MANILA, Philippines—The Philippines’ foreign trade-in-goods deficit swelled to a three-year high of $43.1 billion in 2021, largely because of a surge in imports that indicated improving economic prospects, the government reported on Thursday (Jan. 27).
The latest preliminary Philippine Statistics Authority (PSA) data showed that two-way external trade totaled $192.4 billion in 2021, up 24.1 percent from $155 billion in 2020 as well as exceeding the pre-pandemic level of $182.5 billion in 2019.
Merchandise exports grew 14.5 percent to $74.6 billion in 2021 from 2020’s $65.2 billion. Imports climbed by a higher 31.1 percent to $117.8 billion last year from $89.8 billion in 2020.
Imports growth surpassed the Development Budget Coordination Committee’s (DBCC) 30-percent target, but last year’s increase in exports was below the 16-percent goal.
This quicker imports recovery resulted in a trade deficit which was the biggest since 2018’s $43.5 billion, National Statistician Dennis Mapa said.
A wider trade gap due to bigger import payments will swing the current account — the country’s stash of US dollars — to a deficit, which, in turn, would weaken the peso.
The Philippines’ top import commodity in 2021 was electronic products — mainly components of goods assembled by manufacturing firms in the country, which grew 19.1 percent to $31.7 billion. In turn, electronics remained the country’s No. 1 export product, with shipments overseas growing by 11.9 percent to $42.5 billion last year.
PSA data showed that China was the Philippines’ top source of imports in 2021, with $26.8-billion worth or 22.7 percent of total. Imported goods from China also rose 28.4 percent compared to 2020 levels.
The United States was the biggest destination of Philippine-made items last year, with $11.8 billion in sales, up 18.3 percent and accounting for 15.9 percent of total.
With economic recovery — gross domestic product (GDP) grew 5.6 percent in 2021 — and reopening of productive sectors in full swing, the government targets goods imports growth of 10 percent and exports increase of 6 percent this year.
In a report titled “The Impacts of Lockdown Policies on International Trade in the Philippines,” the World Bank said that while the most stringent COVID-19 lockdowns imposed in the country in 2020 “did not affect” international trade flows, “external lockdowns affected both exports and imports.”
“The introduction of lockdown measures by trading partners affected imports more than exports, leading to 7 and 56 percent monthly average drops in export and import values, respectively,” said World Bank economists Guillermo Carlos Arenas, Socrates Majune and Angella Faith Montfaucon.
“Restrictions on internal movements and international travel controls in partner-countries were responsible for the drop in exports” back in 2020, they added.
The local movement restrictions nonetheless also impacted domestic demand, and slowed imports, in 2020 when GDP shrank by a record 9.6 percent, the Philippines’ worst post-World War 2 recession. The country is a net goods importer.
“The slump in imports was because of workplace closure, stay-at-home requirements, restrictions on internal movement, and international travel controls by trading partners of the Philippines,” the World Bank said.
“Intermediate goods were the key driver of the drop in imports following foreign lockdowns, reflecting supply disruptions in backward global value chain participation,” WB added.
“Exports of intermediate goods were more resilient to the lockdown policies. Both exports and imports were more affected at the extensive margin than the intensive margin, as lockdown measures hindered interactions among people, in turn reducing the potential of businesses to create new relationships and launch new products in foreign markets,” it said.