Dollar outflows to continue in 2018

The Philippines will likely continue to see large outflows of US dollars for the rest of the year as the local economy spends more—due in part to the Duterte administration’s ongoing infrastructure buildup program—than what it earns from exports.

In a briefing, Bangko Sentral ng Pilipinas (BSP) Assistant Governor Francisco Dakila Jr. said planners at the monetary authority expected the country’s balance of payments to remain in deficit in 2018, even as he conceded that it was “difficult” to forecast exactly when the outflows would end.

The BSP expects the country’s balance of payments—the aggregate net value of all the country’s transactions with the rest of the world—to post a deficit of as much as $1 billion this year. This amount is slightly higher than the $863-million deficit in 2017.

“It’s a difficult question to project further into the future to the point when you reach equilibrium, because all the variables affecting the external payments would be changing on a near term basis,” Dakila said.

He explained, however, that as the economies of the Philippines’ trading partners recover, they would likely start buying more goods and services from the country which would, in turn, reduce the trade deficit—the single biggest factor that pushed the balance of payments account into large outflow positions over the last two years.

Last Friday, the central bank announced that the country spent significantly more dollars than it made in 2017 resulting in the doubling of hard currency outflows which, according to the central bank, pointed to an economy that was buying more from abroad as it geared up for stronger growth.

BSP officials said the country’s current account—the total value of exported goods and services, minus the total value of imports—registered a $2.5- billion deficit last year, marking only the second time in last two decades that the country posted a current account deficit. The other time being in 1999 when the economy was still reeling from the effects of the East Asian financial crisis.

“The current account deficit stemmed mainly from the widening trade-in-goods deficit that was brought about by increased imports of goods that support domestic capital formation and production,” Dakila said.

In the fourth quarter of 2017 alone, the current account registered a higher deficit of $3.3 billion due to the widening trade-in-goods deficit with the official explaining that “imports of goods continued to expand in support of the government’s big infrastructure projects that reflect robust domestic economic activity.”