BoP forecast raised as trade picks up

THE CENTRAL BANK raised its balance of payments (BoP) surplus projection for this year, as it anticipates a pickup in the country’s external trade amid a protracted pandemic.

Bangko Sentral ng Pilipinas Governor (BSP) Benjamin E. Diokno on Thursday said the country’s BoP could reach a $6.2-billion surplus this year, equivalent to 1.6% of the country’s gross domestic product (GDP).

“Philippines’ 2021 external position [is] looking up. Both exports and imports growth [are] improving,” Mr. Diokno said in a Viber message to reporters.

The new forecast is higher than the $8-billion surfeit projection the BSP gave in December, which is only 0.8% of the Philippine economic output.

However, this is smaller than last year’s record $16-billion BoP surplus, which is equivalent to 4.4% of GDP.

The BoP sets a picture of the country’s transactions with the rest of the world at a given time. A deficit reflects more funds fleeing the country than what went in, while a surplus means more money entered the economy.

The BSP also revised upward the current account surplus projection to $9.1 billion, equivalent to 2.3% of GDP, this year. This is higher than the previous forecast of $6.1 billion, or 1.5% of GDP. However, it is lower than the $13-billion surplus in 2020, equivalent to 3.6% of GDP.

The current account shows the country’s economic interaction with the rest of the world. It includes trade in goods and services, remittances from migrant Filipino workers, profits from Philippine investments overseas, interest payments to foreign creditors and gifts, and grants and donations to and from abroad.

The BSP also hiked its exports growth forecast to 8% this year from the 5% projection given in December. It also projects imports to grow by 12% this year, from its earlier forecast of 8%.

The country’s gross international reserves is seen to reach $114 billion by end-2021, higher than the $106-billion projection in December.

Inflows from foreign direct investments (FDI) are projected to reach $7.8 billion this year, slightly higher than the $7.5 billion previously estimated. The BSP maintained its growth forecast of 4% for cash remittances.

In a separate note, Fitch Solutions Country Risk and Industry Research in a note said that while the country’s external position is still solid, they are less optimistic on the long-term prospects due to downside risks from muted FDI, weak outlook for manufacturing and rising import needs.

With the country facing continued challenges to lure FDIs, Fitch Solutions said such inflows are crucial as they are a more stable form of external funding.

Last year, FDIs slumped to a five-year low as investors fled toward safe havens amid the crisis. Inflows slumped 24.6% to $6.542 billion.

“While reforms to address the country’s relatively high corporate income tax rate and restrictive foreign ownership rules are in the works, the delays in implementing them mean the country is failing to benefit from the relocation of low value add manufacturing out of China to South-East Asia, weakening the outlook for its manufacturing base,” Fitch Solutions said.

It stressed the need for the Philippines to continue prioritizing infrastructure, adding the Fitch Solutions’ Operational Risk Team has ranked the Philippines below major regional peers in terms of operating environment specifically in logistics.

“[A] lack of logistical infrastructure and declining domestic power generation will leave the country ever more dependent on imports to supply its growing population and cap the potential for growing its tourism sector.” Fitch Solutions said. — Luz Wendy T. Noble