Philippines’ current account swings to a surplus in Q1

By Luz Wendy T. Noble, Reporter

The Philippines’ current account swung to a surplus in the first quarter of 2020, on the back of a slimmer trade deficit caused by disruptions due to the coronavirus pandemic and falling oil prices.

Data released by the Bangko Sentral ng Pilipinas (BSP) showed a current account surplus of $92 million in the first three months, reversing the $1.688 billion deficit seen during the same period a year ago.

“This developed mainly from the lower deficit in the trade in goods account and higher net receipts in the secondary income account, which were mitigated partly by the decline in net receipts of trade in services and primary income,” BSP said in a statement on Friday.

The current account shows the country’s overall economic interaction with the rest of the world covering trade in goods and services; remittances from overseas Filipino workers; profit from Philippine investments abroad; interest payments to foreign creditors; as well as gifts, grants and donations to and from abroad.

The BSP last week said it now expects the current account deficit to further narrow to $1.9 billion or 0.5% of gross domestic product (GDP), from its earlier estimate of $8.4 billion or 2.1% of GDP this year.

In 2019, the current account was at a deficit of $464 million, lower than the $8.773 billion gap in 2018. At this level, the current account accounted for 0.1% of GDP from 2.4% of GDP in 2018.

Meanwhile, the country’s balance of payments (BoP) stood at a deficit of $68 billion in the first quarter, a reversal from the $3.797 billion seen in the January to March 2019 period.

The BoP measures the country’s transactions with the rest of the world at a given time. A deficit means more funds fled the economy than what went in, while a surplus shows that more money entered the Philippines.

The central bank now projects BoP to end the year at a surplus of $600 million, smaller than the $3 billion surfeit outlook in November.

In 2019, BoP was at a surplus of $7.843 billion, reversing the $2.306 billion deficit recorded in the prior year.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the current account surplus was on the back of narrower trade deficit caused by the dramatic drop in oil prices and the virus outbreak.

“The lockdown in Metro Manila and Luzon in the second half of March already caused a sharp decline in both imports and exports as many manufacturers and other businesses experienced a sharp reduction in production/operations and sales,” he said in an e-mail.

“The sharp decline in global oil prices [also] reduced the country’s import bill and helped in further narrowing the country’s trade deficit,” he added.

Latest data from the Philippine Statistics Authority showed the April trade deficit was at $499.21 million, much lower than the $3.8 billion shortfall last year and the biggest trade gap in more than five years or since the $257.18 million in March 2015.

The figures were on the back of a 50.8% contraction in merchandise exports to $2.78 billion as well as the 65.3% drop in merchandise imports to $3.28 billion.

The import bill likewise decreased by 27% to $26.54 billion on a cumulative basis against the government’s target of 5.5% contraction this year.

Mr. Ricafort said he expects the current account likely to remain in surplus, with the height of lockdowns in many economies seen in April and May, causing disruption to global supply chains.

“Going forward, other factors that could support current account include the further re-opening of the economies locally and in many other countries that could also lead to some pick up in OFW (overseas Filipino workers) remittances, BPO (business process outsourcing) revenues, POGO (Philippine offshore gaming operators) revenues in the coming months,” he said.

Mr. Ricafort said foreign tourism receipts look unlikely to bounce back sooner as social distancing measures and travel restrictions continue to be in place to prevent further spread of the virus as economies fear the possibility of a second wave of infections.