BSP expects higher BOP deficit this year
The country’s external payments position may weaken further this year due to the strong import of capital equipment and raw materials to support the expanding economy.
In a statement released Thursday evening, the central bank declared that it now expects the country’s balance of payments (BOP) to incur a wider deficit of $1.5 billion instead of $1 billion this year.
“This is equivalent to just 0.4 percent of gross domestic product, a very manageable external payments position,” the BSP said.
The BOP is the difference in total value between payments into and out of a country over a period. A deficit means more foreign exchange flows out of a country to pay for the importation of more goods, services, and capital than what flows in from exports.
Latest data showed the country’s BOP deficit swelled to $1.5 billion in the first four months from just $78 million in the same period last year due to the widening trade deficit.
On the other hand, the country’s foreign exchange buffer is expected to decline further with the gross international reserves (GIR) declining to $80 billion or equivalent to seven months worth of import cover.
The buffer slumped to its lowest level in more than three years, thinning to $78.97 billon in May from the revised $79.61 billion in April due to strong outflows.
Likewise, the central bank now expects the current account deficit to swell to $3.1 billion or 0.9 percent of GDP this year, more than four times the previous projection of $700 million.
“This mainly reflects the projected wider trade deficit as growth in imports largely outpaces exports growth. Shipments of imported goods are anticipated to gain further traction in 2018 following the momentum seen in the last quarter of 2017,” the BSP said.
The central bank said imports may grow at a faster pace of 11 percent this year due to the moderate increase in commodity prices, continued growth in imports of raw materials and manufactured goods, capital goods and consumer goods, in line with sustained strong domestic demand.
On the other hand, exports of goods may grow by 10 percent this year amid the firm recovery in both advanced and emerging market economies.
The BSP said the current account would continue to draw support from the steady remittances from overseas Filipinos as well as business process outsourcing (BPO) and tourism receipts.
Redentor Paolo Alegra, head of the BSP’s Department of Economic Statistics, said the current account deficit narrowed by 76 percent to $208 million in the first quarter from $860 million in the same period last year.
“This positive outcome was brought about by higher net receipts in the trade-in-services, primary and secondary income accounts, which partially offset the deficit in the trade-in-goods account,” he said.