THE International Monetary Fund (IMF) expects the Philippines’ external position to log a bigger deficit this year, although the central bank chief said the level will remain manageable and supportive of further economic growth.
The IMF’s annual health check on the Philippines showed the multilateral lender saw the current account deficit settling at 1.5% of gross domestic product (GDP) this year, which if realized would exceed the 0.9% of GDP forecast of the Bangko Sentral ng Pilipinas (BSP). It will likewise widen from the gap posted in 2017 at 0.8% of GDP at about $2.518 billion.
The current account measures fund flows in goods and services trading. A deficit means more funds left the country compared to what went in.
The IMF said a wider current account deficit reflects “increased imports of capital goods and raw materials” that will be matched by a “more than adequate” stash of dollar reserves amounting to $77.525 billion as of end-June.
‘THERE’S NOTHING WRONG’
BSP Governor Nestor A. Espenilla, Jr. sought to allay any concern, saying that the expected bigger gap is not all bad for the Philippines.
“I think the way to usefully look at it is not just look at the US dollar level of it. Talagang lalaki ‘yun (It will really grow) but the economy is also growing. From a policy standpoint, we are looking at that in terms of deficit size to GDP — that’s the defining element of manageability,” Mr. Espenilla told reporters last week when sought for comment.
“There’s nothing wrong with a deficit if there is still financing for it in a voluntary way,” the BSP chief added, noting that increased imports are often accompanied by increased foreign direct investments that fuel greater demand for raw materials and capital goods.
The BSP expects the current account to balloon to a $3.1-billion deficit this year, assuming 11% growth in imports versus a 10% increase in export of goods.
The current account settled at $208-million deficit in the first quarter, narrower than the $860-million deficit logged in last year’s first three months.
Several analysts have blamed the country’s current account deficit for the persistent weakness of the peso, which has lately been trading at P53 to the dollar.
However, central bank officials said the “modest” deficit should not be taken negatively, as the increased imports will support productive activities, spur business expansions and support infrastructure development. — Melissa Luz T. Lopez

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