Trade gap swelled to $41B in 2018 | Inquirer Business

Trade gap swelled to $41B in 2018

By: - Reporter / @bendeveraINQ
/ 05:30 AM February 13, 2019

The Philippines posted a record trade deficit of $41.44 billion in 2018 as imports surged to sustain robust economic growth and exports failed to pick up pace.

For Socioeconomic Planning Secretary Ernesto M. Pernia, the widening trade-in-goods deficit was “an issue of concern but manageable.”


“The bulk of imports are in the nature of capital goods, intermediate and raw material products—expanding capacity for economic growth,” Pernia pointed out in a text message to the Inquirer Tuesday.

Economic managers had said that with the Duterte administration’s ambitious “Build, Build, Build” infrastructure program in full swing, demand for imports of mostly capital goods would remain strong in the near term.


The latest preliminary Philippine Statistics Authority (PSA) data released Tuesday showed that the trade deficit continued to widen from $26.7 billion in 2016 and $27.38 billion in 2017.

National Statistician Lisa Grace S. Bersales confirmed to the Inquirer that the trade-in-goods deficit posted in 2018 was the biggest in Philippine history.

Last year, merchandise exports declined 1.8 percent to $67.49 billion from $68.71 billion in 2017.

On the other hand, imports jumped 13.4 percent to $108.93 billion last year from 2017’s $96.09 billion.

The wider trade deficit had resulted into a ballooning current-account deficit as more dollars were being spent for importation.

The current-account gap, in turn, put pressure on the peso, which weakened to 12-year lows last year.

Last December, the Bangko Sentral ng Pilipinas (BSP) said the current account was projected to end 2018 at a $6.4-billion deficit, or more than twice bigger than the previous projection of $3.1 billion in May last year.


The current-account deficit is seen further increasing to $8.4 billion in 2019.

Pernia, who heads the state planning agency National Economic and Development Authority (Neda), said in a statement that the the proposed amendments to the foreign investment, public services as well as retail trade laws “must be pursued” to narrow the trade and current account gaps.

“Policy uncertainty remains a threat to global trade, investment and output, especially as US-China trade tensions continue. To mitigate this impact, the national government should continue to work on legislative reforms that will open up sectors for foreign investment,” the Neda chief said.

“We should encourage foreign firms to transfer their manufacturing facilities in the Philippines and to take advantage of the growing domestic market. The full implementation of the Ease of Doing Business and Efficient Government Service Act of 2018 is also being pushed to eliminate bureaucratic and regulatory barriers that raise the cost of doing business in the country,” he added.

In a note to clients, ING Bank senior economist Nicholas Antonio T. Mapa said the “solid” growth in imports last year supported the Philippines’ “attempts to move into a more investment-driven growth story.”

However, “the recent tightening cycle of the Bangko Sentral ng Pilipinas (BSP) may hinder this growth to some extent while fuel imports will also likely be smaller in 2019, leading us to expect only single-digit growth in the import bill for the year,” Mapa said. “Meanwhile, exports are seen to remain lackluster given our dependence on the electronics sector to carry the entire export base, all the more given the external environment and the US-China trade war.”

Mapa noted that despite the continued weakening of the peso, export performance has not gained the so-called competitive edge that was hoped it would derive from a weaker currency.

“Much more will be needed to get our export base off the ground. Overall, the trade gap will remain relatively wide in 2019, which could continue to exert a weakening bias on the peso throughout the year,” according to Mapa.

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TAGS: economic growth, Socioeconomic Planning Secretary Ernesto M. Pernia, trade deficit
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