Peso strengthens as imports slow down

While the COVID-19 pandemic has caused an economic recession and pulled down imports due to reduced domestic economic activity, the country’s current account swung to a surplus and the peso gained, the Department of Finance (DOF) said on Wednesday.

In an economic bulletin, Finance Undersecretary and chief economist Gil S. Beltran noted that the current account as of the end of the first quarter stood at a surplus of $92 million, reversing the $1.7-billion deficit a year ago.

Beltran attributed the surplus in the current account to the “lower deficit in trade in goods and the higher surplus in the secondary income balance.”

External trade slumped during the start of the year, at the onset of the COVID-19 pandemic, and Philippine imports fell faster than merchandise exports as most international borders were closed except for inbound shipments of essential products, resulting in a narro­wer trade deficit.

“As a result, the peso strengthened from the end-2019 level of 50.8:$1 to 49.9:$1 as of end-June 2020,” Beltran said.

For Beltran, “maintaining good fundamentals by keeping both the budget deficit and balance of payments (BOP) manageable, keeping interest rates at the level that sustains investments, keeping inflation at the lower end of the target, and allowing the exchange rate to maintain its competitive level will allow the country to reco­ver promptly as the lockdowns set up to battle the pandemic are eased.”

Last month, Beltran said that a stronger and stable peso would benefit the Philippines amid a COVID-19-induced recession.

“A stable peso ensures stable pricing of products, which will help producers market their products more effectively. Also, it will avoid companies with external debts from collapsing under the heavy weight of debt servicing. It will make recovery easier for the economy,” Beltran explained in a text message to the Inquirer.