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BSP expects second straight year of BOP deficit in 2017

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BSP expects second straight year of BOP deficit in 2017

By: - Reporter / @bendeveraINQ
/ 05:47 PM June 16, 2017
By the end of the year, the peso is expected to depreciate to between 51.50 and 52.50 against the US dollar. —AP

A man counts the dollar bills inside a money exchange shop in Manila. AP FILE PHOTO

The Bangko Sentral ng Pilipinas (BSP) on Friday said it sees the balance of payments (BOP) position settling at a deficit of $500 million, such that it will be the second straight year that more dollars would leave the country than come in.

The BSP revised its BOP projection for 2017 from the earlier $1-billion surplus projected in December last year, Deputy Governor Diwa C. Guinigundo told a press briefing.

Last year, BOP position settled at a deficit of $400 million.

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The BOP is a summary of all the businesses the country does with the rest of the world.

BOP data is tracked closely to ensure that the supply of dollars in the economy remains ample to allow the government as well as businesses to transact with the rest of the world.

Sources of dollar income for the country include remittances from Filipinos overseas, sales from exports of goods and services, as well as foreign investments and revenues from industries such as business process outsourcing and tourism.

The country uses the dollars it earns for the importation of goods, such as food and fuel, and also for external debt payments.

For 2017, the BSP expects the current account to also revert to a $600-million deficit from last year’s $600-million surplus, as the projected 10-percent growth in imports would outpace the 5-percent exports growth.

The BSP previously projected the current account to end the year with an $800-million surplus.

Guinigundo said 2017 would likely be the first year since 2002 that will post a current-account deficit. In 2002, the deficit was $282 million, BSP data showed.

Guinigundo said the projected current account deficit by end-2017 was “not negative nor unfavorable.”

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“It simply reflects economic momentum,” Guinigundo said, citing that imports of capital goods are expected to surge on the back of the Duterte administration’s plan to ramp infrastructure spending.

“Imports are exerting a bigger impact because of the need to sustain economic growth,” the BSP official added.

According to Guinigundo, it would be possible to post current deficits moving forward amid a growing economy unless exports grow faster than imports.

According to the BSP, the updated 2017 BOP position outlook was based on the following assumptions: an upward revision in the global growth outlook for the year; signs of global trade recovery; less gradual pace in the US Federal Reserve’s policy rate tightening, in light of the potential impact of US President Donald J. Trump’s policies; risks from China’s growth outlook amid a high debt load; a subdued outlook for emerging market capital flows; firming commodity prices; as well as strong domestic growth prospects.

Based on the BSP’s updated BOP projections, gross international reserves would likely decline to $80.5 billion in 2017, equivalent to 8.3 months of imports, from $80.7 billion last year. The previous projection for end-2017 dollar reserves was $84.7 billion. JPV

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TAGS: balance of payments, BSP, Diwa Guinigundo, supply of dollars
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