Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona said the current account deficit the country has been reporting will eventually reverse back to a surplus position when government savings surpass spending or investments for projects that are crucial to fuel economic growth.
Remolona assured that down the road to a full recovery, the higher the productive investments from both government and private sector are released and implemented, the faster the economy as measured by gross domestic product (GDP) will grow.
“What will eventually happen is that GDP growth and savings will outpace investments. This will narrow the gap between savings and investments, and eventually savings will exceed investments and we will have a current account surplus,” said the new BSP chief.
The current account is an important component of the country’s balance of payments (BOP) position. The BOP is a summary of the country's transactions with the rest of the world.
The current account covers trade in goods, services, primary income, and secondary income. It is trade in goods such as exports and imports. Philippine exports include manufactures such as electronics, mineral products, and agricultural products. Meanwhile, imports consist of raw materials and intermediate goods, mineral fuels and lubricant, capital and consumer goods.
Trade in services is another component of the current account and bulk of this is the business process outsourcing or BPO services.
“The current account is just about how much we borrow abroad or how much we send abroad. It is basically the difference between our investments as a country and our savings as a country,” said Remolona in a recent economic briefing.
“Until recently we have been saving more than investing and that has led to a current account surplus. But there is a shortage of investments and we have started to ramp up our investments especially in infrastructure. Our savings have not yet caught up with that and that’s why in 2022, we saw a current account deficit of 4.4 percent of GDP,” he added.
In this context, Remolona said this is not really “a bad trend” since with productive investments, savings will eventually outpace investments.
“Whatever we borrow when we had a deficit we can now repay when we have a surplus. And that’s the direction we anticipate for the current account,” he said.
He also said that in looking at the country’s external accounts such as the BOP, it is important to “go beyond just reserves and quarter-to-quarter inflows (and) look at the current account.”
For 2023, the BSP is projecting a current account deficit of $15.1 billion, or 3.4 percent of GDP. For next year, the forecast is $15.4 billion or 3.2 percent of GDP.
Last year, the current account shortfall reached $17.8 billion because the country’s imports exceeded exports. This was considered normal because the economy is still recovering post-pandemic.
The overall BOP is estimated to end 2023 at a deficit of $1.2 billion or 0.3 percent of GDP, and about $500 million in 2024 or about 0.1 percent of GDP.
For this year, the BSP said the overall BOP position is a lower deficit compared to the actual $7.3 billion in 2022 which was 1.8 percent of GDP, due to a narrower merchandise trade gap, as goods imports growth is expected to slow down sharply following the pullback in international prices of major commodities, particularly fuel. This is accompanied by a sustained fall in goods exports as global demand weakens further, it added.
The latest current account number was end-March and it was a deficit of $4.3 billion, higher than the same period in 2022 of $4 billion. This was due mainly to the widening trade in goods deficit and lower net receipts in the primary income account. However, the BSP said this was partly muted by the increase in net receipts in the trade in services account.
The current account is reported quarterly. The BOP is more frequently reported or on a monthly basis. As of end-June this year, the BOP stood at a surplus of $2.26 billion, reversing the deficit same time in 2022 of $3.1 billion.
The government recently reported a lower than expected GDP growth for the second quarter of 4.3 percent compared to 6.4 percent in the first quarter of 2023. The slowing growth is blamed on the higher interest rates. As a result, imports during quarter only rose by 0.4 percent.