Rampant smuggling in the economy may be hiding weaknesses in the country’s current account surplus, which economic managers have repeatedly cited as one of the domestic economy’s main shields from turbulent market conditions abroad.
In a new report published this week, financial giant Credit Suisse said the country’s wide trade deficit may be being masked by unreliable data on imported goods, which may give policymakers a false sense of comfort.
“We found that there is a sizeable difference between the trade balance numbers as reported by the Philippines and some of its trading partners, with the latter generally recording a larger trade deficit than the former,” Credit Suisse said.
“In addition, the trade balance gaps have been widening since 2007 for some trading partners such as Japan, Korea and Taiwan. One potential, but perhaps incomplete, explanation for this divergence in trade numbers lies in the presence of significant smuggling activity into the Philippines,” it said.
The bank said discrepancies between the export numbers reported by several trading partners and imports from those same countries as reported by the government was a “valid” cause of concern.
The country’s current account—or income from trade of goods and services with other countries, and remittances from overseas Filipino workers —has repeatedly been cited as one of the main strengths of the domestic economy.
The current account surplus for 2013 likely reached $11.3 billion based on projections by the Development Budget Coordinating Committee. This year, this surplus is expected to narrow slightly to $10.4 billion.
A surplus means more money entered the country than came in. This surplus helps ensure the availability of foreign exchange in the economy, which reduces the need for companies to buy dollars from abroad to pay for their foreign-denominated expenses.
Credit Suisse said the country’s recent economic boom, driven largely by domestic consumption, should have led higher imports, which should have put pressure on the country’s trade balance.
Last year, the Philippine economy grew by 7.2 percent or better than the 6.8-percent growth the year before. Domestic consumption accounts for about two-thirds of domestic output.