Lower 2022 dollar outflows expected to boost BSP reserves

MANILA, Philippines  – The country’s gross international reserves (GIR) is now expected to return to the $100-billion level this year after sinking to $96.1 billion in 2022, according to the Bangko Sentral n Pilipinas (BSP).

This new forecast that shows an improvement reverses the forecast made three months ago, which pegged the end-2023 GIR lower at $93 billion.

The BSP said the upward revision of the forecast was partly due to expectations of a narrower deficit in the trade of goods with the rest of the world.

Further, the GIR is also expected to rise further to $102 billion at the end of 2024.

Meanwhile, the country’s overall balance of payments (BOP) deficit—recorded at $7.3 billion at end-2022—is expected to be narrower this year and next based on the latest available data and recent emerging developments.

Subdued economic activity

The BSP said the emerging BOP forecasts for 2023 and 2024 are underpinned by expectations of subdued global and domestic economic activity this year followed by slightly improved activity by next year.

“Global growth prospects in 2023 will continue to be weighed down by broadly the same set of forces and risk factors highlighted in the December 2022 BOP projection exercise,” the BSP said.

“Persistent high inflation, the protracted [Russian invasion of Ukraine], and pandemic-related legacies remain the key risks to the country’s external sector outlook, albeit with lesser adverse impact relative to previous estimates,” it added.

The International Monetary Fund forecasts that in the Philippines, persistent high inflation and the expected easing of pent-up demand will dampen economic growth as the impact of policy rate increases on the economy starts to be felt.

IMF cuts 2023 global growth forecast, warns major economies to stall

“Nevertheless, the impact of BSP monetary policy action and the restoration of inflation to a target-consistent path are seen to support business and consumer sentiment,” the regulator said.

Modest growth

“Overall, however, the external outlook for the next two years is likely to remain subdued,” it added.

This year, the country’s dealings with the rest of the world is expected to register modest improvements compared to the December 2022 forecast round.

Regarding trade, the recent reopening of China’s economy could bring positive spillovers from resumption of international business and travel as well as a pickup in Chinese consumer spending.

This, in turn, could in turn revitalize Chinese demand for Philippine products and services and soften the impact of a broader downturn in global demand on Philippine exports.

Citing data at the Philippine Statistics Authority, the BSP said China ranked as the third-largest destination of Philippine exports with a share of 13.9 percent.

“In addition, the recent launch of the Philippine Development Plan 2023-2028 that highlighted the government’s strategies and programs as well as the ratification of the Regional Comprehensive Economic Partnership agreement are expected to bolster trade and investment prospects for the year,” the BSP added.

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