The country’s current account position, which remains in deficit, improved to a smaller shortfall of $10.9 billion as of end-September, 39.6 percent lower compared to $18.1 billion same time last year as the trade deficit has narrowed, according to the Bangko Sentral ng Pilipinas (BSP).
The current account is a key component of the balance of payments (BOP) which records the country’s economic transactions with the rest of the world. In the first nine months, the BOP was in a surplus position of $1.7 billion.
These economic transactions, which are summarized in the BOP, include the current account, financial account and capital.
The current account covers the following: trade in goods which are exports and imports; services such as business process outsourcing sector; primary income from investments; and secondary income which include remittances from overseas Filipinos.
The BSP said that in the first three quarters of 2023, the lower current account “emanated from the narrowing of the trade in goods deficit, alongside the increase in net receipts of the trade in services and secondary income accounts” and this was “partly mitigated by the lower net receipts in the primary income account.”
While there was a lower current account deficit, which resulted from lower trade in goods deficit, and higher net receipts of trade in services, the BOP’s “financial account posted higher net inflows because of the reversal to net inflows of portfolio investments and higher net inflows of other investments,” noted the BSP.
As of end-September, the country’s financial account recorded higher net inflows -- or net borrowing by residents from the rest of the world -- of $12.9 billion compared to $11.1 billion net inflows same period in 2022. These are direct investments, portfolio investments and other forms of investments.
The BSP said this resulted from a “reversal of the portfolio investment account from net outflows to net inflows, alongside an uptick in net inflows from the other investment account and trading in financial derivatives.”
The other component of the BOP is the capital account such as grants or donations, which posted higher net receipts of $55 million as of end-September versus $11 million last year.
The BSP said the higher capital account was due to the decline in gross acquisitions of non-produced non-financial assets such as patents, trademarks, and copyrights, to $2 million from $49 million same time last year.
Last week, the BSP’s policy-making arm the Monetary Board, approved revisions to the overall BOP accounts.
For 2023, the BSP expects BOP to end in a surplus position of $1.1 billion, better than its previous estimate of $100 million deficit. This is despite shortfalls in the current account, said the BSP.
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.
The BSP expects a current account deficit of $11.2 billion for this year. For next year, the projected current account deficit is lower at $9.5 billion.
The BSP continued to note 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.