External accounts estimates revised
The Bangko Sentral ng Pilipinas (BSP) said the balance of payments (BOP) surplus this year will be higher than previously projected at $8.1 billion from $600 million based on early signs of economic recovery.
BOP components such as current account is also revised and forecast to end 2020 in a surplus position of $6 billion this year versus earlier projection of $1.9 billion deficit.
The cash remittances, still projected to contract this year, is seen to have a less severe contraction of negative two percent compared to previous forecast of negative five percent. The current account surplus is supported by the lower expected contraction in overseas Filipinos remittances after rebounding in June and July as the source countries have started to reopen their respective economies.
The BSP said it will strengthen further its surveillance of emerging external sector developments for more accurate projections and will closely monitor their possible impact on price and financial stability.
“Overall, while the new set of emerging BOP forecasts is grounded on a narrative of gradual recovery in the near term, uncertainty over the duration, direction and extent of the impact of the COVID-19 pandemic continue to cast a shadow over future economic prospects both at home and abroad,” said the central bank.
The BSP revised the estimate for the 2020 net foreign direct investments of $4.1 billion to $5.6 billion while foreign portfolio investments’ $2.4 billion projection is unchanged. It said that while uncertainty continues to weigh down on business and investor confidence, “factors such as expectations of a better-than-initially-anticipated global economic performance for the year; the reopening of advanced economies with investment interest in the Philippines; the country’s investment-grade credit standing; and its expected gradual economic recovery are also seen to support foreign investment inflows for the rest of the year.”
The country’s gross international reserves (GIR), already at $98.95 billion as of end-August and surpassing its $90 billion forecast for 2020, is now set at $100 billion for this year and $102 billion in 2021. The BSP the 2021 GIR level is “seen to reach $102 billion in anticipation of continued NG (National Government) foreign currency deposits as well as positive revaluation adjustments in gold holdings as gold prices could remain elevated in 2021 due to safe-haven investor demand.”
The October adjustments to the external accounts revised the previous May assumptions.
The BSP said the “new set of forecasts takes into account the latest available BOP data for the first half of 2020 as well as recent global and domestic economic developments, including the macroeconomic impact of the COVID-19 pandemic.” It also noted that revised external account numbers were reviewed and assessed “gainst a backdrop of a global economy showing signs of recovery but remaining susceptible to setbacks and a domestic economy slowly lifting its way out of containment measures.”
The higher BOP surplus for 2020 was due to the recovery in the current account position. “The significant upward revision in the current account is attributed mainly to the expected narrower trade-in-goods deficit driven by the foreseen broad-based contraction in both goods exports (-16 percent) and goods imports (-20 percent), with the latter declining at a faster rate due to weaker domestic demand,” said the BSP.
The BSP did not change its exports projection for this year, still a negative 16 percent but will bounce back to five percent growth in 2021. Goods imports, previously estimated at a negative 18 percent, is now see to have a larger contraction at negative 20 percent.
The decline in services exports is also forecast to contract more this year at a negative 17 percent versus negative 13 percent in the May projections, but for 2021, it will revert to a six percent growth.
The contraction in the services imports will be higher at a negative 19 percent from negative 9.3 percent previous projection, but will report a growth of seven percent next year.
The central bank kept the estimates for the BPO sector growth at two percent this year and four percent in 2021 since it has “managed to overcome logistical bottlenecks and operational adjustments” but had to adjust higher the expected decline in travel receipts to a negative 65 percent compared to its May forecast of a negative 56.9 percent due to a slow recovery. For 2021, travel receipts are expected to post growth of 12 percent.
For next year, the BOP surplus is expected to remain in surplus position at $3.4 billion. As a percentage to GDP, the projected BOP surplus this year of $8.1 billion is equivalent to 2.2 percent and 0.9 percent for 2021. The current account this year will have a ratio to GDP of 1.6 percent and 0.8 percent next year with $3.1 billion surplus.
The BSP said the external sector outlook for 2021 “reflects more favorable growth prospects as the global economy proceeds from an earlier restart of economic activity in the second half of 2020. Nonetheless, the balance of risks surrounding the outlook continues to lean toward the downside owing to possible resurgence in virus infections across countries as well as pandemic-induced structural changes in labor conditions (contact-intensive job losses) and trade patterns (heightened protectionism).”