Current account reverses to $4.4 billion surplus in H1

MANILA, Philippines — The country’s external position strengthened further as the current account (CA) surplus widened amid a narrower trade deficit as global trade stalled due to the COVID-19 pandemic, the Bangko Sentral ng Pilipinas (BSP) said.

Redentor Paolo Alegre, director of the BSP’s Department of Economic Statistics, said in a virtual press briefing that the country booked a CA surplus of $4.36 billion in the first semester, reversing the $2.64-billion deficit in the same period last 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 surplus occurs when a country earns more on exports than what it spends for imports.

“The CA posted a surplus, a turnaround from the previous year’s deficit, attributed mainly to the narrowing of the deficit in the trade in goods account. This may be attributed to disruptions in the global demand and supply chains as countries imposed restrictions to contain this health crisis, which negatively impacted the country’s exports and imports of goods,” Alegre said.

He attributed the favorable performance to the 35 percent drop in trade in goods deficit to $15.7 billion in the first half from $24.4 billion in the same period last year.

The increase, Alegre said, more than offset the 11.9 percent decline in the net receipts recorded in trade in services to $5.2 billion from $5.9 billion as well as the 16 percent drop in primary income to $2.1 billion from $2.5 billion and 3.7 percent decline in secondary income to $12.8 billion from $13.3 billion.

For the second quarter alone, the country recorded a CA surplus of $4.4 billion, reversing the $931 million deficit booked in the same quarter last year due to narrower deficit in the trade in goods.

As a result, Alegre said the country booked a balance of payments (BOP) surplus of $4.1 billion from January to June this year, 14.6 percent lower than the $4.8 billion surplus registered in the same period last year.

“This decline in the surplus was due to the reversal of the financial account to net outflows. Portfolio investments reversed to net outflows on concerns of a global economic slowdown amid the ongoing COVID-19 health pandemic,” Alegre said.

He said other investments registered higher net outflows due largely to residents’ net repayment of their liabilities but were mitigated by higher net inflows in direct investments.

From April to June, Alegre said the Philippines recorded a BOP surplus of $4.2 billion or more than four times the $991 million posted in the same period last year.

“The BOP position rose significantly due to the reversal in the CA to a surplus, following a substantial reduction in the trade in goods deficit. The sluggish performance of both imports and exports of goods reflected the adverse impact of the COVID-19 pandemic, including the disruptions in the global demand and supply chains,” Alegre added.

The BSP is expecting a CA deficit of $1.9 billion or 0.5 percent of gross domestic product (GDP) this year and $4.4 billion or 1.1 percent of GDP next year.

It is also looking at a smaller BOP surplus of $600 million or 0.2 percent of GDP instead of $2.9 billion or 0.7 percent of GDP this year.

BSP Deputy Governor Francisco Dakila Jr. said the BOP surplus is good in the sense that it calms down the foreign exchange market in the midst of a very uncertain global environment.

However, Dakila explained there is a need to determine the source of the surplus, in this case is the significant decline in imports including raw materials and not a strong growth in exports.

“This has a bearing on the long run growth performance of the economy,”  Dakila said.