MORE foreign capital and stronger remittance inflows expected during the second half of the year will help keep the country’s external payments position close to balance despite the wider deficit at end-June, a senior central bank official said.
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said the country’s balance of payments (BoP) will remain in rough balance in 2017 despite higher imports, with structural inflows and fresh foreign funds expected to trickle in during the second semester.
In particular, additional foreign direct investment (FDI) coupled with worker remittances and business process outsourcing (BPO) receipts are expected to bring in more funds to the Philippines which will help maintain the country’s payments position at a narrow deficit.
“We believe that the second half will show a stronger external payments position on account of the usual current account flows including OFW (overseas Filipino workers’) remittances, tourist receipts and BPO revenues,” Mr. Guinigundo said in a text message to reporters last week.
“The $500 million expected shortfall is still doable. FDIs are also expected to come in stronger in the second half.”
The BoP measures the country’s transactions with the rest of the world during a specific period. A deficit means more funds fled the economy against what went in.
The central bank foresees a $500-million BoP deficit this year, equivalent to 0.2% of gross domestic product (GDP). If realized, this will be slightly wider than the $420-million shortfall logged in 2016, or 0.1% of GDP.
Mr. Guinigundo’s statement comes after the Philippines registered a $569-million BoP deficit in June, the widest in seven months, on the back of a sustained imports surge and strong corporate demand for dollars.
June’s tally brought the year-to-date total to a $706-million deficit, compared with the $634-million surplus logged during the first six months of 2016, according to central bank data.
OFW remittances rose 4.5% to $11.346 billion in the five months to May, faster than the central bank’s 4% growth estimate. BPO receipts likewise jumped by 9.9% to $5.5 billion during the first quarter, according to BSP data.
On the other hand, FDI declined by a third to $2.434 billion during the first four months. The $3.581 billion booked during the same period last year factored in a one-time surge in April.
For 2017, the BSP expects fresh highs at $28 billion for remittances and $8 billion for FDI inflows.
Mr. Guinigundo said the Philippines remains a viable investment destination with its robust growth story seen intact.
“[T]he potential output of the Philippines has gone up… The economy is in a position to absorb more investment and spending without seeing a higher level of inflation,” Mr. Guinigundo said during a briefing on Friday.
The Philippine economy expanded by 6.4% in the three months to March, slower than expectations but still among the fastest in the region. On the other hand, inflation has averaged 3.1% during the first half, well within the 2-4% target range.
Several analysts have said that the sustained strength in monthly remittance flows would keep the country’s external position manageable, as the inbound funds would help offset the impact of higher capital goods imports.
The Philippine Statistics Authority reported a wider trade deficit of $2.753 billion in May, against the $2.24-billion deficit from a year earlier as imports grew by 16.6%, which outpaced the 13.7% increase in exports.
Economists have attributed the double-digit surge in imports to capital formation generated by the government’s infrastructure push and as households and businesses spend more. — Melissa Luz T. Lopez
