BSP sees another balance of payments deficit in 2017

Posted on June 17, 2017

THE CENTRAL BANK trimmed its forecasts for the 2017 balance of payments (BoP) position as it now projects a second year in deficit on the back of uneven global growth that could weigh on the country’s prospects.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said on Friday that monetary authorities expect the country’s external payments position to end the year at a $500 million deficit, reversing its $1 billion surplus forecast made in December and wider than the $420 million deficit booked at end-2016.

Foreign direct investment is expected to grow to $8 billion this year, against the $7 billion projected from the December review. Meanwhile, portfolio investments are was kept at $900 million in net outflow.

By year’s end gross international reserves are expected to come in at around $80.5 billion, well below the earlier projection of$84.7 billion made in December, and also slightly lower than the 2016 actual result of $80.692 billion.

According to Mr. Guinigundo, despite the International Monetary Fund’s (IMF) world output growth forecast of 3.5% this year, against 3.1% in 2016, there is still an uneven impact on some advanced economies, especially those that are the Philippines’ major trading partners.

“If you look at the assumption, the revision in global growth outlook for 2017 should affect us in a positive way for exports, but if you look at the... very slight upward adjustment… the impact will not be even. There are advanced countries which are [our] major trading partners that are barely recovering,” he said.

Mr. Guinigundo also pointed out that despite an increase in exports, the country’s strong imports will still produce a wider deficit.

Mr. Guiniguindo also noted that the US Federal Reserve’s less gradual pace in tightening interest rates would impact the country’s capital flows, and ultimately the investment portfolio for the year.

He also acknowldged the ”possible impact of [US President Donald J.] Trump’s policies, basically on remittances, BPOs (business process outsourcing), and of course, (Philippine) exports, in case Trump really decides to tighten his trade policy.”

Meanwhile, strong growth prospects for the Philippine economy for 2017 and 2018 will sustain the rise in imports, which will “exacerbate the goods or merchandise trade deficit.” It now sees a $600 million deficit by year’s end, against the $800 million surplus projected in December.

The BoP in the first quarter was in deficit by $994 million, wider than the $210 million deficit booked a year earlier.

The current account was in deficit by $318 million in the first quarter, equivalent to 0.4% of GDP. -- Janine Marie D. Soliman