$600-M current account deficit seen

Debt watcher Fitch Ratings expects the Philippines’ current account to swing to a deficit this year mainly due to the rollout of the Duterte administration’s ambitious infrastructure program.

“Fitch forecasts the Philippines’ current account to shift into modest deficit, at negative 0.3 percent of gross domestic product in 2017 and negative 0.7 percent of GDP in 2018, based on rising capital goods imports due to higher infrastructure spending plans,” it said in a report yesterday.

Under its “Build, Build, Build” program, the government plans to spend up to P9 trillion on hard infrastructure until 2022 to usher in a “golden age of infrastructure.”

For 2017, the Bangko Sentral ng Pilipinas (BSP) expects the current account to 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 export growth.

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

BSP Deputy Governor Diwa C. Guinigundo said last month that 2017 would likely be the first time since 2002 that the country would post a current account deficit. In 2002, the deficit was $282 million, BSP data showed.

Guinigundo said the projected current account deficit by the end of 2017 was “not negative or unfavorable.”

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

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

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

Fitch nonetheless noted that the Philippines “remains a net external creditor and, at 13.3 percent of GDP, this is stronger than the net debtor position of the ‘BBB’ median, supporting its external profile.”

The Philippine currency enjoys a ‘BBB-’ rating and positive outlook from Fitch on the back of “continued strong macroeconomic performance, a net external creditor position and government debt levels that are below the ‘BBB’ median,” it said.

However, the country’s investment grade credit rating was “constrained by levels of income and human development that are lower than that of many peers, a narrow government revenue base and weak governance standards,” Fitch said.

“Low government revenue remains a constraint on the country’s fiscal profile,” Fitch added, hence the need to pass the comprehensive tax reform program.