BSP sees higher dollar outflow next year

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) expects more dollars to flow out of the country, translating to a wider current account deficit and smaller balance of payments (BOP) surplus next year.

Dennis Lapid, director of the central bank’s Department of Economic Research, said the country’s current account shortfall is expected to widen to $8.4 billion or 2.1 percent of gross domestic product (GDP) for 2020.  The figure was higher than the projected current account deficit of $5.6 billion or 1.5 percent of GDP for this year.

The current account 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.

A deficit means, the Philippines spends more foreign exchange than what comes in in the form of foreign direct investments, foreign portfolio investments, remittances, among others.

Lapid said the central bank expects imports to grow by eight percent next year after slowing to two percent this year, while export growth is expected to pick up to four percent from one percent.

On the other hand, the increase in the earnings of the business process outsourcing (BPO) sector is expected  to remain steady at five percent, tourism receipts at 12 percent, and cash remittances at three percent in 2020.

Likewise, the BOP surplus is expected to drop to $3 billion next year from the revised target of $4.8 billion this year.

The BOP is the difference in total values between payments into and out of the country over a period.

A surplus means more foreign exchange flowed into the country from exports, remittances from overseas Filipinos, business process outsourcing earnings and tourism receipts than what flowed out to pay for the importation of more goods, services, and capital.

The BSP expects foreign direct investment (FDIs) jumping by 29.4 percent to $8.8 billion in 2020 from the projected $6.8 billion in 2019, while foreign portfolio investments or hot money is projected to inch up by 2.5 percent to $8.2 billion from $8 billion.

Lapid said the outlook for 2020 took into consideration the more subdued global economic growth forecast of the International Monetary Fund (IMF) of three percent   for 2019 as well as  the softer global trade growth outlook.

Lapid also cited the continued vulnerability of commodity prices to a larger-than-expected slowdown in global growth as well as the lingering uncertainty over the US-China trade war.

The BSP official also noted the expected pause by the US Federal Reserve in 2020 following cuts in 2019, the sustained capital inflows to emerging economies, and continued uncertainty over the future of Brexit.

Lapid said the BSP also took into consideration the continued favorable growth prospects for the Philippine economy as the GDP is expected to expand between 6.5 and 7.5 percent next year from a range of six to 6.5 percent this year.

For his part, BSP officer-in-charge of the Monetary Policy Sub-Sector Redentor Paolo Alegre the current account deficit narrowed by 83 percent to $992 million form January to September from a year-ago level of $5.8 billion, allowing the central bank to lower its forecast from a record $10.1 billion or 2.8 percent of GDP.

Likewise, Alegre said the Philippine booked a $5.6 billion BOP surplus during the nine-month period, reversing the $5.1 billion deficit recorded in the same period last year.

 “The latest external position reflects the country’s positive economic prospects. The BOP surplus is driven by financial account, which more than compensated for the CA deficit,” Alegre said.