Higher BOP surplus seen this year

Published June 18, 2021, 4:46 PM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) is expecting a bigger balance of payments (BOP) surplus of $7.1 billion in 2021 compared to its previous projection (March) of $6.2 billion.

The 2022 BOP surplus estimate is however revised lower to $2.7 billion versus previous forecast of $3.8 billion.

The latest BOP surplus projections, approved by the Monetary Board last Thursday (June 17) are equivalent to 1.8 percent and 0.6 percent of GDP, respectively, for 2021 and 2022.

BSP managing director Zeno Ronald R. Abenoja of the Department of Economic Research said the revised BOP projections reflect the latest data and actual and emerging developments.

The revisions factored in what BSP believed to be sustained optimism as both the global and domestic economic environment continue to improve especially in the second of half of 2021.

Abenoja also said the recovering economies of the US and Japan – both the country’s major trading partners – bodes well for the Philippines which is expected to also start showing more concrete signs of recovery in the last two quarters of 2021 as the government and private sectors accelerate the COVID-19 vaccine rollout. This will “boost (the) market confidence and encourage further expansion of domestic economic activities over the near term.”

The higher BOP surplus projection for 2021 comes from the upward revision in the current account to a surplus of $10 billion or 2.5 percent of GDP. This is higher than the March projection is of $9.1 billion or 2.3 percent of GDP.

The BSP increased the current account projection for this year based on an expected recovery in goods exports by 10 percent from eight percent earlier estimate because of the “quicker resumption in global economic activity during the year, as well as goods imports growth” which is seen to grow by 12 percent. Services exports and imports are also expected to grow by six percent and seven percent, respectively.

The BSP reported Friday that the current account as of end-first quarter this year posted a deficit of $614 million, reversing a $225 million surplus in the same time in 2020 due to the widening of the trade in goods deficit and decline in net receipts in the primary income account. The BOP first quarter report was presented by BSP senior director, Redentor Paolo M. Alegre Jr. of the Department of Economic Statistics.

The financial account component of the BOP is expected to post lower net outflows due in part to increased government borrowings.

The BSP now expects foreign direct investments (FDIs) of $7.5 billion and foreign portfolio investments of $5.5 billion for 2021, versus previous forecast of $7.8 billion for FDI and $5.7 billion for hot moneys.

As for gross international reserves (GIR), this is adjusted to $115 billion from the previous projection of $114 billion. “The revised GIR forecast is $1 billion higher than the March 2021 projection (due) to revaluation adjustments and projected sustained foreign borrowings by the national government in response to the COVID-19 pandemic as well as to aggressively fund recovery-supportive infrastructure,” said the BSP.

Prospects for 2022, based on BSP analysis, are also expected to “carry on the same momentum of recovery anticipated in the second half of 2021.”

In 2022, the BOP outlook is “hinged mainly on the projected sustained positive performance of both exports (six percent growth) and imports (10 percent) of goods as the more widespread vaccine rollout could lessen mobility issues and bottlenecks affecting supply chains,” said the BSP.

Both FDI and foreign portfolio inflows are also projected to reach $8.5 billion and $7.4 billion, respectively, as the investment climate improves further. The FDI estimate is lower than previous projection of $8.8 billion.

“Overall, in this assessment of the BOP outlook, both upside and downside risks remain significant,” said the BSP.

The central bank also noted that revised projections have factored in potential downside risks from the still ongoing pandemic.

“The threat of resurgence of COVID-19 cases as well as the emergence of new and more transmissible variants of the virus coupled by concerns over the risk of slower-than-expected vaccine deployment amid supply issues could cast a shadow on the projected recovery path as these could continue to pose mobility limitations,” said the BSP.

“As such, it is deemed imperative to remain mindful and vigilant of risks attributed to the efficacy of vaccines in the face of constant virus mutation, appropriate timing of withdrawal of policy support and in ensuring that the unprecedented rise in both government and corporate debt levels will not escalate into another crisis of its own,” the central bank explained.