The Bangko Sentral ng Pilipinas (BSP) expects a balance of payments (BOP) deficit of $4.3 billion this year, reversing an earlier estimate of $700 million surplus, due to global uncertainties amid the Russia-Ukraine war and from the effect of higher import demand as the local economy starts to open up more.
The BSP in a virtual press briefing on Friday, March 18, also revised lower the expected gross international reserves (GIR) for 2023 which is $109 billion from a previous outlook of $112 billion on account of the overall BOP deficit and the higher current account shortfall which is a key component of the BOP.
For this year, the GIR forecast remains at $108 billion. The GIR will still be supported by foreign borrowings by the government and potential increase in the volume of gold purchases. As of end-February, GIR stood at $107.8 billion.
BSP Managing Director Zeno R. Abenoja said that while both Russia and Ukraine have minimal trade links with the Philippines, the country’s major trading partners such as the US and other EU nations are impacted by the ongoing war which will affect exports and imports, on top of the indirect hits to local oil, energy and food prices.
Abenoja said the Russia-Ukraine conflict has heightened volatility pressures in the financial and commodity markets which could spill over the local economy.
“Most probably the bigger impact for now (on BOP) would be the elevated prices on international commodities particularly oil as this pushes the import bill resulting on pressure on the current account and the BOP for this year,” he said during the online press chat.
The latest BOP projections assume a much higher Dubai crude oil average than what was taken into consideration back in December 2021 when the last round of BOP estimates were discussed. The BOP deficit forecast for this year assumes a $102 per barrel on average crude oil which was higher than what BSP assumed last December of below $90 per barrel.
The Monetary Board on March 17 also approved the 2023 BOP estimates which is a lower BOP deficit of $2.6 billion, equivalent to 0.6 percent of GDP. Meantime, the 2022 BOP deficit is equivalent to one percent of GDP.
The current account is expected to have a higher deficit this year of $16.3 billion or 3.8 percent of GDP versus an earlier projection of $9.9 billion because of the widening trade gap. Next year, the current account shortfall is expected to increase further to $17.1 billion or 3.7 percent of GDP.
The current account tally includes goods and services exports and imports, remittances, travel and business process outsourcing (BPO) receipts. The government expects goods imports and exports will grow by 15 percent and seven percent, respectively, in 2022 amid improving domestic demand as well as surge in international oil prices. On the other hand, services exports and services imports are projected to grow by 11 percent and 12 percent, respectively. The BSP also expects tourism revenues and BPO receipts to post double-digit growth as well with the lifting of mobility restrictions.
In the same press briefing, BSP Senior Director Redentor Paolo M. Alegre Jr., head of the Department of Economic Statistics, reported that in 2021, the current account had a deficit of $6.9 billion, a reversal of the $11.6 billion surplus in 2020. Alegre said the larger merchandise trade gap contributed to the current account shortfall.
Under BOP, Abenoja said the financial account will also continue to be in a deficit position of $10.9 billion for this year which is equivalent to 11 percent of GDP, and $13.4 billion in 2023, about 11.8 percent of GDP. Foreign direct investment (FDI) and foreign portfolio investment or hot money are part of financial account.
For 2022, the BSP projects a higher net FDI of $11 billion versus an earlier estimate of $8.5 billion while for hot money, they expect $4 billion net inflows which is lower from its previous projection of $5.7 billion.
For next year, net FDI could grow to $11.8 billion, said the BSP, while hot money net inflows will also likely increase to $6.7 billion.
Abenoja said the major factors that BSP took into consideration in revising BOP numbers are global developments and world GDP growth outlook, the country’s GDP performance in 2021 and the actual BOP and its components turnout last year.
“In this round of BOP projections, two major forces shaping the economic landscape has been factored in, first is the general improvement in the health situation although there are still lingering challenges in the COVID-19 pandemic. Second is the Russia-Ukraine conflict and its impact on international markets including international commodity prices,” said Abenoja.
Last year, the country’s BOP position yielded a lower surplus of $1.34 billion against $16.02 billion surplus in 2020. The pandemic lockdowns in 2020 resulted to a stalled economy and the government did not have significant imports or export transactions during that time.