BSP forecasts $1.6-B current account deficit next year

The country’s current account is expected to have a wider deficit of $1.6 billion next year, more than twice the estimated shortfall of $600 million for 2017, because of the continued negative balance in the trade-in-goods.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo yesterday said this could “slightly” increase the overall balance of payments (BOP) deficit in 2018 from the projected $500-million deficit this year.

Next year’s BOP deficit however is unlikely to enlarge significantly because of a hoped-for increase in foreign funds, both direct and portfolio investments. “We anticipate higher net inflow in the financial account, particularly foreign direct investments (FDI). As a result, overall BOP deficit could slightly widen but is seen to be limited to 0.2 percent of Gross Domestic Product (GDP) which is the same as the projected BOP as a percentage of GDP for 2017 (of $500 million),” said Guinigundo.

The current account, as well as financial and capital accounts, are part of the BOP composition. The current account, which began its surplus run in 2002, includes trade-in-goods and services, income, and current transfers.

The capital and financial account are direct, portfolio and other investments. For 2017, the BSP expects net FDI to hit $8 billion while hot money or portfolio fund inflows will likely reach $900 million.

The estimated $1.6-billion current account deficit next year is 0.5 percent of GDP compared to the 0.2 percent ratio for the $600-million deficit expected for 2017.

Guinigundo explained – “the 2018 current account deficit is seen to widen due mainly to continuation of the widening in the trade-in-goods deficit with imports expected to grow by 10 percent and exports by seven percent. However, we see the stable increases in the services and secondary income accounts continuing to support the current account.”

The BOP deficit reached $706 million as of end-June this year.

“We believe that the second half will show a stronger external payments position on account of the usual current account flows including OFW remittances, tourist receipts and BPO (business process outsourcing) revenues,” Guinigundo said earlier. He reiterated that the $500 million expected BOP shortfall “is still doable” as he expect FDI numbers to be stronger in the July-December months.

The central bank revised its external account numbers in anticipation of higher imports this year, as well as other external factors that would impact on BOP such as rising US interest rates, the uneven global growth and the Trump government’s trade policies which could undermine export growth.