By Karl Angelo N. Vidal, March 15 2019; Business World
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THE COUNTRY’s current account deficit ballooned in 2018 to exceed an official full-year forecast, fueled by a wider merchandise trade gap, the Bangko Sentral ng Pilipinas (BSP) reported on Friday.
The current account deficit stood at an all-time-high $7.9 billion in 2018, wider than the $2.2 billion recorded in 2017 and surpassing the $6.4-billion projection of the central bank.
Prior to 2018, BSP Deputy Governor Diwa C. Guinigundo said the biggest current account deficit was 1997’s $4.4 billion.
“At that time, we are using GNP at 5.1%,” Mr. Guinigundo said.
Last year’s current account deficit was equivalent to 2.4% of gross domestic product (GDP), compared with 0.7% of GDP in 2017.
The fourth quarter alone saw a $2.4-billion current account deficit, slightly narrower than the $2.5-billion gap recorded in 2017’s final three months.
The current account provides a snapshot of the country’s overall economic interaction with the rest of the world covering trade in goods and services; remittances from overseas Filipino workers; profit from Philippine investments abroad; interest payments to foreign creditors; as well as gifts, grants and donations to and from abroad.
“This developed as the widening deficit in the trade-in-goods account more than offset the higher net receipts posted in trade in services, and primary and secondary income accounts,” according to the statement of the BSP.
The country’s trade-in-goods deficit widened to $49 billion in 2018 from $40.2 billion in 2017, as purchases of foreign goods grew 9.4% while outbound sales of Philippine products fell 0.3%.
“Import growth was driven by higher imports across all major commodity groups, notably raw materials and intermediate goods, indicating domestic production activity,” Redentor Paolo M. Alegre, Jr., head of the BSP Department of Economic Statistics, said in a media briefing at the BSP complex in Manila.
Trade in services, meanwhile, grew 20.7% to $10.5 billion net receipts in 2018 from $8.7 billion in 2017, driven by “net receipts in technical, trade-related and other business services, manufacturing services and telecommunications services, combined with lower net payments in travel services.”
Despite logging the widest current account deficit, the central bank said that it was not “necessarily detrimental” to the country.
“The recent current account deficit reflects underlying economic trend [and] an excess of investments over savings, which have been pointed out by Deputy Governor Guinigundo, point to highly productive and growing economy,” Mr. Alegre said.
“In addition, the deficit is reflective of the national government’s commitment to boost infrastructure projects and spending to finance productive investments.”
The government has embarked on an P8-trillion infrastructure development program until 2022, when President Rodrigo R. Duterte ends his six-year term, in an effort to boost economic growth to 7-8% until then.
“… [T]he overall narrative in the case of growth of imports support robust domestic economic activities, as it mainly consist of capital goods, raw materials and intermediate goods,” Mr. Alegre noted.
Sought for comment, an economist warned that the wider current account deficit could weigh on the peso.
“It should temper any further peso strength, but may be offset by any increase in net foreign potfolio investment inflows as seen earlier this year, especially in January and February 2019,” Rizal Commercial Banking Corp. economist Michael L. Ricafort said in a text message.
Looking ahead, Mr. Ricafort said the country’s current account gap could narrow this year, reflecting the slightly narrowing trade deficit in recent months.
“This was largely due to some slowdown in imports growth amid the lingering US-China trade war that slowed down global economic growth and global trade,” he said.
The economist added that “continued growth” in remittances from Filipinos abroad may also help narrow the current account deficit in 2019, together with the continued growth of US dollar inflows from business process outsourcing and tourism revenues. — Karl Angelo N. Vidal