PHL assures investors on economy

THE COUNTRY’s current account is expected to remain in surplus next year, providing some assurance on the economy at a time of nagging global uncertainties and a persistent global trade slump.

The government’s Investor Relations Office yesterday hosted a conference call among Asian investors, who focused on concerns on the country’s external payments position and the timing of the proposed tax reform plan.

AS EXPECTED

“We don’t see a reversion to a deficit in the current account,” Bangko Sentral ng Pilipinas (BSP) Managing Director Francisco G. Dakila, Jr. said during the one-hour investor briefing.

“As I’ve said, the recent narrowing of the current account is actually attributable to strong import of capital goods, which is in line with the expansion of the economy,” Mr. Dakila said.

“It can be noted that the recent weakening of the peso would also serve as a break and discourage imports of luxury goods.”

Mr. Dakila said the narrower current account surplus should not be a cause of concern, as it signalled

stronger domestic activity given a double-digit rise in imports that came alongside a contraction in exports.

“To be able to sustain growth path of the economy, what we need to do is increase our level of investment which is still currently below what we see in the region. Again, the narrowing of current account should be seen as a necessary step in achieving and sustaining the growth path of the economy,” Mr. Dakila said, noting an 18.3% jump in imports during the first half of 2016, largely due to capital goods and raw materials sourced from abroad.

The current account is among the indicators of the country’s external payments position which measures trade in goods and services. The country recorded a $ 778- million surplus last semester, equivalent to a mere 0.5% of gross domestic product ( GDP).

In 2015, the current account stood at 2.9% of GDP at about $8.4 billion.

BETTER NEXT YEAR

The business process outsourcing (BPO) industry is still expected to grow by 15% this year and in 2017, seen to offset the drag in the export of goods.

By next year, a “moderate recovery” for outbound shipments is also expected, which could help support the current account surplus.

Mr. Dakila said the BSP is “not overly worried” about the potential impact of a Trump presidency on the Philippines — particularly the BPO sector, noting that jobs outsourcing has proven to be “mutually beneficial” for US companies and the Philippines.

US President- elect Donald Trump, who assumes office next month, has repeatedly threatened to tax companies that ship jobs out of the United States.

The BSP is currently reviewing its balance of payments (Bop) forecast for the full year, due for release within the month.

As of June, the central bank expected a $2-billion Bop surplus.

The surfeit stood at $ 1.465 billion as of end- October.

“It could be worrying if the narrowing of the current account is due to an expansion of consumer goods imports – that will be a different story,” the BSP official said.

“But here we see it is very much in line with what we see in the domestic economy,” he added.

The central bank also downplayed concerns on the peso’s weakness over the past weeks, noting that the currency’s volatility has roughly been steady from a year ago.

“If you look at it on a longer-term basis, the movements in the peso is not really that much out of line, except that it has been experienced more during the later part of the year,” Mr. Dakila added.

“Moreover, what we’ve seen is the passthrough from the peso to inflation has gone down considerably through the years with inflation targeting. So the central bank does not have to really worry about the implications of recent developments on the peso on achievement of the inflation target range.”

The peso has hovered at the P49 level since October due to a stronger dollar, as market participants anticipate the US Federal Reserve’s next move on a rate hike that is widely expected next week.

TAX REFORM

The first tranche of the Finance department’s tax reform program is also seen in place by 2018, amid expectations that the proposals will finally be taken up and approved by Congress.

Finance Undersecretary Karl Kendrick T. Chua said his department expects the House of Representatives to begin debates on the tax reform plan early next year, as the measure had to be set aside for discussions on the P3.35-trillion national budget for 2017.

The first package submitted in September covers the reduction in personal income tax rates, a wider coverage of the value-added tax, as well as higher excise taxes on oil and motor vehicles. Technical discussions started in October, although formal committee hearings are yet to begin.

“For the time being, we will focus on tax administration and budget reforms,” Mr. Chua said.

“We expect to have formal Congress deliberations or hearings if not next week, early next year… We have not done a major tax reform for over 10 years except for the ‘sin’ tax reform, so of course this will entail a lot of discussions and we want this process to be as open and inclusive as possible.”

By 2019, the tax reform plan is expected to raise P600 billion in additional revenues, equivalent to 3% of GDP. Some P400 billion is seen to come from tax policy reforms, while some P200 billion will come from improved collection efficiency. —