Pricey oil imports set to widen current account deficit further

The Philippines’ current account deficit is expected to widen to 3.6 percent of gross domestic product at the end of this year, double the 1.8 percent recorded at end-2021, according to Goldman Sachs.

This is due to the country’s import bill that is rising and outpacing export earnings, with petroleum products accounting for a big share of the tab.

The New York-based investment banking firm’s economic research team observed the Philippines current account worsens or widens by 0.25 to 0.3 percentage point for every $10-per-barrel increase in oil prices.

The price of Dubai crude oil, the bellwether for Asian markets, was pegged at $73.19 per barrel at the end of 2021.

As of Aug. 22, Dubai costs $22.20 per barrel more at $95.39. This stayed mostly above $100 per barrel, save for a few days of respite, over five months from March 3 to Aug. 2.

Goldman Sachs said that while there are other economies in the region—such as Singapore, Taiwan and South Korea—where the external drag from higher oil prices could be larger, these economies are cushioned by large overall current account surpluses compared to a widening current account deficit in the Philippines.

Data from the Bangko Sentral ng Pilipinas show that the current account deficit ballooned to $4.8 billion as of the first quarter of 2022 from $32 million in the same period of 2021.

“On top of the negative terms of trade shock, prior to COVID when construction [and] investment ground to a halt, the Philippines had a structurally weak current account, underpinned by loose fiscal policy and ambitious infrastructure spending plans, which required a significant import of raw materials,” Goldman Sachs said.

The company said further reopening of the Philippine economy is likely to see the current account revert to this previous trend.