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Peso seen weakening to P51:$1 by year-end

THE Philippine peso could end 2019 at P51 to the US dollar before depreciating further next year amid the government’s accelerating expenditure, particularly for infrastructure projects, according to an analyst.

In a roundtable in Makati City on Friday, Leong Sook Mei, MUFG Bank Ltd. head of global markets research for the Association of Southeast Asian Nations, said the local currency could cap this year at the P51:$1 level before weakening to as low as the P52.50:$1 by the third quarter of 2020.

“For the Philippines, we all know (the peso) is depreciating not [because of] a negative factor, but because of the growth factor — because of government spending and infrastructure spending,” she told reporters.

The projected figures are better than the peso’s weighted average rate of P52.72:$1 at end-2018, based on Bangko Sentral ng Pilipinas data.

The peso is currently trading against the dollar within the P50:$1 level.

Latest data showed that national government spending in the first nine months of the year reached P2.62 trillion, up 5.5 percent or P137.2 billion from the amount in the same period last year. Of the total, P546.3 billion were spent on infrastructure and capital outlays.

The government has a P3.77-trillion disbursement program this year. For 2020, it is proposing a P4.21-trillion disbursement program that is equivalent to 19.9 percent of gross domestic product (GDP).

On the other hand, its medium-term Infrastructure Investment Program for next year was pegged at 4.9 percent of GDP or P1.044 trillion.

Negative factor
Leong said these developments could widen the country’s current account deficit, which was a negative factor for the peso.

The current account — a major component of the balance of payments — consists of transactions in goods, services, primary income and secondary income, and measures the net transfer of real resources between the domestic economy and the rest of the world.

Leong projected that current account gap could widen to above 2 percent this year and 2.3 percent in 2020.

Her forecasts compare with the record-high $7.9-billion current account deficit in 2018, which is equivalent to 2.4 percent of GDP.

Current account deficit in the first six months of 2019 tallied $1.74 billion, smaller than the $3.75-billion gap in the same period last year and lower than the central bank’s $10.1-billion forecast for the year.

“I don’t think with the ‘Build, Build, Build’ program continuing, you’ll going to see a surplus. It’s not a negative factor, but it’s very likely you continue to see a deficit in the current account,” Leong said, referring to the Duterte administration’s infrastructure program.

On the other hand, she stressed that stable oil prices and structural inflows of remittances from overseas Filipino workers (OFW) and the business process outsourcing industry would keep the peso from further depreciating.

“The positive point for the peso is, of course, the fact that oil prices are very benign. And we continue to expect it to be very benign next year,” Leong said.

She noted in particular that Brent crude oil prices could average to $63.20 per barrel (ba) in the last quarter of 2019 before dropping to $59/ba by the third quarter of 2020.

“And of course, the other positive for peso is the fact that you have very strong buffers from OFW remittances and BPO which continue to be very steady,” Leong concluded.

In the first eight months of 2019, personal remittances from OFWs reached $21.99 billion, up 3.6 percent from $21.22 billion a year earlier.

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