 1.5 to two percent of GDP by the end of 2019, higher compared to the 1.03 percent in the first semester.

“Because economic growth will normalize to six to seven percent, the CA deficit may widen by about 0.5 to one percentage point assuming no improvement in trade and income balances,” Beltran told The STAR.

The current account is the balance of exports and imports of goods, services and income balances.

In his latest economic bulletin, Beltran said the CA level is seen to “normalize” as economic growth recovers, which would revive growth in the importation of capital goods.

“This is after the CA deficit narrowed to 1.03 percent of GDP in the first half from 2.36 percent of GDP in the same period last year,” Beltran said.

Broken down, Beltran said the deficit in the trade in goods balance dropped to 13.91 percent of GDP from 14.68 percent as imports slowed down because of less entry of capital goods.

He said the slower capital formation also led to the slowdown in economic growth to 5.5 percent in the first semester.

On the other hand, the DOF’s chief economist said the surplus in the trade in services and income balances in the first half widened to 12.9 percent of GDP from 12.3 percent a year ago. He said this can be attributed to earnings from the business process outsourcing sector, remittances inflows and earnings from investments abroad by Filipino citizens.

“Maintaining good fundamentals by keeping both the budget deficit and current account manageable, keeping interest rates at the level that sustains the volume of investments and allowing the exchange rate to maintain its competitive level will allow the country to sustain economic growth in the medium-term,” Beltran said.

Earlier, Finance Secretary Carlos Dominguez expressed optimism that economic growth would still hit the government’s target of six to seven percent this year, on the back of lower inflation and the expected recovery in public spending.

Dominguez said the government is implementing a spending catch-up strategy, which seeks to reverse the public underspending seen in the first half of the year resulting from the delay in the passage of the 2019 budget.