By Business Mirror, September 18 2019

Image Credit to Business Mirror

AFTER recording deficits in recent months, the Department of Finance (DOF) said the current account balance of the Philippines is expected to “normalize” on the prospects of faster economic growth in the coming months.

“The current account level will normalize as the country’s economic growth recovers and the [expansion] of imports of capital goods resumes,” the DOF said in an economic bulletin released on Tuesday.

The country’s current account is the balance of exports and imports of goods, services and income balances. It is usually largest and most consistent part of its balance of payments, or the summary of an economy’s transactions with the rest of the world.

After years of being in the surplus territory, the Philippines’s current account was in deficit territory in recent years due to the government’s drive to ramp up infrastructure spending. In the first semester, the Philippine current account deficit improved to 1.03 percent of GDP (or $1.74 billion), from 2.36 percent of GDP (or $3.76 billion) in the same period in 2018.

“Maintaining good fundamentals by keeping both the budget deficit and current account manageable, keeping interest rates at the level that sustains the volume of investments, and allowing the exchange rate to maintain its competitive level will allow the country to sustain economic growth in the medium-term,” the DOF said.

Broken down, primary income balance—earnings by the Philippines from placements abroad less the earnings by other countries from local placements—rose by 72.3 percent to $2.53 billion from $1.47 billion.

Secondary income balance—remittances less the incomes of expatriates remitted abroad —also grew by 0.91 percent to $13.31 billion, from $13.19 billion.

Fitch’s projection

Earlier this year, Fitch said the country’s current account is expected to remain in deficit, at about 2.4 percent of GDP in 2019, due to weak export performance.

“We expect imports to rise somewhat in the second half of 2019 with the passing of the budget,” said Fitch, adding that it expects “subdued” export performance and generally strong import growth in 2020, and 2021 will keep the current account in deficit of between 2.5 percent and 2.6 percent of GDP.

Exports contracted by about
0.5 percent in the first half of 2019 compared to the 1.1-percent hike recorded in the same period last year.

Data also showed that trade in goods balance dropped to 13.91 percent of GDP in the first semester of the year, from 14.68 percent of GDP a year ago.

The DOF said this was largely due to the decline in capital goods imports. The agency said slower capital formation also led to slower GDP growth in the first semester.

GDP growth reached 5.6 percent in the first quarter and 5.5 percent in the second quarter. Average GDP expansion in the January-to-June period is at 5.5 percent.