Nomura sees wider CA deficit

MANILA, Philippines — Nomura Securities Ltd. expects a wider current account (CA) deficit for the Philippines with the expected catch-up plan for government spending due to the delayed implementation of the 2019 national budget.

In a report, Nomura said it has raised its current account deficit target to 3.1 percent of gross domestic product (GDP) next year from 2.7 percent in 2019.

It said the concerns on the peso relate to the continued widening of the current account shortfall, while the budget deficit is also seen to widen to 2.9 percent of GDPthis year.

“The current account deficit has been financed by capital inflows, with balance of payments surplus in five of the past six months (average monthly $393 million surplus), but this is vulnerable to a worsening of external conditions when combined with perceptions of consistent BSP policy expansion and limited BSP concerns over peso weakness,” Nomura said.

The current account 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.

The Bangko Sentral ng Pilipinas (BSP) expects a record current account deficit of $10.1 billion this year, 27.8 percent wider than the $7.9 billion shortfall recorded last year.

The projected deficit is equivalent to 2.8 percent of GDP for this year from 2.1 percent of GDP last year.

Latest data from the central bank showed the country’s current account deficit thinned to $1.74 billion or one percent of GDP from $3.75 billion in the same period last year.

This after, the shortfall narrowed sharply to $145 million in the second quarter from $3.28 billion in the same quarter last year.

The peso continues to draw its strength from strong inflows from overseas Filipino workers, foreign direct investments (FDIs), among others to offset outflows for import payments.

“Indeed, peso supports in recent months from foreign portfolio inflows, FX deposits and some accumulation of external debt could reverse (similar to 2018) if global growth conditions worsen and peso depreciation pressures build,” Nomura said.

BSP Deputy Governor Francisco Dakila Jr. had said the country’s current account position would remain in deficit for the rest of the year.

“The CA will not swing into a surplus this year. The deficit is lower than what we had projected,” Dakila said.

Dakila said the shortfall remains manageable amid the strong inflows of FDIs as well as foreign portfolio investments or hot money.