Even as the peso remained the only currency in the region that weakened against the US dollar year-to-date, the Bangko Sentral ng Pilipinas (BSP) on Tuesday said it expects robust remittances from Filipinos abroad and business process outsourcing revenues to temper volatility.
“The recent depreciation of the peso reflects market concerns on the widening of the country’s current account despite the fact that the country’s macroeconomic fundamentals continue to be sound,” BSP Deputy Governor Diwa C. Guinigundo told the House appropriations committee.
For 2017, the BSP expects the current account to swing to a deficit of $600 million from last year’s $600-million surplus, as the projected 10-percent growth in imports would outpace the 5-percent exports growth.
“It should be emphasized that the current account position signals the country’s higher propensity to import as the country gears up for higher growth momentum. The Philippines is one of the fastest-growing economies in the region, arguing for higher imports to support the projected higher growth path,” Guinigundo said.
The Philippine economy is expected to grow 6.5-7.5 percent this year and 7-8 percent yearly starting next year until 2022, to make it one of the fastest growing in the region.
While the current account and overall balance of payments (BOP) swung to a deficit, BSP Governor Nestor A. Espenilla Jr. pointed out that “the country’s external payments position remains very sound and sustainable.”
At the end of the first half, the country’s BOP position stood at a deficit of $706 million. In June, the BSP said it expects the BOP position to settle at a $500-million deficit by yearend, such that it will be the second consecutive year that more dollars would leave the country than flow in.
But for Espenilla, “the expected stable stream of remittances from overseas Filipinos and dollar receipts from the BPO sector will help support the balance of payments and keep the volatility of the peso to an acceptable magnitude, even as it adjusts to economic fundamentals.”
The BSP expects cash remittances from Filipinos working and living abroad to reach another record-high of $28 billion by yearend, while BPO revenues reached almost $23 billion last year.
Also, “our foreign exchange reserves are at a very robust level that enables the BSP to effectively manage against violent swings to global liquidity conditions,” Espenilla said.
The latest preliminary BSP data nonetheless showed that the country’s dollar reserves slid to a three-month low of $81.4 billion in June partly as global gold prices fell alongside a weaker peso. The BSP had projected gross international reserves to slightly decline to $80.5 billion in 2017, equivalent to 8.3 months of import cover, from end-2016’s $80.7 billion.
For Guinigundo, “the recent decline of the peso should have minimal effects on the country’s macroeconomic conditions over the medium term.”
“For instance, it takes a P1 per dollar depreciation to raise inflation by about 0.15-0.2 percentage point over a two-year period. It’s limited impact on the price level gives the BSP the additional flexibility to take a lower view on the peso,” according to Guinigundo.
“While it’s true that the peso depreciated in nominal terms, the peso has been very stable in real terms,” Guinigundo said.
“Due to combined effects of the peso’s nominal depreciation and lower consumer prices, the peso is expected to remain broadly stable over the medium term,” Guinigundo added.
Inflation averaged 3.1 percent in the first half, at the midpoint of the government’s 2-4 percent target range for 2017. JE