The central bank has slashed its projection for the year’s balance of payments (BOP) surplus by nearly two-thirds, citing higher import expectations and lingering global uncertainty.
Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. told reporters on Friday the revised forecast for 2014 now stands at $1.1 billion, down from $3 billion forecast by the BSP last December.
For the current accounts component of the BOP, the forecast was also revised downward to a surplus of $6 billion, down from $10.4 billion forecast earlier. The projected BOP and current accounts surplus figures represent 0.3 percent and 2 percent of gross domestic product (GDP) respectively, Tetangco explained.
BOP summarizes the country’s economic transactions with the rest of the world over a certain period. It consists of the current account, the capital account, and the financial account.
The latest BSP figure showed that the payments balance recovered after months of deficit as it posted a $373 million surplus in May. The cumulative BOP position for the first five months of the year remains in negative territory, however, at -$4.12 billion.
Tetangco said the central bank’s decision to cut down the BOP projection was made in view of an expected wider trade deficit this year, with imports seen rising by 9 percent, resulting in $69 billion in full-year imports.
He cited the import requirements of domestic companies, particularly the electronics industry, and the ongoing post-Yolanda reconstruction efforts as the main drivers of import growth.
At the same time, export growth is projected to be 6 percent, although this will result in lower overall exports of $47.4 billion, down from $53.9 billion in 2013.
“We are looking at higher imports given the requirements of the domestic economy, [and]then there is also a lower figure of exports in absolute terms,” Tetangco explained.
Income from services is seen reaching $6.4 billion this year, slightly lower than the $6.8 billion posted in 2013.
The growth rate of cash remittances coursed through banks was pegged at 5 percent to $24.1 billion, slightly higher than the previous forecast of $23.6 billion.
In the financial account, net inflows of foreign direct investments is expected to settle at $1 billion this year, an inflow of $4.4 billion offset by $3.4 billion in outflows, despite the sharp increase in FDI in May that brought the year-to-date net up to $2.4 billion.
“There is a big improvement in other investments from a negative figure earlier or net outflow. We are now projecting a small inflow and this is because of the increase in foreign borrowings of the private sector,” Tetangco said.
Hot money or net foreign portfolio investment is projected at $1.5 billion, with inflow seen at $1.8 billion against $300 million of outflows for this year.
As a result, the BSP expects the country’s gross international reserves (GIR) to reach $85.3 billion this year, which is the equivalent of 11.6 months’ worth of imports of goods and services. The projection is slightly lower than the December forecast of $87 billion.
Tetangco explained that the revised BOP projections are based on the most recent economic outlook from major economic partners of the Philippines; an assessment of volatilities seen in the global financial markets; the latest data available on external transactions; and results from consultations with industry groups and other government agencies.