PIDS: Robust industrialization key to lowering trade deficit

MANILA, Philippines — The Philippines needs to address its ballooning trade deficit which is now becoming “quite alarming,” according to the Philippine Institute of Development Studies (PIDS). 

Citing data from the trade department, the state-run think tank said the country’s trade deficit in the past five years has grown by an average of 75.5 percent, having grown rapidly between 2014 and 2018 as imports significally outpaced exports. 

Sustaining a high level of deficit weakens the peso, making imports more expensive. Exports may be given a boost, the cost of production inputs will be higher because the Philippines imports materials crucial to production as well as finished goods for consumption.  

This may make goods sold in the domestic market more expensive. 

Countries accounting for more than 90 percent of the Philippines’ trade deficit are China, South Korea, Indonesia, Thailand, and Taipei. 

These countries supply the Philippines’ major imports such as automobiles, petrochemicals, coal and steel. 

PIDS said the Philippines imports a huge amount of steel bars because local manufacturers are just beginning to expand their operations to cope with the demand of the Duterte administration’s Build Build Build program. 

The Philippines imports coal from Indonesia because the supply provided by Semirara has a low-heating value that some power plants could not use. 

PIDS said the importation of cars is a major contributor to the country’s ballooning trade deficit as the domestic automotive sector “has not grown to a certain point where it can supply the local demand.”

Among the strategies identified to narrow the trade deficit is improving the country’s supply chains so the Philippines could export more and import less. 

“The implementation of a robust industrialization policy is also a way to address this issue,” said PIDS. 

Another solution is to tap new opportunities under existing free trade agreements and generalized system of preferences (GSP) programs that the Philippines is a part of. 

These include the ASEAN and the Regional Plus One with Japan as well as FTAs with Australia, China, Korea, India, and New Zealand

The Philippines also enjoys GSP access with the US, European Union, Russia, and Canada. 

Firms in Taiwan are also looking into relocating more facilities as some medium to large companies have already set up businesses in Batangas. 

Developing the country’s human resource should also be a top priority and educational institutions should ensure their curriculum is adept to the needs of industries, PIDS said.