Current accounts boosted by robust OFW, BPO remittances
The country’s external payments position will be buoyed by surpluses in current accounts this year, given robust dollar inflows from overseas Filipino workers (OFWs) and business process outsourcing (BPO) remittances, banking analysts said in a forecast for 2015.
Analysts from Singapore’s DBS and ING Bank Manila said current accounts—a major balance of payments (BOP) component—will continue to post surpluses in 2015, contributing 2 to 3 percent to gross domestic product (GDP). Together with capital accounts and financial accounts, current accounts consist of transactions in goods, services, primary income and secondary income, and measure net transfers of real resources between the domestic economy and the rest of the world.
The forecast for the Philippines’ external payment position emerges from weak expectations for 2014, with the BOP seen likely to show a deficit.
For the first 11 months of 2014, the country incurred a deficit of $3.72 billion, a reversal from the $4.67 billion surplus posted in the year-earlier period.
The central bank’s forecast for full-year 2014 was for a $3.4 billion deficit.
DBS Group Research pointed out that strong inflows of remittances will continue to ensure that the current account will remain in surplus.
For 2014 alone, DBS estimates Philippine remittances to hit a record-high of $24 billion, registering 6.9 percent year-on-year growth. As of end-October 2014, cumulative personal remittances reached $22.02 billion, while cash coursed through banks during the period amounted to $19.87 billion.
The “current account surplus is likely to remain circa 2 percent of GDP in 2015, decent enough to limit any external liquidity risk for now,” it said.
After making adjustments for seasonal effects, DBS said OFW remittances will continue to average about $2 billion in the early part of 2015.
BPO another driver
In his latest market view, ING Bank Manila economist Joey Cuyegkeng said that the current account surplus in 2015 will be driven by a large amount of annual inflows not only from remittances but also from a growing US-dollar revenue stream from the expanding outsourcing industry.
“OFW remittances and other inflows will keep the current account in surplus of around 2 percent to 3 percent of GDP,” he said.
Cuyegkeng said OFW remittances are expected to grow by about 6 percent in the next two years, while dollar revenues from the backroom process outsourcing industry are likely to increase at an annual average rate of almost 14 percent.
The economist said that the expected total amount of OFW and BPO remittances will increase by 10 percent in 2015 to $47 billion, and by almost 8.5 percent to $50.4 billion in 2016.
“Even when considering that smuggling may not have decreased—although the Bureau of Customs seems to have made some progress in arresting smuggling—the current account is likely to remain in surplus of roughly around 1 percent to 2 percent of GDP,” Cuyegkeng said.
In the third quarter of 2014, the current account recorded a surplus of $3 billion or 4.4 percent of the country’s GDP in the third quarter, rising by 15 percent relative to the $2.6 billion surplus.
This brought the country’s BOP position to yield a surplus of $712 million for the three-month period, lower by 42.9 percent from the $1.2 billion surplus recorded a year earlier.
The BOP summarizes the country’s economic transactions with the rest of the world over a certain period.