By Melissa Luz T. Lopez,
Senior Reporter

THE sustained strength in monthly remittances will keep the current account in a modest deficit this year, as the money inflows help offset the wider trade gap as the Philippines adopts more aggressive spending plans.

DBS Bank and ING Bank N.V. Manila said in separate market commentaries that the remittance inflows will help shore up the Philippine economy against expectations of a wider trade deficit this year, and allow the economy to keep the current account close to balance.

Cash remittances from Overseas Filipino Workers (OFWs) hit $2.31 billion in May, up 5.5% from a year earlier and reversing a 5.9% decline in April, latest data from the Bangko Sentral ng Pilipinas (BSP) showed.

Money sent home by OFWs also grew by 4.5% to $11.346 billion in the five months to May, remaining on track to hit the central bank’s forecast of a fresh high of $28 billion for 2017.

Remittances totaled a record $26.9 billion in 2016, up 5%.

The current account measures money flows derived from trade in goods and services. A deficit meant more goods and services entered against outflows.

The Philippine Statistics Authority reported that the trade deficit widened to $2.753 billion in May, from $2.24 billion a year earlier, as imports grew 16.6% to outpace the 13.7% increase in exports.

BSP Governor Nestor A. Espenilla, Jr. has said that the external position remains “very manageable” despite being in deficit, with robust remittance inflows helping fuel further economic growth to support strong domestic consumption.

“Indeed, while foreign remittances are still trending at circa $2.3 billion per month, the trade deficit has moderated to a monthly pace of about $2 billion,” DBS Bank said in a report published yesterday.

“This is important not only for the positive impact it has on personal consumption growth, but also as a counter to the widening trade deficit.”

The BSP expects the Philippines to incur a $600 million current account deficit this year or 0.2% of gross domestic product (GDP), which if realized would reverse a $601-million surplus posted in 2016.

The central bank’s latest estimate factors in the uneven global growth prospects, which would weigh on trade and capital flows. In announcing the fresh estimates last month, BSP Deputy Governor Diwa C. Guinigundo cited developments in the United States — particularly the pace of the Federal Reserve’s interest rate hikes and protectionist policies from President Donald J. Trump — as key risks that could affect the Philippine economy.

The current account was in deficit by $318 million in the first quarter, equivalent to 0.4% of GDP. The analysts expect this trend to be sustained, as the government’s infrastructure spending push would require more capital goods imports.

With the steady stream of remittances, DBS Bank expects the current account balance to post a deficit equal to 0.3% of GDP this year.

For his part, ING Bank senior economist Jose Mario I. Cuyegkeng said OFW remittances and receipts from the business process outsourcing (BPO) industry will likewise cushion the sustained double-digit growth of imports of goods.

“Structural inflows (which have OFW remittances as one of two components) had allowed the economy to post years of current account surpluses and escape from an economic structure of twin deficits,” Mr. Cuyegkeng said yesterday.

ING sees a 4% annualized growth in remittances — matching the BSP’s forecast — alongside a 10% rise in BPO revenue.

“We expect this combination to allow the economy to post a more balanced current account to around 0.2% of GDP,” Mr. Cuyegkeng added.

Inflows from the BPO sector hit $5.5 billion during the first quarter, up 9.9% from a year earlier, according to latest central bank data.

CAGAYAN DE ORO CITY — Cagayan de Oro City, the regional center of Northern Mindanao, may overtake Davao in terms of urbanization over the medium term, as it seeks to revive steel manufacturing and become the southern Philippines’ gateway for goods, the government’s development planning agency said.

The National Economic and Development Authority (NEDA) launched the Regional Development Plan (RDP) for Region 10, Northern Mindanao here yesterday, Socioeconomic Planning Secretary Ernesto M. Pernia said in a keynote speech that the city may overhaul Davao’s urban expansion rate — which is currently the fastest clip in Mindanao.

“National Spatial Strategy foresees Metro Cagayan de Oro to become the fourth metropolitan center by 2025. Cagayan de Oro is going to be the fourth and maybe overtake Davao,” said Mr. Pernia.

If realized, it would stand together with Metro Manila, Metro Cebu, and Metro Davao, as the country’s most highly urbanized areas.

“This is based on its projected population growth and functional role as a principal gateway and trans-shipment hub in Northern Mindanao,” he said.

Philippine Statistics Authority (PSA) data show that Northern Mindanao posted 7.6% gross regional domestic product (GRDP) in 2016, the second-fastest in Mindanao just after Davao’s 9.4%.

In terms of contribution to the country’s overall GRDP last year, northern Mindanao accounted for 3.8%, just behind Davao’s 4.1%.

According to Mr. Pernia, with the region’s development framework centered on being the gateway and leading industrial and trade center in the southern island, a boost is expected in production of high-value crops — for which the region is already the top region in Mindanao, representing 29% of overall agricultural output.

“From the list of projects, there are several paying attention to high-value products that can be in development here,” he said later in a news conference. “Manufacturing has also been very good here, social enterprise are also thriving in northern Mindanao, as well as science and technology.”

The RDP for Region 10 highlighted four of the region’s strategic development areas (SDAs), which includes the expanded Cagayan-Iligan Industrial and Trade Corridor that will be the site for manufacturing and processing of high-value products; the Agri-Fishery and Eco-Cultural Tourism initiatives in Misamis Occidental; the land-locked Agribusiness processing area in Bukidnon, and the Camiguin Tourism Adventure Loop.

With the expansion of agriculture, NEDA Northern Mindanao Regional Director Leon M. Dacanay, Jr. meanwhile said that the agency is moving to revive steel production to boost the manufacturing sector.

He said that the agency is conducting talks with stakeholders to revive steelmaking, and is awaiting the release of funds from NEDA to start feasibility studies within the year.

“Manufacturing is also a dominant player, and we’re looking at it as a major driver. For now, we’re studying the possibility of reviving the steel industry. If we are successful in that, then we can attract upstream and downstream industries that can site in specific places in the SDAs,” said Mr. Dacanay.

“[It is] now ongoing, and we’re trying to look at the steel roadmap. It’s still a proposal, but the R&D (research and development funds coming from NEDA) is already approved, and we’re just about to resubmit the terms of reference so we can start the study. But we’ll conduct it this year,” he said.

In the RDP, growth is targeted at 6.1-8.2%, from an average of 6.3% for the 2010-2015 period, with poverty incidence targeted for reduction to 22-24% from 30.3% in 2016, while reducing unemployment to below 20% from 24.9% in 2015. — Elijah Joseph C. Tubayan