$2.5-B current account deficit largest in 18 years

MANILA, Philippines — The shortfall in the country’s current account (CA) position more than doubled last year to hit its highest level since 1999, primarily due to strong imports supportive of a growing economy.

Rosabel Guerrero, director of the Department of Economic Statistics at the Bangko Sentral ng Pilipinas (BSP), said the CA deficit reached $2.52 billion or 0.8 percent of gross domestic product (GDP) last year, 110 percent higher than the revised $1.2 billion shortfall or 0.4 percent of GDP registered in 2016.

The amount exceeded the $100 million deficit target set by the BSP for 2017.

This was the highest since the CA shortfall amounted to $2.87 billion or 3.5 percent of GDP in 1999. The CA position measures the net transfer of real resources between the domestic economy and the rest of the world. It consists of transactions in goods, services as well as primary and secondary income.

It peaked at $5 billion or 5.1 percent of GDP during the Asian financial crisis in 1997.

“This developed on account of the widening trade-in-goods deficit which more than offset the increased net receipts in the trade-in-services, and secondary and primary income accounts during the year,” she said.

She pointed out the trade-in-goods deficit grew 15.9 percent to $41.2 billion last year as imports of goods went up 14.2 percent to $89.4 billion, outpacing the 12.8 percent growth of exports of goods at 12.8 percent to $48.2 billion.

On the other hand, she added the net receipts in the trade-in-services account jumped 34.8 percent to $9.5 billion. Earnings from business process outsourcing (BPO) services went up 9.6 percent to $22.1 billion

Guerrero also cited the rising receipts from tourists as well as the amount of remittances from overseas Filipinos.

She said foreign direct investment (FDI) inflows jumped 21.4 percent to an all-time high of $10.05 billion last year from $8.28 billion while foreign portfolio investments or hot money reverted to a net outflow of $205.03 million from a net inflow of $404.43 million.

As a result, the country’s balance of payments position (BOP) yielded a deficit of $863 million last year or more than double the deficit of $420 million recorded in 2016, but was lower than the BSP’s target shortfall of  $1.4 billion.

This translated to a higher foreign exchange buffer, with gross international reserves (GIR) hitting $81.6 billion last year or 1.1 percent higher than the 2016 level of $80.69 billion.

For his part, BSP assistant governor Francisco Dakila Jr. said the shortfall remains manageable due to the improving production capacity of the Philippine economy.

He explained the narrowing of the current account balance implies the convergence of national investments and total savings.

The gap between national investments and total savings, he said, has closed in 2016 after widening between 2002 and 2007.

“You can see that investment in proportion to GDP has accelerated. The narrowing of the current account balance is taken as a sign that the economy is overheating. But in this case, my take is that the narrowing if it comes from better investments, is actually what is needed to prevent the economy from overheating,” he said.

The BSP expects the country to book a current account deficit of $700 million or 0.2 percent of GDP this year. The widening CA deficit is one of the factors behind the weakening of the peso against the US dollar due to rising demand for the greenback to support increasing imports.