Wipes out yr-earlier surplus
THE Philippines’ balance of payments (BoP) hit a deficit of $550 million in March, marking the widest gap in five months and wiping out a surplus from a year earlier, central bank data released on Wednesday showed.
The March deficit reversed the $854 million surplus recorded in March 2016 and expanded the $436 million gap in February 2017.
It was the widest deficit since November 2016, when the payments position registered a $1.67 billion shortfall.
The shortfall in March brought the total first-quarter deficit this year to $994 million, ballooning from the $210 million payments gap in the first three months of 2016.
Portfolio investments reversal
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo traced the BoP shortfall in March mainly to the reversal in foreign portfolio investments into a deficit, foreign exchange operations of the central bank and debt servicing by the national government of its maturing obligations.
Guinigundo, however, expects a recovery in current account and financial account later in the year, which he said should support the overall BoP position for 2017.
“For the first quarter of 2017, the deterioration in the cumulative BoP shortfall was due to the persistent trade deficit that further deteriorated for the first two months of the year despite the good performance of exports (17.4 percent) versus imports (15.8 percent) for the January to February period,” he said in a text message to reporters.
Guinigundo also noted a large net outflow of foreign portfolio investments in the first quarter.
The BSP is set to release the March and first-quarter foreign portfolio investments data later today, Thursday.
“While we remain vigilant over the global economy, which the International Monetary Fund (IMF) believes is better poised for higher growth in 2017, we expect some recovery in both the current account and the financial account particularly foreign direct investments and foreign portfolio investments as the uncertainties appear to be easing a bit,” Guinigundo said.
The IMF, in its latest World Economic Outlook, raised the global growth projection for 2017 to 3.5 percent from a prior 3.4 forecast.
It retained the 6.8 percent growth outlook for the Philippine economy this year.
The IMF outlook figure is slightly lower than the revised 6.9-percent GDP growth in 2016, and falls within the 6.5 percent to 7.5 percent official growth target range of the government.
A private bank economist, meanwhile, sees stress in the Philippines’ external payment position coming from a larger trade deficit, which he said reflected strong domestic demand as the government has started increasing its deficit spending to 3 percent of gross domestic product (GDP) and accelerating infrastructure spending.
“There is a positive to the larger trade deficit. The deficit also reflects expansion of the absorptive capacity of the economy with significant imports of capital equipment,” ING Bank Manila senior economist Joey Cuyegkeng said.
Data from the Philippine Statistic Authority showed that the country’s trade deficit widened by 56.6 percent to $1.72 billion in February from $1.10 billion gap a year earlier.
Cuyegkeng noted a recent rebound in exports and going forward, he said such improvement in exports is likely to continue, although it could trail imports significantly.
In February, exports rose 11 percent year-on-year to $4.78 billion, while imports surged 20.3 percent to $6.51 billion.
With this, Cuyegkeng said the likelihood of another deficit in current account—a major component of the BoP—is high.
“If this is the case for the first quarter of 2017, then this would represent also a second straight quarter of a current account deficit. We may need to revisit our base case of a current account surplus this year,” he said.
This year, he expects the current account surplus to reach $700 million to $800 million, or contribute 0.2 percent of GDP. This compares with the $601 million current account surplus in 2016, or lower by 91.7 percent than the year-ago level.
“If the worst case develops, then we will be back to a twin deficit environment. A rising ratio of the twin deficits to GDP (a worse case) could raise concerns and affect investor confidence about the country’s credit rating,” he warned.
The Philippines currently enjoys investment grade ratings from major debt watchers Moody’s Investors Service, Standard & Poor’s Global Ratings, and Fitch Ratings.
The BSP had said that with early figures of the various components of the current account having already exceeded projections, it may revise its $1-billion BoP surplus forecast for 2017 by the end of this month.
Current account consists of transactions in goods, services, primary incomes and secondary incomes. It measures the transfers of real resources between the domestic economy and the rest of the world.