Growth push driving trade gap — BSP

A WIDENING trade deficit should not be taken as a sign of a weakening Philippine economy but that growth will be fueled further, a central bank official said.

The Bangko Sentral ng Pilipinas (BSP) downplayed concerns about a wider trade deficit incurred by the Philippines in re- cent months, saying the country’s external position remains stable.

The country’s external trade deficit logged a new all-time-high $4.017 billion in December, taking the full-year gap to $29.786 billion, also the biggest on record.

Imports increased by 10.2% while exports surged by 9.5% to beat the government’s forecasts of nine percent and eight percent respectively, according to the National Economic and Development Authority.

As of December, the BSP expected the current account — which measures fund flows from goods and services trading — to settle at a $100-million deficit in 2017, a reversal from the $28-million surplus logged as of endSeptember.

“For some, the narrowing of the current account is taken as a sign that the economy is overheating. But in this case, my take is that if the narrowing of the current account comes from better investments — this is actually what is needed to prevent the economy from overheating,” BSP Managing Director Francisco G. Dakila, Jr. said in a press chat late last week. “Otherwise, if there’s no improvement in investments, you will not be able to accelerate your economic growth.”

Mr. Dakila said the tradeingoods deficit has started to widen in 2015 as import growth outpaced an increase in exports, reflecting the bigger need for raw materials and intermediate goods

to respond to stronger domestic demand.

The administration plans to spend as much as P8.13 trillion on big-ticket infrastructure projects until 2022, when President Rodrigo R. Duterte ends his six-year term, as it hopes to propel gross domestic product (GDP) growth to 7-8% annually from 6.7% last year, 6.9% in 2016 and an average of 6.2% in 2010-2015.

“You can see that investment in proportion to GDP has accelerated,” Mr. Dakila noted.

“The widening of the trade deficit can be viewed as necessary to support further expansion in terms of rising investments and increased infrastructure spending.”

Its impact has been “tempered” by cash remittances of overseas Filipino workers and sales of the business process outsourcing and tourism, Mr. Dakila said. Hence, the Philippines has more than enough buffers to external financial shocks, with $81.206-billion reserves able to cover 8.2 months of imports.

For 2018, the central bank expects the current account to settle at a $700-million deficit, equivalent to 0.2% of GDP. Mr. Dakila said worries should arise only if the ratio breaches five percent. —