Amid widening trade deficit, slower ‘Build, Build, Build’ pace urged

The trade-in-goods deficit in September widened to its biggest gap so far this year as imports sustained their double-digit jump while exports declined, putting further pressure on the peso.

The country’s chief economist expects the entry of imported goods to continue robust growth on the back of strong manufacturing and investment flows, while an economist of Maybank Kim Eng Research Pte. Ltd. urged the government to prioritize which “Build, Build, Build” infrastructure projects to roll out to temper the also widening current account deficit.

Preliminary Philippine Statistics Authority (PSA) data released Wednesday showed that merchandise exports last September dropped 2.6 percent year-on-year to $5.827 billion as shipments of the following commodities declined: coconut oil (down 36.4 percent); machinery and transport equipment (down 30.4 percent); ignition wiring set and other wiring set used in vehicles, aircrafts and ships (down 4.6 percent); other manufactured goods (down 4.2 percent); gold (down 2 percent); as well as electronic equipment and parts (down 0.6 percent).

Meanwhile, imports climbed 26.1 percent year-on-year to $9.754 billion in September, making it the sixth-straight month that growth jumped double-digits.

The PSA said the following import commodities grew strongly that month: cereals and cereal preparations (up 101.4 percent); iron and steel (up 49.5 percent); miscellaneous manufactured articles (up 40.2 percent); transport equipment (up 32.3 percent); plastics in primary and non-primary forms (up 31.9 percent); electronic products (up 29.5 percent); telecommunication equipment and electrical machinery (up 20.5 percent); mineral fuels, lubricants and related materials (up 19.3 percent); industrial machinery and equipment (up 17.3 percent); as well as other food and live animals (up 15.7 percent).

As such, the balance of trade in goods last September remained at a deficit of $3.927 billion, wider than $1.752 billion a year ago and also the largest monthly trade deficit thus far in 2018.

In a statement, Socioeconomic Planning Secretary Ernesto M. Pernia noted that capital goods imports rose 25.4 percent that month, bringing the end-September tally to over $26 billion or almost a third of total imports during the nine-month period.

“The growth in import of capital goods could indicate that firms are making long-term investments. The import of raw materials and intermediate goods could also indicate the vibrancy of the manufacturing sector as it is expected to sustain its positive growth in the remaining months of the 2018,” said Pernia, who heads the state planning agency National Economic and Development Authority (Neda).

“Philippine import payments are seen to remain elevated until 2019, primarily due to imports of capital goods and raw materials to sustain the government’s ‘Build, Build, Build’ infrastructure and manufacturing resurgence programs,” the Neda chief added.

The wider trade deficit was putting pressure on the current account, a component of the country’s balance of payments, making the market wary and pulling down the peso to 13-year lows.

As of end-June, the current account deficit ballooned to $3.1 billion – equivalent to 1.9 percent of gross domestic product, from $133 million or only 0.1 percent of GDP a year ago, mainly on the back of an also bigger trade-in-goods deficit.

In an economic forum last Tuesday, Maybank Kim Eng senior economist Chua Hak Bin said markets were “uncomfortable” with the Philippines’ high inflation, wider budget deficit, as well ballooning current account deficit.

For Chua, narrowing the current account deficit will help stabilize the peso.

Given that the trade deficit was hitting historical highs, the current account deficit was seen further expanding to 3.5-4 percent of GDP in the third quarter, Chua said.

While remittances from Filipinos living and working overseas drove the current account into surplus during the period 2003 to 2011, Chua said these dollar inflows were “no longer as powerful,” citing that remittances now account for less than 10 percent of GDP as well as were weighed down by troubles in the Middle East.

Asked by reporters what was a comfortable level of current account deficit, Chua replied that it should be about 3.5 percent of GDP.

To narrow the current account deficit and make the peso stable, Chua said the government could “contain the pace of the investment infrastructure.”

“‘Build, Build, Build’ has a lot of projects, but try to pace it down, spread it over a longer time so that imports of capital goods won’t spike up,” Chua added.

Asked how he thinks the “Build, Build, Build” program was moving, Chua replied: “I think it is probably going on somewhat a decent pace.”

“If it wasn’t constrained, probably you don’t have to prioritize, but sometimes with the pressures, you have to prioritize and see which ones can be delivered with the least capital, which one can deliver more foreign exchange proceeds in the future to pay off infrastructure. And clearly, things like airports can bring tourism, so it should be a priority,” he said. /kga