Due to a narrower current account gap, Philippines’ balance of payments (BOP) deficit for 2023 is expected to be lower at $100 million compared to the previous projection of $1.2 billion, according to Bangko Sentral ng Pilipinas (BSP) officials on Friday, Sept. 15.

For 2024, the BSP raised its BOP projection to $1 billion and it is a surplus, from the previous $500 million deficit forecast it announced in June this year because of expected recoveries in both the current account and financial account components of the BOP. These are improvements from remittances, exports and imports, foreign direct investments (FDI) and portfolio investments, among others.

The BOP is a summary of the economic transactions of a country with the rest of the world for a specific period. It is an accounting of the economic dealings between residents and non-residents. Since the pandemic, the BSP revises its BOP projections quarterly versus a pre-pandemic twice-a-year review of external accounts.

In a press briefing Friday, BSP officials said its policy-making arm the Monetary Board approved the latest BOP projections on Sept, 14, taking into account the latest available data and recent emerging developments. As of end-July the BOP is a surplus position of $2.207 billion.

BSP Director Sittie Hannisha M. Butocan of the Department of Economic Research said the forecasts were based on an emerging narrower current account gap due to the expected contraction in goods exports and goods imports.

For this year, the BSP expects current account to have a deficit of $11.1 billion, lower compared the June forecast of $15.1 billion. “Narrower current account deficit is driven by contraction in both goods exports and imports amid sluggish external demand and decline in commodity prices,” she told reporters.

In revising the overall BOP position for 2023 and 2024, the BSP also made upward revisions to services exports, travel receipts and revenues of the business process outsourcing (BPO) sector.

For this year, the BSP reduced its forecasts for both FDIs and foreign portfolio investments (FPIs) based on actual data as of end-June.

Meanwhile, before announcing the latest round of BOP projections, BSP Senior Director Redentor Paolo M. Alegre Jr. said that for this year, the narrowing of the current account deficit reflected the sustained growth in travel receipts and BPO revenues. He said the financial account also continued to post net inflows amid global headwinds.

As of end-June, the current account was a deficit of $8.2 billion, lower by 32.2 percent compared to $12.1 billion deficit same time in 2022.

For 2023, consistent with the overall BOP projection, the BSP expects FDI of $8 billion which was lower from its June forecast of $9 billion. For FPIs which are hot money flows, the central bank also lowered its estimate to $2 billion from $2.5 billion three months ago.

The gross international reserves (GIR), meanwhile, is expected to close the year at below $100 billion at $99.5 billion. This was slightly lower from the June forecast of $100 billion. Remittances, on the other hand, continue to have an expected growth rate of three percent.

As for goods exports, the BSP expects this to contract by four percent this year versus an earlier forecast of a one percent growth. Goods import will also contract by three percent this year. As for services exports, this will grow by 19 percent while services imports will also grow by nine percent.

The expected BPO revenues for 2023 remains the same at nine percent growth while travel receipts are projected to increase 100 percent.

“Consistent with the emerging trend observed in most economies, both goods exports and imports are predicted to contract this year. Like in most emerging markets, Philippine merchandise trade performance for the first half of the year has been on a declining trend as the recovery path of external demand has stalled amid elevated inflation, lingering geopolitical tensions, and rising trade barriers, among others,” said BSP officials.

For 2024, BSP officials said the overall BOP will pivot into a surplus position due to sustained improvements in the current account as well as the financial account.

“While the narrative surrounding the prospects for next year remain broadly unchanged, exercising vigilance is warranted as some risks may intensify. Among these include possible tightening in financial conditions and worsening global trade imbalance which may complicate the already tight monetary and fiscal policy space of many economies,” said BSP officials.

Next year, the BSP forecasts current account of $10.3 billion, lower than its June estimate of $15.4 billion. Under the current account, goods exports are expected to increase by five percent in 2024 while goods imports will also grow by seven percent. Services exports are also seen to expand by 16 percent while services imports will grow by 10 percent.

The BSP in 2024 also sees BPO revenues will improve by nine percent while travel receipts will get a boost as it is expected to grow by 40 percent. "Travel exports receipts are anticipated to already breach its pre-pandemic level by 2024 propelled by the aggressive promotion of tourism sites and activities as well as marketing the country as a strong growth center for medical tourism industry," said BSP.

Part of BOP overall is the GIR which the BSP estimates will be better next year at $102 billion.

As for FDI and FPI, these are projected at $10.5 billion and $3 billion, respectively, in 2024. Butocan said FDIs and FPIs will post “higher net inflows supported by the pick up in trade and investment activities.”

The BSP noted that prospects for goods imports are backed in part by the government’s plan to catch-up on its spending and accelerate infrastructure development in the country.

“With the GDP (gross domestic product) growth target maintained at 6.5 to 8.0 percent in 2024 and operationalization of the implementing rules and regulations of recently enacted investment-friendly legislations, investment opportunities could widen,” said BSP officials.