Robust buffer to help Philippines recover from shocks

MANILA, Philippines — The robust external payments position, which is supported by sound macroeconomic fundamentals, may help the Philippines bounce back from the pendemic-induced recession, according to the Department of Finance (DOF).

In a bulletin, the DOF said manageable budget deficit and balance of payments (BOP), benign inflation environment, and stable exchange rate would allow the country to recover promptly from the pandemic-induced recession.

“Maintaining good fundamentals by keeping both the budget deficit and BOP manageable, keeping interest rates at the level that sustains investments, keeping inflation at the lower end of the inflation target and allowing the exchange rate to maintain its competitive level will allow the country to recover promptly as the lockdowns set up to battle the pandemic are eased,” the DOF said.

The country’s current account stood at a surplus of $8.7 billion in the first three quarters, reversing the $3 billion deficit in the same period last year due mainly to the lower deficit in trade in goods.

The current account is the balance of exports and imports of goods, services and income balances. It is the equivalent of the investment-saving gap, an indicator closely monitored by credit rating agencies.

The DOF said the economy’s savings exceeded investments despite the rise in government borrowing.

“This indicates that the economy is back to a net lender status (as opposed to being a net borrower in the previous year) despite increased borrowing by the government,” the DOF said.

The deficit in the trade in goods balance dropped to 6.4 percent of GDP from January to September compared to 9.6 percent in the same period last year as imports slowed down due to economic contraction.

The surplus in the trade in services and income balances dipped slightly in dollar term to $32.2 billion from $33.8 billion, but as a percent of GDP it remained at 8.8 percent.

The DOF said earnings from the business process outsourcing (BPO) sector, remittances inflows, and earnings from investments abroad by Filipino citizens accounted for these receipts.

Based on its latest assessment, the BSP is now looking at a wider current account surplus of $8.4 billion or 2.3 percent of GDP instead of $6 billion or 1.6 percent of GDP this year.

It is also expecting a wider BOP surplus of $12.8 billion or 3.4 percent instead of $8.1 billion or 2.2 percent of GDP this year.

The central bank is now anticipating a record gross international reserves (GIR) level of $105 billion this year and another all-time high of $106 billion next year.