Think tank’s crystal ball: 53 pesos per US dollar in 2020

The peso is seen to weaken to 53 per US dollar in 2020 as a result of higher infrastructure spending by government which would use up more foreign currency, according to London-based think tank Capital Economics.

While the peso had gained strength in recent months because of a narrower current account deficit, the deficit was seen to widen again as government accelerates spending, according to economist Alex Holmes, in a report in Capital Economics Asia on Dec. 9.

Holmes said the current account deficit—more dollars being spent than coming in—narrowed to “almost zero” in the second quarter from 4 percent of gross domestic product in 2018.

The deficit movement had been driven in part by a fall in trade deficit caused by exports recovering.

But the key reason for the deficit narrowing was not too desirable, said the report. It said it was caused mainly by a drop in imports which was the effect of delays in infrastructure spending.

The delays were caused by late approval of the 2019 national budget by legislators bickering over pork funds that go to their pockets.

The latest government data showed that import receipts declined for the seventh straight month in October.

Actual end-September public expenditures on infrastructure and other capital outlays of P546.3 billion fell 8.1-percent below the P594.5-billion program for the nine-month period.

Holmes’ report said government spending is “now rebounding.”

“As a result, import growth should also pick up strongly,” said the report.

Couple that with weak global demand which sets back export growth and the country would see wider trade and current account deficits in 2020, said Holmes in his report.

“A wider current account deficit would make the currency more vulnerable,” said the report.

It forecast current account deficit to be 3 percent of GDP in 2020. It said the last time the deficit reached this level, the peso fell to 54 per dollar.

It said the peso was likely to settle at 53.5 per US dollar by end of 2020.

Amid easing inflation and manageable foreign-currency debt, Holmes, however, said a weaker peso will not be too much of a concern for the Bangko Sentral ng Pilipinas.

Edited by TSB