THE current account (CA) deficit could widen due to declining overseas worker remittances and business process outsourcing (BPO) revenue, according to Mitsubishi UFJ Group (MUFG) Global Research.

Such factors could offset the impact of a narrower trade deficit brought on by the collapse in oil prices, it added.

“Even as trade deficits narrow on a drop in imports of oil and consumer goods, the decline in BPO revenue and remittances would result in a wider current account deficit,” MUFG Global Research said in a note issued Monday.

In 2019, the current account deficit narrowed to $464 million, significantly lower than the $8.7 billion deficit seen in 2018. The Bangko Sentral ng Pilipinas (BSP) cited the lower trade in goods deficit, as well as higher net receipts from trade in services and in the primary and secondary income accounts.

Before the pandemic hit, the BSP projected the 2020 current account deficit at $8.4 billion, to reflect the government’s infrastructure spending.

The current account represents what a country takes in from exports as against what it pays out for imports. Its components include trade in goods and services; remittances from overseas Filipino workers (OFWs); profit from Philippine investments abroad; interest payments to foreign creditors; as well as gifts, grants and donations to and from overseas.

Cash remittances in 2019 rose 4.1% to a record $30.133 billion. In January, when the impact of the pandemic was yet to be fully felt, cash remittances rose 6.6% year-on-year to $2.648 billion.

However, with some OFWs repatriated while many more face possible layoffs, the BSP expects cash remittance to drop by 0.2% to 0.8% this year, after having earlier downgraded the projection to 2% growth last month from an initial forecast of 3% before the outbreak started.

A study by Ateneo De Manila University in mid-April has a much grimmer outlook for remittances — a drop of 20–40%, due to the outsize impact of the pandemic on oil prices and the knock-on effect on jobs in the Middle East, a major destination for Overseas Filipino Workers.

MUFG said it also sees lower revenues for the BPO industry amid falling demand during this crisis.

A wider current account deficit could also weaken the peso, MUFG added.

“This would then add downward pressure on the peso,” it said, noting that the currency showed signs of resiliency in April.

According to MUFG, the peso could range between P50 and P53 against the dollar in the second quarter. — Luz Wendy T. Noble