BSP sees narrower BoP deficit in 2018

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By Melissa Luz T. Lopez, Senior Reporter

THE Bangko Sentral ng Pilipinas (BSP) expects the country’s external payments position to settle at a narrower deficit in 2018, supported by robust service-related inflows despite heavy importations and flighty foreign capital.

The central bank released its latest projections for the Philippines’ balance of payments (BoP) position on Friday, where it expects trade and investment flows to remain favorable over the coming year.

The BoP measures the country’s transactions with the rest of the world at a given time. A deficit means more funds fled the economy than what went in, while a surplus shows more money entered the Philippines.

The central bank expects a $1.4-billion BoP deficit this year, wider than the $400 million shortfall posted in 2016 but would match the level posted as of end-September.

Zeno R. Abenoja, director at the BSP’s Department of Economic Research, said the forecast revisions factor in the expected pickup in global growth and trade, a “measured” pace of rate hikes in the United States and a brighter outlook for capital flows to emerging markets.

Back home, moderate inflation and robust domestic growth are expected to continue. The BSP expects prices of widely-used goods and services to log within the 2-4% range.

The wider gap is largely due to greater capital outflows, which would offset a lower current account deficit.

The BSP expects the current account — which specifically measures fund flows from goods and services trading — to settle at a $100-million deficit. The figure keeps the economy broadly balanced as exports are now seen growing at a faster 11% rate versus the 5% projection back in May, which roughly matches a 10% increase in imports.

Revenues from the business process outsourcing (BPO) sector are also seen growing by 8% from a year ago alongside a 4% uptick in cash remittances, which will provide support to the country’s external position.

On the other hand, the central bank expects more outflows in foreign portfolio investments at $2.5 billion, versus the $900 million in outbound capital they expected for the entire year. As of end-September, the level has settled at a $1.9 billion net outflow.

This will act as counterweight to the $8 billion in total foreign direct investments (FDI) eyed for 2017, the BSP said.

As of end-September, the country posted a $1.37-billion BoP deficit, reversing a $1.65-billion surplus a year ago. Meanwhile, the current account reversed to a $28-million surplus during the nine-month period following a rebound seen during the third quarter as exports surged by 12.9%.

Inflows from remittances and the BPO sector also jumped by a third, which helped offset the impact of a steady rise in imports.

“The current account remains a very good number. It means that the Philippine economy is in a very good position of sustaining a positive position,” BSP Deputy Governor Diwa C. Guinigundo said during the briefing.

“Exports continue to improve because the global economy continues to recover. We’ve been able to sell our exports to the external market.”

The country’s BoP position is seen to moderate next year to a $1 billion deficit as capital flows improve, even as strong importations are expected to persist to sustain robust economic activity.

This comes despite a wider current account deficit at $700 million, which the central bank attributed to slower export growth at 9% as imports continue to grow by a tenth. BPO receipts are expected to grow faster at 10%, while remittances will sustain its 4% climb from 2017.

Improving foreign investment flows will offset these adjustments, with FDIs poised to reach $8.2 billion, while hot money is expected to ease to a $900 million outflow, versus the $2.5-billion in outbound flighty funds expected this year.

Despite these developments, the BSP said they stand assured the Philippine economy will remain on solid footing as the deficit is seen settling below 1% of gross domestic product (GDP) — a “manageable” level, according to Mr. Abenoja.

For 2017, the deficit will settle at 0.5% of GDP, while the 2018 print will account for just 0.3% of GDP.

Through all this, the country’s dollar reserves will likely soften to the $80 billion level next year, from this year’s $80.7 billion, but will remain an adequate buffer versus external shocks.

The reserve stash will be enough to cover 7.5 months’ worth of projected import payments in 2018, well above the three-month standard although lower than the 8.2-month import cover this year.

Central bank officials have said that a modest current account deficit should not be a cause of worry, as it simply reflects increased imports that would eventually be used for infrastructure projects and expansion plans in the country.

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