Philippines' dollar surplus seen to narrow for good reasons
MANILA, Philippines — The Philippines’ dollar surplus is set to narrow this year from last year, all for good reasons as the economy is projected to gain steam and therefore utilize resources in paying imports and other external obligations.
The balance of payments (BOP) is seen to register a surplus of $6.2 billion, down from a record-high of $16 billion in 2020, according to the first quarter forecasts of the Bangko Sentral ng Pilipinas (BSP) released on Thursday.
Despite the smaller surfeit from a year ago, the BOP forecast for this year was actually revised up from $3.3 billion seen in December. For 2022, the surplus is set to narrow again to $3.8 billion.
BOP summarizes all inflows and outflows in an economy and a better surplus projection for 2021 suggests more dollar income coming in— all thanks to a projected recovery in exports and investments that took a beating from the pandemic in 2020.
A surplus in itself is good news since it means the economy has more than sufficient resources to meet foreign liabilities such as payment of debts and purchasing imports. But a ballooning excess, similar to last year, may also indicate an anemic domestic situation— one that keeps supply stable only because nobody is spending for them.
“Philippines 2021 external position looking up. Both exports and imports growth improving,” BSP Governor Benjamin Diokno told reporters in a Viber message.
As part of BOP, the current account that counts trade inflows and outflows is projected at a surplus of $9.1 billion this year, down from $13 billion but better than the December outlook of $6.1 billion.
On this front, unfortunately, not everyone sees a narrowing current account surplus a healthy indication. Fitch Solutions, a think tank, suggested that a surplus can easily turn into a deficit “over the long term” due to low FDI inflows. A deficit indicates resources are falling behind foreign obligations.
“The Philippines has struggled to attract foreign direct investments (FDI), a long-term and more stable form of external funding,” it said in a research note.
“While reforms to address the country’s relatively high corporate income tax rate…are in the works, the delays in implementing them mean the country is failing to benefit from the relocation of low value add manufacturing out of China to South-east Asia…,” Fitch Solutions said.
More dollars across segments
As per BSP’s latest numbers, FDI, which fell to a 5-year low of $6.5 billion last year, are likely to slowly bounce back to $7.8 billion this year, albeit still down from $8.7 billion in pre-pandemic 2019. It is only by 2022 that FDI is forecast to hit $8.8 billion.
Goods exports are seen to grow 8% year-on-year, a reversal of 11.3% slump last year but better than December forecast of 5%. Imports, which were in 21 straight months of contraction, would grow 8% this year from 22.9% decline for all of 2020.
The largest dollar sources, receipts from business process outsourcing and cash remittances, would both each grow 4% this year and the next. Remittances and BPO earnings dipped 0.8% and 1.3%, respectively in 2020.
Tourism is also expected to gain ground. From a massive 79.5% annual slump in 2020 income, tourist receipts are seen to grow 15% this year and a faster 20% in 2022.
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