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Philippines
Friday, March 29, 2024

BSP sees big balance of payments deficit of $6.3 billion this year

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The Bangko Sentral ng Pilipinas said Friday it expects the country’s balance of payments position to post a larger deficit of $6.3 billion this year amid the buildup of external risks, including the aggressive monetary policy normalization in advanced economies, the slowdown in China, the war between Russia and Ukraine and the lingering COVID-19 pandemic.

It said in an online briefing the revised projection of $6.3-billion BOP deficit equivalent to -1.5 percent of GDP this year would be larger than the initial estimate of a $4.3-billion shortfall (-1.0 percent of GDP).

The BSP made the revision following the downgraded global growth outlook with the escalation of the Ukraine-Russia conflict and its international ramifications, such as the increase in food and fuel prices.

“The anticipated slowdown of China’s economy could also put pressure on trade prospects. Meanwhile, capital flows could be particularly volatile following the abrupt monetary policy normalization in the US and in other major economies,” said BSP Department of Economic Research managing director Zeno Ronald Abenoja.

Abenoja said the widening of the current account deficit to $19.1 billion (-4.6 percent of GDP) from the earlier projection of $16.3 billion (-3.8 percent of GDP) would contribute to the larger BOP deficit.

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“This development is reflective of the foreseen sustained acceleration of goods imports by 18 percent driven mainly by the surge in international commodity prices alongside continued recovery of the domestic economy, while goods exports growth is forecasted to moderate to 7 percent due to lingering supply constraints, high input costs, and prospects of weaker global demand,” Abenoja said.

Both services exports and services imports are expected to post double-digit growth rates of 11 percent and 13 percent, respectively, supported mainly by the reopening of the economy and the easing of entry restrictions for foreign tourists, beginning February 2022.

“Amid these external challenges, the Philippines’ sustained strong macroeconomic fundamentals as well as the passage of a series of business-friendly legislations are expected to serve as the dominant pull factors for investment inflows into the country,” Abenoja said.

He said the latest forecasts on foreign direct investments and business process outsourcing receipts continued to point to robust expansion.

Abenoja said the adoption of the 10-point agenda of the government specifically the push for the full reopening of the economy and measures to facilitate the country’s digital transformation and the legislative amendments relating to foreign ownership, retail trade and public services would foster opportunities for the foreign exchange-earning sectors.

“In addition, the full reopening of overseas Filipino host economies as well as the easing of entry restrictions for international tourists are expected to boost OF remittances and speed up the recovery of the tourism sector,” Abenoja said.

The BSP retained the growth forecast for overseas Filipinos’ cash remittances at 4 percent in line with the long-term growth trend, rising workers’ deployment on the back of renewed interest in hiring of OFWs and growing use of digital financial services among overseas workers and their beneficiaries.

It said the financial account would register higher net inflows of $11.8 billion from the previous projection of $10.9 billion. Key drivers supporting this outlook are the sustained uptrend of non-resident foreign direct investments inflows of $11 billion and foreign portfolio inflows of $4.5 billion, fueled in part by the planned issuances of initial public offerings.

The BSP said the 2022 gross international reserves would settle at $105 billion, representing 8 months of import cover, lower than the previous forecast of $108 billion (8.4 months of import cover). This reflects latest trends and the expected rationalization of the national government’s foreign borrowings amid fiscal consolidation efforts.

The overall BOP is seen to be broadly unchanged in 2023 from the previous deficit forecast of $2.6 billion (-0.6 percent of GDP), on expectations of higher inflows in the financial account supported by improved business and consumer sentiment, stronger domestic demand and continued implementation of business-friendly legislative reforms.

The current account is seen to remain in deficit of $20.5 billion (-4.4 percent of GDP) in 2023, on sustained widening of the trade gap as both goods exports and goods imports expand by 6 percent each.

Growth prospects for remittances in 2023 remain unchanged at 4 percent as base effects are expected to fade and as the recovery of partner economies stabilize to pre-pandemic levels.

Foreign direct investments and foreign portfolio investments inflows in 2023 are anticipated to reach $12 billion and $6.7 billion, respectively, on sustained growth momentum of the economy, buttressed by gains in broadening and modernizing the country’s infrastructure base and continued implementation of other investment-friendly reforms.

The BSP kept the GIR projection of $106 billion in 2023 in line with the prospects for foreign flows into the major external accounts.

Abenoja said the growth prospects for 2023 remained soft as the confluence of factors shaping the 2022 external outlook would likely persist. The challenge of dealing with the COVID-19 crisis legacies, the Ukraine-Russia war, and global financial tightening continue to dampen prospects for the country’s external sector next year, he said.

“Even as the global economy is expected to sustain its recovery momentum in 2023, the mounting uncertainty continues to temper expectations for a durable upturn in external demand,” Abenoja said.

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