BSP expects recovery in BoP position amid forecast review
THE Bangko Sentral ng Pilipinas (BSP) will announce its latest forecasts on the country’s external payments position next month, a senior off icial said, while noting that some recovery is expected in terms of capital inflows as market uncertainty eases.
BSP Deputy Governor Diwa C. Guinigundo said a review of the Monetary Board’s estimates for the balance of payments (BoP) is “ongoing,” with the results to be announced in May.
Mr. Guinigundo said among the main considerations for the revised outlook are past rate hikes and fresh signals from the Federal Reserve, as well as “any possible fallout” from the protectionist stance taken by US President Donald J. Trump.
The BoP measures the country’s transactions with the rest of the world during a specific period.
As of December, the central bank expects the country’s BoP position to be at a $ 1- billion surplus this year, representing 0.3% of gross domestic product. However, central bank officials said they will revise these forecasts to within the coming weeks to reflect current market developments, especially after a $420-million deficit was logged in 2016.
In particular, Mr. Guinigundo said that protectionist tendencies in US trade and business regulations policies will be in focus because these could be “very material” in demand for Philippine goods and services, especially on the deployment of overseas Filipino workers (OFWs) and their remittances to their families back home.
Remittances are a key pillar of the economy, and have supported sustained current account surpluses in recent years despite any problems that may arise with trade.
The Philippines posted a $994-million BoP deficit at endMarch, reflecting a wider trade gap as the year opened. Outbound foreign capital, coupled with the BSP’s foreign exchange operations and the debt payments made by the national government likely drove the monthly BoP tally further into the negative territory at a $550-million shortfall, a trend sustained for six straight months.
“For the first quarter 2017, the deterioration in the cumulative BoP shortfall was due to the persistent trade deficit that further deteriorated for the first two months of the year despite the good performance of exports ( 17.4%) versus imports ( 15.8%) for the Jan- Feb period,” Mr. Guinigundo said in a text message to reporters.
“Moreover, we also note the large net outflow of foreign portfolio investments in the first quarter.”
The Philippines saw a $ 567.53- million net outflow in hot money during the first quarter, on the back of profit taking and amid rising interest rates in the US. The central bank also attributed the outflows to the Environment department’s shutdown of local mines in February, which has spooked investors.
Global financial markets likewise saw heightened uncertainty running up to the March 14- 15 meeting of the US Fed, which ended with a widely expected 25-basis-point rate hike that placed the central bank on track with its dot plot bared last December.
Analysts have said that the BoP deficit likely reflected strong importation as the government rolls out its ambitious infrastructure spending plans, and should not be a cause of concern so far.
Looking ahead, Mr. Guinigundo expects some improvement in the country’s external payments position, saying that improving global prospects and market sentiment will likely help temper capital flight.
“While we remain vigilant over the global economy which the IMF (International Monetary Fund) believes is better poised for higher growth in 2017, we expect some recovery in both the current account and the financial account particularly FDI (foreign direct investments) and foreign portfolio investments as the uncertainties appear to be easing a bit,” the central bank off icial said.
BSP off icials have hinted that they will revise upward their FDI forecast, as the $ 7- billion estimate for 2017 was already surpassed by the record $ 7.933 billion inflows last year.
In its latest World Economic Outlook report published last week, the IMF said global growth will pick up by 3.5% this year and by 3.6% in 2018, taking off from a 3.1% expansion logged last year.