BSP sees smaller dollar deficit in 2023 as global headwinds persist

MANILA, Philippines — The Philippines would likely post a smaller dollar deficit this year, the Bangko Sentral ng Pilipinas said Friday, as a projected global economic slowdown threatens to hurt foreign trade and investments, while a stubbornly high inflation crimps demand at home.

The BSP now sees the country’s balance of payments (BOP) position swinging to a $1.6 billion deficit this year, slimmer compared to the central bank’s old projection of a $5.4-billion gap.

The BOP is the summary of economic transactions of a country with the rest of the world during a specific period. A surplus occurs when more foreign funds enter the country against those that left while a deficit arises when the reverse happens.

If the BSP’s prediction happens, 2023’s BOP deficit would be significantly narrower than the $7.3 billion gap recorded in 2022.

Explaining its revised forecast, the central bank said it expects a “subdued global and domestic economic activity this year followed by slightly improved activity” by next year — when the dollar deficit is projected to further shrink to $500 million.

“Persistent high inflation, the protracted Ukraine-Russia conflict, and pandemic-related legacies remain the key risks to the country’s external sector outlook, albeit with lesser adverse impact relative to previous estimates,” the BSP said in a statement.