MANILA, Philippines — ANZ Research sees the external payments position of the Philippines deteriorating further this year amid powerful headwinds such as the recalibration of domestic demand with the gradual reopening from strict COVID lockdowns, peaking global trade and a hawkish US Federal Reserve.
Sanjay Mathur, chief economist for Southeast Asia and India at ANZ, said the episode of large current account and balance of payments surpluses are now behind us.
“The combination of peaking global trade, recalibration of domestic demand and a hawkish US monetary policy are powerful headwinds,” he said.
According to ANZ, the current account deficit of the Philippines may balloon further to $10.2 billion or -2.5 percent of gross domestic product (GDP) this year.
The country’s current account position reverted to a deficit of $5.8 billion or -1.5 percent of GDP last year from a record surplus of $11.1 billion or 3.1 percent of GDP in 2020.
The current account consists of transactions in goods, services, primary and secondary income. This account measures the net transfer of real resources between the domestic economy and the rest of the world.
A deficit means the country is spending more on imports than what it receives from inflows from exports.
“The strength in imports looks anomalous at the current stage of business cycle recovery, but it has widened the trade deficit. This trend will likely persist in 2022 as well,” Mathur said.
In a commentary titled “The Philippines: Deepening Deterioration,” Mathur said the general elections in May, as well as the heavy infrastructure spending and elevated oil prices, would likely keep the Philippines’ import bill high.
He said the services trade balance is expected to improve in 2022 compared to 2021, as broader economic reopening and an easing in travel restrictions lead to higher tourism receipts.
“Foreign tourism recovery will become discernible from the second quarter if the government’s plan to allow fully vaccinated travelers to enter the country materializes in February,” the economist said.
Furthermore, he said remittances from overseas Filipino workers (OFWs) would continue to improve this year.
Likewise, Mathur said ANZ is looking at a smaller net foreign portfolio investments outflows at $2 billion this year from last year’s $1.4 billion and a robust $9 billion net foreign direct investments (FDIs) inflow this year from $9.7 billion last year. “On the financial account side, we expect smaller portfolio outflows in 2022, as foreign investors are already considerably underweight on Philippine assets. FDI has remained robust so far in 2021, and is expected to remain steady in 2022,” he said.