By Lee C. Chipongian
The Bangko Sentral ng Pilipinas (BSP) now expects a $3.7 billion balance of payments (BOP) surplus for 2019, reversing the previous (November 2018) projection of a $3.5 billion deficit because of improved inflows and sustained favorable domestic growth outlook.
The BSP however estimates a higher current account shortfall of $10.1 billion for this year from its previous projection of $8.4 billion deficit.
The latest BOP surplus projection is equivalent to one percent of GDP while the current account deficit is 2.8 percent of GDP.
BSP Deputy Governor Diwa C. Guinigundo said it was not a surprise that current account is growing because of an expanding economy, in fact the Philippines – despite a lower-than-expected first quarter GDP increase of 5.6 percent – remains to be one of the fastest growing economies in the region.
“We have better prospects in the second half (of 2019), we should be seeing growth close to six percent to seven percent,” said Guinigundo. But because of economic expansion when there is still low domestic savings, the economy cannot sustain its funding. “This is reflected in the current account because of the large trade deficit … we have seen the significant expansion in the mechandise trade deficit.”
Still, Guinigundo reiterated that the current account remains financiable.
“Financiablity is a key issue to determine … if such a current account is sustainable or not,” he said, adding that the current account balance is financiable because of the expected inflows in the foreign direct investment (FDI) account and in the foreign portfolio investment.
For 2019, the BSP estimates net FDI of $9 billion and net foreign portfolio investments of $4 billion. The FDI was lower from its previous projection of $10.2 billion while it was a marked improvement for hot money flows which the BSP previously estimated at a $200 million outflow.
The BSP also raised its gross international reserves (GIR) projection to $83 billion for 2019 from $77 billion estimated last November 2018. As of end-April, GIR stood at $84 billion.
As of end-March this year, the BSP reported a current account deficit of $1.2 billion, higher than same time last year of $335 million deficit.
The current account was still in shortfall because of the trade-in-goods deficit which the BSP said more than offset the net receipts reported in the trade-in-services, primary and secondary income accounts.
BSP director for the Department of Economic Research, Dennis D. Lapid, said the key factors for the revised BOP projections were: downward revision in global growth outlook; near-term moderation in global trade outlook; and expected decline in commodities.
Lapid also said trade tensions between the US and China, the US Federal Reserve’s dovish monetary policy stance, uncertainties over Brexit and the expected modest rebound in non-resident capital flows to emerging markets were considered in changing the BOP forecasts for 2019 and 2020.