BSP: Narrower BOP surplus, lower forex reserves this year

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is now looking at a narrower balance of payments (BOP) and lower foreign exchange buffer as growth prospects of some advanced economies were significantly downgraded amid the recent emergence of new COVID  variants.

In a virtual press briefing, BSP managing director Zeno Ronald Abenoja said   the country is now expected to post a   BOP surplus of $1.6 billion (0.4 percent of gross domestic product), lower than the original target of  $4.1 billion ( 1.1 percent of GDP) for this year and $700 million (0.2 percent of GDP)  instead of $1.7 billion (0.4 percent of GDP)  for next year due to the further widening of the trade-in-goods deficit.

The   Monetary Board expects the country’s merchandise  exports to grow by 16 percent   this year and six percent next year, while   imports are seen expanding by 30  percent   this year and 10 percent   next year.

On the other hand, services exports are now expected to inch up by two percent instead of contracting by two percent this year and by five percent next year, while services imports are seen to rise by two percent instead of shrinking by four percent this year and grow by 10 percent instead  of eight percent next year.

Abenoja said the latest BOP assessment for 2021 factors in pockets of optimism amid encouraging economic outturns in recent months on the one hand and the continued high uncertainty from pandemic-related challenges on the other hand.

“Global economic recovery is seen to remain broadly on track, while at the domestic front, there are indications that the spread of the highly transmissible  COVID-19 Delta variant has been contained,” Abenoja said

Abenoja said the downgrade in growth prospects as well as the emergence of the Omicron variant warrants continued vigilance of the Philippines’ major trade and investment partners.

However, Abenoja said the government’s promotion of a more proactive approach in the management of COVID-related risks together with the shift from a pandemic to an endemic paradigm would help manage these concerns.

As a result, the Philippines is now expected to book a current account deficit of $4 billion instead of a surplus of $3.5 billion for 2021 and a wider deficit of $9.9 billion instead of $1.4 billion for 2022.

For next year, the BSP official said the continued growth in advanced economies bodes well for Philippine trade and investments. The BSP expects foreign direct investments (FDIs) to book a net inflow of $8 billion instead of $7 billion for this year and $8.5 billion instead of $7.5 billion for next year.

Likewise, foreign portfolio investment or hot money is seen at a lower level of $1.5 billion instead of $4.3 billion for this year before increasing to $5.7 billion for 2022.

The central bank sees remittances from overseas Filipino workers (OFWs) rising by six percent this year and by four percent next year, while earnings of the business process outsourcing (BPO) sector is seen growing by nine instead of five percent this year and by five percent next year.

“Lending support to the outlook are expectations of rising demand for foreign workers as the global economy recovers; increasing use of online remittance facilities; and lingering altruistic motives by Filipinos abroad,” Abenoja said.

After contracting by a hefty 80 percent this year, the central bank sees tourism receipts bouncing back with a growth of 25 percent next year.

Likewise, the BSP also now expects the financial account to post net inflows amounting to $4.5 billion instead of an outflow of $460 million as the national government borrows more to fund the continuing fight against the pandemic and the economic recovery program alongside moderating investments by residents in foreign financial assets.

For the gross international reserves (GIR), the BSP is now looking at a lower figure of $111 billion instead of $114 billion this year mainly from the use of reserves to pay foreign currency obligations and various expenditures. The forecast also takes into account the new Special Drawing Rights (SDR) holdings amounting to $2.8 billion from the International Monetary Fund (IMF).

It also penned a lower GIR of $112 billion instead of $115 billion for next year   in anticipation of continued national government foreign currency deposits to address the impact of the pandemic and to fast-track its infrastructure program.

The BSP continues to emphasize limitations to the forecasts given the lingering pandemic-induced uncertainties that continue to cast a shadow on external sector prospects over the near term as the   pandemic continues with the emergence of new  variants.