Philippines' dollar surplus seen wider than initially projected in 2021

MANILA, Philippines — The Philippines’ dollar surplus is still poised to shrink this year, but the new forecast is now bigger than the previous one on the back of “better-than-expected” global economic outlook that could stimulate the country to spend more on imports and other external obligations.

The country’s balance of payments (BOP) position is projected to hit a surplus of $7.1 billion in 2021, larger than $6.2 billion surfeit projected in March, according to the second quarter forecasts of the Bangko Sentral ng Pilipinas released on Friday.

Still, the new forecast, if realized, would be smaller than the record-high $16 billion dollar surplus posted last year. In 2022, the BOP surplus is seen further narrowing to $2.7 billion, lower than the initial estimate of $3.8 billion made in the first quarter.

BOP is a summary of the economic transactions of a country with the rest of the world for a specific period. A surplus arises when more funds entered the economy against those that left, which is a good thing in itself since it provides the country with enough buffers against external shocks.

But that the country is sitting on excess dollars amid a pandemic-induced recession could also be a bad indicator, as it means demand that used drive dollar outflows has now weakened.

“Overall, the latest BOP assessment for 2021 reflects sustained optimism fueled by expectations of improved global and domestic economic landscape moving into the second half of 2021,” the central bank said.

Dissecting the latest projections, the current account — a component of BOP that covers both merchandise and services trade — is forecast to post a surplus of $10 billion in 2020, bigger than $9.1 billion excess projected previously. But it would be narrower than the $13 billion current account surplus last year, something that analysts at Fitch Solutions believe could slightly weaken the peso.

“As the current account flips from surplus to deficit over the coming quarters, we expect the peso to modestly depreciate, with downside pressures somewhat offset by central bank policies and rebounding growth,” Fitch Solutions said in an e-mailed commentary.

Elsewhere, foreign direct investments, which sank to a 5-year low of $6.5 billion in 2020, are seen recovering to $7.5 billion this year, lower than the BSP’s initial forecast of $7.8 billion. In 2022, FDIs are projected to hit $8.5 billion, smaller than the old forecast of $8.8 billion.

From an 11.3% contraction last year, exports are seen growing 10% annually in 2021, better than the March forecast of 8%. Imports, meanwhile, are expected to reverse last year’s 22.9% slump and grow 12%, unchanged from the previous projection. Exports and imports would likely ease their growth to 6% and 10%, respectively, in 2022, the BSP said.

Receipts from business process outsourcing and cash remittances would grow 5% and 4%, respectively, this year and the next. Once reliable dollar sources, 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 25% in 2022.