The central bank has an improved outlook on the Philippines’ balance of payments (BOP) position for this year and in 2025 amid sustained funds and capital flows, global growth, increased trade and lower inflation.
Based on its latest review, the Bangko Sentral ng Pilipinas (BSP) is now projecting a higher BOP surplus for 2024 of $2.3 billion versus its June estimate of $1.6 billion.
For 2025, the BOP forecast is also higher at $1.7 billion from the previous $1.5 billion.
In a statement, the BSP said the improvement in the BOP -- a summary of the economic transactions of a country with the rest of the world for a specific period -- is mostly influenced by positive global and domestic economic growth prospects, the country’s moderating inflation which is expected to settle within the target range of two percent to four percent, as well as the pickup in world trade activity.
As of end-August, the country’s BOP position is in excess of $1.59 billion. This was lower compared to same time in 2023 of $2.15 billion.
The BSP said that in revising upwards the BOP forecasts, it has factored in the notable increase in non-resident inflows in the first six months, which “tempered the impact of a wider current account deficit.”
As of end-June, the current account registered a deficit of $7.1 billion, lower than $11.8 billion in 2023. The current account is a component of the BOP along with the financial and capital accounts. It covers trade in goods, services, primary income and secondary income.
The BSP has revised upwards the current account outlook for 2024 and 2025. For this year, the current account is expected to have a bigger deficit of $6.8 billion versus the previous estimate of $4.7 billion. Next year, the current account deficit is projected at $5.5 billion, up from the June estimate of $2 billion.
The bigger current account deficit in 2024 was due to the lower goods and services exports’ forecasts amid a subdued local semiconductor industry performance and the weaker-than-expected performance of the business process outsourcing sector.
“Nonetheless, the current account outlook continues to be supported by robust growth prospects for travel receipts, along with the steady inflows of overseas Filipinos remittances,” said the BSP.
The BSP forecasts BPO revenues to go up by six percent year-on-year to $31.4 billion in 2024 and seven percent to $33.6 billion in 2025; travel receipts to increase 40 percent to $12.8 billion this year and by 10 percent to $14 billion in 2025; and cash remittances to grow by three percent in 2024 to 2025 to $34.5 billion and $35.5 billion, respectively.
Meanwhile, on the BOP financial account side, the BSP said the higher net inflow in the financial account was due to the increase in portfolio investments which was driven by growth prospects and the easing by the US Federal Reserve rates. “These factors should continue to shore up higher levels of both foreign direct investments (FDIs) and foreign portfolio investments (FPIs) for the remainder of the year,” said the BSP.
For 2024, the BSP raised the financial account deficit forecast to $10.5 billion from $7.7 billion previously while for next year, the estimate is $8.7 billion deficit from the previous $5 billion.
Under financial account, the BSP is projecting net FDIs will climb to $10 billion this year, higher than its previous forecast of $9.5 billion. For 2025, net FDIs could hit $10.5 billion. As for net FPIs, the central bank sees $4.2 billion this year and $2.9 billion in 2025, up from the earlier estimates of $3.1 billion and $2.2 billion.
Risks, growth prospects
The BSP said the emerging risks to the country’s BOP numbers are still broadly balanced since the downside risks could be offset by upside factors.
“On the downside, commodity price volatility due to geopolitical and extreme weather events, trade tensions, as well as possible mobility risks from emergence/re-emergence of highly infectious diseases (e.g., Monkey pox), weigh down on the country’s external sector prospects,” said the BSP.
However on the positive side, central bank officials have noted the easing of monetary policy settings by key trading partners in revising the BOP outlook. It also took note of the “strong government support for trade and investment initiatives including further reforms in the corporate tax regime”.
Part of external sector estimates is the BSP-managed gross international reserves (GIR). The latest projection is that GIR will end 2024 at $106 billion and $107 billion in 2025.
“Given prospects of continued foreign exchange inflows into the economy, there is scope to expect further buildup in the GIR for 2024-2025,” said the BSP. As of end-August, the GIR totaled $107.86 billion.
The BSP said generally, the local economy which is targeted to grow by six percent to seven percent this year, is expected to maintain its growth momentum because of domestic demand, lower inflation and the timely enactment of the national budget.
“The continued government prioritization of infrastructure development combined with investment-related reforms are also seen to lend support to the BOP outlook through improvements in the overall business environment,” it said.
Next year’s growth prospects also bode well for the BOP outlook.
“For 2025, the overall BOP position is likely to settle at a higher surplus (with) net inflows from the financial account continuing to be a major contributor alongside a narrowing current account gap,” said the BSP.
The global demand and trade performance in 2025 is also expected to boost the country’s goods exports such as mineral and agro-based products.
“A resilient domestic economy coupled with a more favorable inflation environment, and ongoing efforts by the government to entice foreign investments, are key factors that should support positive net direct and portfolio investment flows in 2025," said the BSP.
It added that "nonetheless, while there are reasons for optimism on the BOP outlook for next year, the assessment remains subject to downside risks from potential market instability from escalations in geopolitical and geoeconomic risks including the brewing conflict in the Middle East and US-China trade tensions."