PH seen to post higher trade deficit next year

The country may post an even bigger trade deficit next year as the costs of imported raw materials and intermediate goods are projected to rise.

According to the Bangko Sentral ng Pilipinas, the country’s spending for imports may accelerate next year largely due to higher prices and an increase in the volume of demand for goods.

“Imports may increase next year, and this may cause the trade deficit to rise,” said Rosabel Guerrero, head of the statistics department of the central bank.

A trade deficit, in contrast with a surplus, indicates that the amount spent by a country for imports is more than what it earns from exports.

Latest data from the central bank showed that the trade deficit amounted to $3.9 billion in the first quarter, up by 36 percent from $2.9 billion in the same period last year.

Consequently, the country’s current account surplus shrunk in the first three months of this year to $933 million, from $1.2 billion in the same quarter last year.

Current account is the difference between the inflows and outflows of foreign currencies, largely dollars, in the form of exports, imports, remittances, grants and other transfers.

The current account was still at a surplus, despite a higher trade deficit, because remittances continued to grow.

The BSP projected that the country’s current account would settle at a surplus of $5.6 billion this year, and a smaller surplus of $1.2 billion next year.

Guerrero said the expected decline in the country’s current account surplus was due to the higher trade deficit seen next year.

She said the country would enjoy higher earnings from exports, but the amount it would spend for imports would likely grow at a faster pace.

According to the central bank official, costs of imported raw materials are rising as global demand rises, together with the gradual recovery of the global economy from a financial crisis.

A surplus in the current account is deemed favorable because this will help boost the country’s overall reserves of foreign exchange.

These reserves determine the country’s ability to engage in commercial transactions, such as pay for imports and pay debts to foreign creditors, with the rest of the world.

Latest data from the BSP showed that the country’s reserve of foreign currencies, the gross international reserves (GIR), stood at $68.8 billion as of end-May.

The amount is estimated to be enough to cover 10.6 months’ worth of imports and is six times more than the amount of foreign currency-denominated debts that will mature within one year.