Central bank tempers BOP, trade outlook

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) expects a smaller balance of payments (BOP) and current account (CA) surpluses this year amid the stronger than expected recovery in global trade as well as weaker inflows from foreign investors.

In a virtual press conference, BSP Department of Economic Research managing director Zeno Ronald Abenoja said the   Monetary Board has approved the lowering of this year’s BOP surplus target to $4.1 billion (1.1 percent of  gross domestic product or GDP) from the original target of  $7.1 billion ( 1.8 percent of GDP).

Likewise, Abenoja said the BSP slashed the projected CA surplus to $3.5 billion (0.9 percent of GDP) from the previous forecast of $10 billion (2.5 percent of GDP) for 2021.

The BOP is the difference in total values between payments into and out of the country over a period. A surplus means more dollars flowed into the country from exports, remittances from overseas Filipino workers (OFWs), business process outsourcing earnings and tourism receipts compared to the amount used to pay for the importation of more goods, services and capital.

On the other hand, 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.

Abenoja said the current 2021 BOP assessment takes on a more guarded view of global and domestic economic developments going into the remaining months of 2021.

“While global growth forecasts have been relatively unchanged from earlier estimates, domestic growth prospects have been scaled down, with risks elevated in both spheres,” Abenoja said.

Despite exiting the pandemic-induced recession that stretched five quarters with a gross domestic product (GDP) growth of 11.8 percent in the second quarter, economic managers through the Development Budget Coordination Committee (DBCC), further lowered this year’s GDP growth target to a range of four to five percent due to intermittent lockdowns amid the resurgence of COVID infections.

Abenoja also cited the rapid spread of the more transmissible Delta variant which led to recent spikes in infection cases and prompted enforcement of more austere mobility restrictions as well as the supply and logistical issues in vaccine administration.

“Nonetheless, the continued strong government policy support alongside a more targeted implementation of quarantine measures is expected to help the Philippine economy gradually carve a path towards a safe recovery,” Abenoja said.

The BSP raised its exports and imports growth targets with the strong recovery of global trade from the impact of the pandemic.

It is now expecting goods exports to increase by 14 percent instead of 10 percent and goods imports to grow by 20 percent instead of 12 percent this year. However, it is now expecting services exports to shrink by two percent instead of growing by six percent and services imports to contract by four percent instead of expanding by seven percent.

Although it expects a higher increase in remittances from overseas Filipino workers, the BSP is now looking at a smaller inflow of $7 billion instead of $7.5 billion from foreign direct investments and $4.3 billion instead of $5.5 billion from foreign portfolio investments or hot money.

As a result, the central bank lowered its projected gross international reserves level to $114 billion from the original target of $115 billion for this year despite the $2.8 billion infusion arising from the special drawing rights allocation from the International Monetary Fund.