The Philippines’ balance of payments (BOP) position has improved and is expected to close the year in excess or a surplus of $1.1 billion, reversing the earlier projection of a $100-million deficit, according to Bangko Sentral ng Pilipinas (BSP) officials.
In a press briefing Friday, Dec. 15, BSP Director Sittie Hannisha M. Butocan of the Department of Economic Research, said the overall BOP position will post a surplus in 2023 which is a better assessment compared to the September BOP review, despite shortfalls in the current account that covers trade in goods, services, primary income such as investments, and secondary income such as remittances.
For 2024, the BSP also revised the BOP estimates but lower to a surplus of $400 million versus the earlier forecast of $1 billion surplus, while the current account remains in deficit.
Butocan noted that next year, the recovery of trade activity, strong growth in travel receipts and stable remittances will be challenged by weak prospects for foreign direct investments (FDI) due to tighter financial conditions as well as lower business process outsourcing (BPO) revenues.
She said 2024 prospects should be better than this year’s sluggish external demand which contributed to some weak outlook earlier on, such as in the exports and imports side, and the BPO sector.
In general, the BOP is a summary of the economic transactions of a country with the rest of the world for a specific period. These economic transactions are categorized as current account, capital account, and financial account.
The latest round of BOP revisions – approved by the Monetary Board on Dec. 14 – projected a current account deficit of $11.2 billion for this year, almost the same as its previous $11.1 billion back in September.
Under the current account, the BSP forecasts goods exports will contract by four percent and goods imports by three percent, the same assessment in September. It is also unchanged outlook for services exports and services imports which are still expected to grow by 19 percent and nine percent, respectively.
BSP’s estimate for BPO revenues are also unchanged at eight percent growth while cash remittances are still expected to increase by three percent.
“While the overall BOP is projected to register a surplus, the current account is expected to remain in deficit driven by the persistent trade-in-goods gap despite the recent contraction in goods imports due mainly to easing global commodity prices. Goods exports are seen to register a decline in 2023, unchanged from the previous projection, amid the slowdown in external demand. Nonetheless, the country’s current account deficit is attenuated by the stronger-than-expected improvements in travel receipts as well as the sustained resilience in BPO revenues and remittances,” said the BSP.
Butocan said for 2023, they expect the financial account to remain in deficit of $11.7 billion, this was higher compared to the September projection of $10.4 billion deficit.
Under financial account, the BSP still expects FDI of $8 billion by end-2023 but lowered its foreign portfolio investment estimates to $1 billion versus $2 billion previous forecast.
As for the country’s gross international reserves (GIR), the BSP slightly adjusted its forecast higher to $100 billion by end-2023 compared to $99.5 billion previous estimate.
For 2024, Butocan said the projected a current account deficit is lower at $9.5 billion compared to the previous forecast in September of $10.3 billion.
Next year, the BSP forecasts goods exports will grow by five percent and goods imports by seven percent, the same projections they announced last September.
The outlook for services exports and services imports for 2024 remains at a growth projection of 16 percent and 10 percent.
As for BPO revenues, the BSP now sees lower at seven percent compared to nine percent previously, while unchanged still for cash remittances which is expected to increase by three percent next year.
Butocan said for 2024, the country’s financial account remains in deficit position of $9.3 billion, of which FDIs will contribute $10 billion and $1.7 billion for foreign portfolio investments. The latest FDI and hot money projections are lower compared to September estimates of $10.5 billion and $3 billion.
The BSP’s GIR projection for 2024 also remains at $102 billion.
The BSP said the emerging external outlook for 2023 and 2024 are basically the same three months ago.
“As the key assumptions factored into the Q4 (fourth quarter) 2023 round of the BOP outlook assessment remain generally consistent with those incorporated in the Q3 2023 exercise, the new set of external account projections are primarily maintained or revised only slightly to reflect latest available data,” it said Friday. As of end-October, the country's BOP is a surplus of $3.246 billion.
The BSP noted key downside risks to the country’s external accounts, such as: subdued global demand conditions; weak trade and investment prospects; lingering high interest rate environment; elevated inflation; and the escalation of geopolitical tensions in various parts of the world.
On the domestic front, the BSP still identified the following as downside risks: weaker-than-target GDP outturn; and higher-for-longer interest rate environment.
It added that “positive reinforcements to the country’s external sector continue to include the rebound in the global tech cycle supporting the recovery of electronics exports, the international lifting of the state of health emergency which will support both travel and the hiring of Filipino workers overseas, with the latter benefitting as well from labor shortages in countries challenged by an ageing population.”