The central bank cut its balance of payments (BOP) and gross international reserves (GIR) projections for 2021 and 2022 due to lingering pandemic-related uncertainties, but officials still think the country’s external sector is healthy and improving as global growth moves to a post-COVID-19 era.
For this year, the Bangko Sentral ng Pilipinas (BSP) announced on Friday, Dec. 10, that it has lowered its BOP projection to a surplus $1.6 billion versus its September 16 estimate of $4.1 billion.
During the Monetary Board’s Dec. 9 meeting, it also approved a new BOP projection for 2022 of $700 million surplus from a previous estimate of $1.7 billion.
BSP Managing Director for the Department of Economic Research, Zeno R. Abenoja, said the GIR projection has also been revised lower for this year to $111 billion from the September 16 estimate of $114 billion. For 2022, the country’s dollar reserves are expected to reach $112 billion, also lower than earlier projection of $115 billion.
Abenoja reported that the current set of BOP projections incorporate the latest available data as well as recent emerging developments. As of end-October this year, cumulative BOP was only a surplus of $476 million. The end-October GIR, on the other hand, stood at $107.89 billion.
“The latest BOP assessment for 2021 factors in pockets of optimism amid encouraging economic outturns in recent months on the one hand and the continued high uncertainty from pandemic-related challenges on the other hand,” according to BSP officials.
BSP added that “global economic recovery is seen to remain broadly on track, while at the domestic front, there are indications that the spread of the highly transmissible COVID-19 Delta variant has been contained.”
“However, growth prospects of some advanced economies were significantly downgraded. Moreover, there were spikes in COVID-19 cases recorded in some Euro areas as well as the recent emergence of the Omicron variant. These warrant continued vigilance of the Philippines’ major trade and investment partners. In addition, the government’s promotion of a more proactive approach in the management of COVID-19 related risks together with the shift from a pandemic to an endemic paradigm will help manage these concerns,” said the BSP.
The revised BOP projection of $1.6 billion is 0.4 percent of GDP. Abenoja said the narrower BOP surplus reflects the projected reversal of the current account into a deficit in 2021 of $4 billion or -1.0 percent of GDP, from a surplus $3.5 billion 0.9 percent of GDP in the previous projection due to widening of the trade-in-goods deficit.
“This, in turn, results from the projected expansion of goods exports by 16 percent (from previous forecast of 14 percent) combined with an even stronger acceleration of goods imports by 30 percent (from 20 percent),” explained the BSP. Growth forecasts for both services exports and imports are expected to each register a positive outturn of two percent from -2.0 percent and -4.0 percent, respectively, noted the BSP.
In the meantime, Abenoja said the emerging 2021 GIR will be lower at $111 billion. “The lower level of actual GIR than earlier anticipated resulted mainly from the use of reserves to pay foreign currency obligations and various expenditures,” he said. The GIR is expected to be lower than previous projection despite an additional $2.8 billion Special Drawing Rights or SDR holdings from the International Monetary Fund.
“The emerging GIR level in 2022 is estimated to reach $112 billion in anticipation of continued NG (National Government) foreign currency deposits to address the impact of the pandemic and to fast-track its infrastructure program,” he also said.
The BSP in a statement said it “continues to emphasize limitations to the forecasts given the lingering pandemic-induced uncertainties that continue to cast a shadow on external sector prospects over the near term as the COVID-19 pandemic continues with the emergence of new virus variants.”