BSP forecasts BOP surplus in 2024 and 2025

The country’s balance of payments (BOP) position is expected to remain in surplus this year and in 2025 as global economic activity picks up and boosting Philippine exports and investments amid lower inflation, according to central bank officials.

During its June 13 regular meeting, the Bangko Sentral ng Pilipinas’ (BSP) policy-making arm the Monetary Board approved a higher BOP surplus projection of $1.6 billion for 2024 versus its March 15 estimate of only $700 million.

For 2025, the BSP forecasts $1.5 billion BOP surplus, an improvement from its previous projection of $500 million deficit.

In a press briefing Friday, June 14, BSP Director Sittie Hannisha M. Butocan of the Department of Economic Research said there are several key considerations in revising the previous BOP projections. These are faster pace of global growth, easing global inflation and the recovery in the global electronics demand. The downside is the moderate China growth and increased political and economic uncertainty including geopolitical tensions and weather-related shocks.

On the local side, they see steady growth, a lower inflation trajectory and public investments in infrastructure will continue. The downside is on the weaker-than-expected gross domestic product (GDP) in the first quarter, impact of higher BSP interest rates and bad weather conditions.

For this year, based on the latest developments and data, the BSP estimates the current account deficit will be lower at $4.7 billion versus the previous forecast of $6.1 billion shortfall due to the narrowing merchandise trade gap.

This is as the growth in goods exports is now expected to increase higher by five percent to $58.1 billion compared to three percent in the March 15 forecast. Goods imports, however, has a lower projection this time at two percent to $123.5 billion from the previous four percent growth.

The BSP said services exports are seen to grow by 14 percent this year to $55.1 billion versus an earlier forecast of 16 percent while services imports are expected to reach $33 billion this year or a 13 percent growth compared to 10 percent earlier.

Butocan said for 2024, the overall BOP position is expected to be better on the back of a lower current account deficit combined with higher non-resident investment inflows.

The BSP projects a lower current account deficit due to the narrowing of the merchandise trade gap as growth in goods imports will moderate because of lower import prices.

The BSP also said that the recently ratified Regional Comprehensive Economic Partnership (RCEP) Agreement which is “seen to support greater market access for goods and services, reduced trade barriers, and improved export competitiveness from simplified and harmonized rules” will provide “an additional boost to the trade sector outlook.”

Under the BOP projections, the growth for travel receipts and business process outsourcing (BPO) revenues are also seen to maintain its pace. For 2024, the BSP expects BPO revenues to grow by seven percent while travel receipts will expand by 40 percent.

The current account will also get its support from remittance inflows from overseas Filipinos which is still expected to grow by three percent annually.

Meanwhile, the BSP estimates net foreign direct investments (FDIs) will reach $9.5 billion this year, up from the previous forecast of $9 billion. For 2025, net FDI is expected to climb to $10.5 billion.

As for the net foreign portfolio investments (FPIs) or hot money funds, the central bank estimates $3.1 billion, higher than the previous projection of $1.3 billion. For next year, the BSP expects net hot money of $2.2 billion.

The BSP said the growth in FDIs and FPIs is “reinforced by the ongoing operationalization of the implementing rules and regulations of key investment reforms aimed at providing a more conducive business environment in the country.”

For this year, the BSP also forecasts a gross international reserves (GIR) of $104 billion. This was higher than the March 15 projection of $103 billion.

For 2025, the GIR is expected to be higher at $105 billion.

According to the BSP, the emerging external outlook for 2024 and 2025 remains “cautiously optimistic” amid a set of risks that has stayed “broadly unchanged” such as: the evolving geopolitical tension in the Middle East which warrants further monitoring as these could ignite fresh set of challenges (higher crude oil prices and weaker sentiment); and aggravate existing ones (monetary policy tightening by central banks).