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BOP surplus may extend until 2020

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By Lee C. Chipongian

The expected sustained recovery in the country’s financial account will ensure that despite continued shortfalls in the trade-in-goods, the Philippines’ balance of payments (BOP) position could remain in surplus this year until 2020.

Diwa C. Guinigundo

BSP Deputy Governor Diwa C. Guinigundo

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo has hinted that in their assessment of the 2019 current account deficit, which they deemed financeable, also extends to their 2020 BOP review. Financial account, along with the current account, is a component of the BOP, and it includes inflows such as remittances, portfolios and investments.

“In as much as we have seen the BOP in the first quarter turning into a surplus and this is reflected in the forecast of 2019 and 2020 BOP, we see the financeability of the current account deficit,” said Guinigundo. The BSP has revised the 2019 BOP to a surplus of $3.7 billion versus its previous projection (November 2018) of a $3.5 billion deficit. The 2020 BOP estimates will be released at the end of this year. The BSP releases its external account forecasts twice a year, in April-May and in November-December.

Guinigundo stressed the big recovery in the financial account, denoted by a negative sign but it is interpreted as “inflow” based on readings the BSP use. While the current account is expected to post a bigger deficit this year of $10.1 billion versus previous projection (November 2018) of $8.4 billion, the financial account is viewed as in a recovery.

“Even if we had $8.4 billion (current account) deficit for 2019 (based on November 2018 projection) and it’s going up to more than $10 billion (May 2019 projection) the fact that your financial account has recovered from an inflow of $5.2 billion in the old projection to a net inflow $12.3 billion, it’s more than enough to compensate for the current account deficit of $10 billion … so for 2019 based on the latest forecast, we could have a $3.7 billion BOP surplus,” explained Guinigundo.

“This is also true for 2020,” he added.

Guinigundo said that as the economy continues to grow, thus incurring merchandise trade deficits since there are not enough domestic savings to fund this growth, the current account will also continue to be in a shortfall position. As of end-March, the current account deficit is at $1.2 billion, more than same time last year of $335 million deficit. The financial account, on the other hand, recorded net inflows of $4.7 billion in the first quarter compared to $816 million in 2018.

With the inflows of foreign portfolio investment, foreign direct investments (FDI) and even in terms of other investments, the BSP sees the financeability of the current account deficit.

“Notwithstanding the contribution of nearly $30 billion of remittances that we get every year, the $22-23 billion of BPOs (business process outsourcing) that we also get every year, and the nearly $10 billion of tourist receipts … we have seen the current account has increased in the last three years or so,” said Guinigundo.

Guinigundo reiterated that the current account has some buffers in terms of remittances, BPOs and tourist receipts – “and at the same time financeable because of the inflows of foreign exchange, portfolio investments and FDI and other investments including loans … again it is something consistent (with projections).”

“At some point in the future, we should be able to see all of this spending on infrastructure getting translated into higher potential output (and) into higher capacity to export … so later on exports will start recovering and imports will start stabilizing at a certain point and we should begin (to see) better than what we have today in terms of the current account,” added Guinigundo.

The BSP expects exports growth of two percent this year, lower than previous projection of six percent. For imports, this is expected to increase by seven percent, also lower than previous estimate of nine percent. BPO and tourist receipts are projected to grow by five percent and nine percent, lower than earlier estimates of eight percent and 13 percent, respectively. In the meantime, the central bank has retained its earlier projection of three percent growth for remittances.

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