BSP sees tighter current account gap as trade stalls

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is now expecting the current account (CA) deficit to further narrow as global trade continues to stall amid the coronavirus disease 2019 or COVID-19 pandemic.

BSP Governor Benjamin Diokno said on Thursday the central bank’s Monetary Board approved the revisions of the projections for the country’s external payments position, taking into consideration the impact of the health crisis.

The central bank now expects a CA deficit of $1.9 billion or 0.5 percent of gross domestic product (GDP) instead of $8.4 billion or 2.1 percent of GDP this year.

The CA consists of transactions in goods, services, primary income and secondary income. This account measures the net transfer of real resources between the domestic economy and the rest of the world.

A CA deficit occurs when a country spends more on imports than what it receives on exports.

For 2021, the BSP is looking at a wider CA deficit of $4.4 billion or 1.1 percent of GDP.

The Philippines registered a CA deficit of $464 million or 0.1 percent of GDP last year, about 95 percent lower than the $8.8 billion or 2.7 percent of GDP recorded in 2018, owing largely to lower gap in trade in goods combined with higher net receipts in trade in services as well as in the primary and secondary income accounts.

For 2020, the central bank is now expecting exports to contract by four percent instead of a four percent growth and imports to shrink by 5.5 percent instead of an eight percent growth.

Diokno added the BSP is also now expecting a lower balance of payment (BOP) surplus of $600 million instead of $3 billion and a gross international reserves (GIR) level of $90 billion instead of $86 billion this year.

Strong inflows arising from higher foreign borrowings by the national government to fund COVID-19 measures boosted the GIR to an all-time high of $90.9 billion in April from $88.8 billion in March as well as the BOP surplus to $1.67 billion from $467 million.

The BSP has been building up the country’s foreign exchange buffer to help the country survive external shocks. It uses the buffer to buy or sell dollars if it deems necessary to prevent sharp depreciation or appreciation of the peso.

The latest and revised projections took into consideration key developments during the first four months.

“These include expectation of a sharp contraction in both global and domestic economic activities in 2020, followed by a sharp recovery in 2021; a shift toward increased monetary policy accommodation among central banks worldwide; and continued trade and political tensions, among others,” Diokno said.

Robust buffers, positive macroeconomic performance and sound banking sector continue to serve as the first line of defense of the country against the health and economic crises.