Worsening trade deficit

The Philippine government is the single largest procuring entity in the local economy, allocating at least a trillion pesos each year of taxpayers’ money to acquire goods and services for its projects and to deliver services to its citizens.

According to the European Chamber of Commerce of the Philippines, based on the spending priorities released by the Department of Budget and Management, the government allocated P1.107 trillion under the Build, Build, Build infrastructure program, P204.1 billion in response to the pandemic and to improve the healthcare system, and the rest, for other priority projects.

This year, infrastructure spending of the government amounted to P1.3 trillion.

Imagine if all these amounts were spent to buy locally made products.

After all, local companies, big and small alike, are the ones investing in the economy, creating jobs, paying taxes and generating multiplier effects that benefit communities.

If a product is locally available and meets the required quality and standards, then there is no reason for the government to buy it from elsewhere.

Another reason why the government should prioritize local products is of course to save on foreign exchange.

According to latest data released by the Philippine Statistics Authority, the balance of trade in goods, which is the difference between the value of exports and imports, in October 2024 amounted to minus $5.8 billion, indicating a trade deficit with an annual increment of 36.8 percent.

Philippine imports in October were higher at $11.96 billion compared to exports valued at $6.16 billion, or a difference of $5.8 billion.

In October of 2023, the deficit was smaller, with imports at $10.76 billion and exports at $6.51 billion or a balance of trade in goods of minus $4.24 billion.

The value of imported goods in October this year was 11.2 percent higher than that in the same month in 2023.

Also in October 2024, the country’s total external trade in goods reached $18.14 billion, of an annual increase of 4.9 percent from the $17.28 billion registered in the same period of last year. Of the total external trade in October, 66 percent were imported goods which 34 percent were exported goods.

Imports of raw materials and intermediate goods accounted for the largest share or nearly 35 percent of October total, followed by capital goods at 29 percent and consumer goods at almost 22 percent. China was the country’s largest supplier of imported goods valued at $3.07 billion or 26 percent of total imports. The commodity group with the highest import value in October was electronic products with a share of 22 percent followed by mineral fuels, lubricants and related materials at 14.1 percent and transport equipment at 10 percent, the PSA reported.

In 2023, the country incurred a trade deficit of $52.42 billion compared to $57.65 billion in 2022,

The Philippines trade deficit is one of the worst in Asia and in the world. And this persistent situation, with the October 2024 deficit being a multi-year high, has contributed significantly to the pesos depreciation, which reached a record-low of 59 to a dollar in October.

No wonder the World Bank has downgraded its Philippine economic growth forecast for 2024 from six percent to 5.9 percent. The International Monetary Fund’s forecast for 2024 is lower at 5.8 percent.

Sustained trade deficit also forces a country to borrow foreign capital, accumulating external debt. Beginning in 2018, the Philippines sustained a $4 billion to $5 billion per month deficit, at least double than what it was in 2017 and earlier and as a consequence, foreign borrowing has steadily climbed since 2018, from an average of $80 billion per annum from 2012 to 2017 to as high as $125 billion in 2023.

Observers have also noted that the Philippines’ persistent trade deficit, related to currency devaluation, makes prime properties, which have become unaffordable for most Filipinos, cheaper for foreign buyers.

The better performing economies in Asia consistently run positive trade surpluses like China at $97 billion, Singapore at $3 billion, and Indonesia also at $3 billion. Meanwhile, trade deficits are commonly seen on war-torn countries like Syria, Afghanistan, Iraq and North Korea.

The United States is not an exception. Its prolonged trade deficit has contributed to its diminishing global economic influence. And after years of trade imbalances, the US is now pursuing protectionist policies, imposing higher tariffs on imports to rebalance its trade.

Our government should promote export-oriented companies and products and prioritize import substitution of articles that are anyway readily available locally.

Take the case of locally produced cement and steel. They meet the Philippine National Standards which are adapted from the American Standard for Testing Materials and tailored to the country’s unique climate, seismic, and geological conditions, ensuring that these products are not only high quality but also suited to the country’s specific needs.

Despite the availability of good quality locally produced cement at sufficient quantities, our government has failed to stop the entry of cheap, low quality imported cement mostly from Vietnam.

Our agricultural sector is no better. The Philippines has become the world’s largest importer of rice. In 2023 alone, it imported 3.8 million metric tons of rice to supplement its domestic production of 13.43 million metric tons. Our rice imports are more than double that of ASEAN’s second biggest importer, Indonesia.

We cannot blame our farmers. They are in fact one of the poorest, if not the poorest sector of our economy, without any incentive to produce more. Land devoted to rice farming has declined significantly, no thanks to the absence of a national land use policy to protect agricultural lands from indiscriminate conversion into commercial and industrial uses.

Importation should only be resorted to if these goods are not produced domestically or at insufficient quantities. Our government should prioritize the attainment of self-sufficiency in all sectors above all.

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