BSP sees better external sector prospects

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) sees better external sector prospects for the next two years as it projects a higher balance of payments (BOP) surplus and a narrower current account (CA) deficit.

In an online press briefing, Sittie Hannisha Butocan, director of the BSP’s Department of Economic Research, said the Monetary Board raised the country’s BOP surplus forecast to $1.6 billion (0.3 percent of gross domestic product) for this year from the original target of $700 million (0.1 percent of GDP).

For next year, Butocan said the projected BOP surplus now stands at $1.5 billion (0.3 percent of GDP), a turnaround from the $500-million deficit (-0.1 percent of GDP) previously given in the first quarter.

The change in BOP forecasts for 2024 and 2025 was mainly due to the narrower current account balance for the next two years, she said.

The BSP lowered its current account deficit target for 2024 to $4.7 billion (-1 percent of GDP) from the previous forecast of $6.1 billion (-1.3 percent of GDP) and to $2 billion (-0.4 percent of GDP) for 2025 from the original target of $5.8 billion (-1.1 percent of GDP).

The BOP is the difference in total values between payments into and out of the country over a period.

A surplus means more dollars flowed into the country from exports, remittances from overseas Filipino workers (OFW), business process outsourcing (BPO) earnings and tourism receipts than what flowed out to pay for the importation of more goods, services and capital.

“The emerging external outlook for 2024 and 2025 is characterized by expectations of steady improvement in global economic activity, coupled by resilient domestic demand for 2024 and 2025, supported in part by easing inflation and a strong rebound in exports,” Butocan said.

She said global economic activity may pick up at a slightly faster pace this year mainly due to the upward adjustment in the growth forecast for advanced economies. This is attributed largely to the stronger-than-anticipated US GDP outturn in the fourth quarter of 2023.

“Overall, the latest global economic landscape continues to stand on firm ground as the emerging risks to the outlook over the next two years remain broadly balanced,” she said.

Meanwhile, the domestic economy is expected to sustain its growth momentum amid the implementation of critical policy reforms to enhance bilateral trade deals, push for increased digitalization as well as moving towards full local government devolution, among others.

The central bank raised its projected growth on merchandise exports to five percent from three percent, while it lowered the growth of goods imports to two percent from four percent for this year.

The growth target for merchandise exports was retained at six percent for 2025. On the other hand, the BSP cut its imports growth projection to five percent for next year from seven percent previously.

Likewise, growth target for services exports was reduced to 14 percent for this year from 16 percent. The BSP kept its 10-percent target for next year.

The growth target for  services imports was hiked to 13 percent from ten percent for 2024, but maintained at six percent for 2025.

Despite the optimistic outlook, the BSP continue to be vigilant against upside risks. It said that worsening geopolitical tensions in the Middle East could lead to higher crude oil prices and could aggravate higher-for-longer monetary policy tightening by central banks.

Nonetheless, prospects for BPO and tourism industries remain positive, alongside stable remittance inflows from OFWs, providing support to the current account.

Butocan said the BSP sees BPO revenues growing by seven percent for this year and next year, while tourism receipts may expand by 40 percent for 2024 and 10 percent for 2025.

The projected increase of OFW remittances was retained at three percent for both 2024 and 2025.

Redentor Paolo Alegre, senior director of the Department of Economic Statistics at the BSP, reported that the CA deficit narrowed slightly to $1.7 billion in the first quarter from a year-ago level of $4.4 billion.

“The lower CA deficit reflects the narrowing of the trade in goods gap amid the easing of import commodity prices and a rebound in global trade” he said.

He said the country’s gross international reserves (GIR) declined by 5.4 percent to $104.1 billion in end-March from $101.5 billion a year ago. The GIR may hit $104 billion this year and $105 billion next year.