DOF: Current account gap manageable

The Philippines’ current account deficit is still considered manageable despite a notable increase in the first half, according to the Department of Finance (DOF).

In a latest economic bulletin, Finance Undersecretary and chief economist Gil Beltran said that while there was an overall increase in the current account deficit, it is still manageable amid the improvement in the trade of services and foreign investment in the country.

“The current account moderated in the first half of 2018 as the current account deficit rose from a negligible 0.09 percent of GDP in 2017 to 1.95 percent in 2018, but it is financeable given the surplus in services trade and income balances and the upsurge in foreign investment,” Beltran said.

The current account position measures the net transfer of real resources between the domestic economy and the rest of the world. It consists of transactions in goods, services as well as primary and secondary income.

From January to June, the country’s current account deficit ballooned almost 25 times to $3.09 billion from the $133 million deficit recorded in the same period last year. This is equivalent to 1.9 percent of the gross domestic product (GDP).

In particular, the deficit in the trade of goods widened by nearly 28 percent to $23.32 billion from $18.24 billion, as the growth in the import of goods outpaced exports. Beltran said this was on account of the rising investment goods purchased from other countries to boost the country’s productive capacity.

The chief economist said this deficit was financed partially by the surplus in the trade of services and income balances, which rose by 11.8 percent to $20.24 billion from $18.11 billion.

The rest of the deficit was financed by foreign investment, which rose by 75.3 percent to $6.26 billion from $3.57 billion, he added.

According to Beltran, there is a need to keep the budget and current account deficits low by maintaining interest rates at a level which does not harm the volume of savings and investments in the country. He said this will help sustain the country’s economic growth.

“Maintaining good fundamentals by keeping the twin deficits (budget and current account) low, by maintaining interest rates at the level that sustains the both the volume of savings and investments, will enable the country to achieve rapid economic growth in the medium-term,” he said.

Earlier, Finance Secretary Carlos Dominguez expressed confidence that the Philippine economy can overcome any “temporary adversity,” such as high inflation and a widening current account deficit.

He said the economy has many strengths – including a strong revenue inflow, good credit rating, healthy banking system, and robust reserves, among others – which provide economic managers with tools to overcome these headwinds.

Dominguez said despite these challenges, the Philippines is expected to sustain its economic growth this year and continue being among the top performers in the region.

Economic managers earlier set an economic growth target of seven to eight percent for 2018.