THE country’s financial transactions with the rest of the world, or the balance of payments (BOP), were not likely to end the year in a state of surplus, according to the Bangko Sentral ng Pilipinas (BSP).
BSP Governor Amando M. Tetangco Jr. said on Friday the policy-making Monetary Board has revised the projected BOP position for this year, with anticipated deficit as wide as $3.4 billion, instead of the original surplus of $1.1 billion.
This was likely also the largest shift or reversion in the estimated payments balance and the first such shortfall since 2004, he said.
Data already show a $3.4-billion deficit in the BOP in the first 10 months no matter the reported surpluses the past three months, when the $270-billion Southeast Asian economy generated far more foreign-currency earnings than it was spending for the period.
The BOP is reviewed and recalibrated twice a year to take into account the most recent global and local developments that affect
its balance.
According to Tetangco, the expected deficit was due for the most part to external events, particularly the anticipated normalization of US monetary policy, when the world’s largest economy and the country’s biggest trading partner finally begins to increase its interest rates.
“Developments since July up to the present and the dominant factors affecting the BOP are external in nature, specifically the normalization of monetary policy in the US, which has affected financial markets,” Tetangco said.
“So the impact of this normalization of monetary in the US has affected not only the Philippines but also other emerging markets around the world. This is not something that is peculiar to us but a phenomenon that has been observed around the world in reaction to what is happening in advanced economies, particularly the US,” he added.
Tetangco gave assurance that while the BOP would likely revert to deficit state, the same was not expected of the country’s gross international reserves as the latest numbers, according to Tetangco, already factored in a $3.4-billion BOP shortfall.
Tetangco further said the country’s external accounts will continue to be strong as the current account, a component of the balance of payments that keeps track of the net flow of trade, investments and income, will remain in a state of surplus.
The current account consists of transaction in goods and services and primary and secondary income, including remittances from overseas Filipino workers and business-process outsourcing receipts.
Tetangco said the current-account surplus is now expected to hit $6.6 billion, up from an earlier projection of only $6 billion in July. This was forecast to equal 2.2 percent of the country’s gross domestic product (GDP) from 2 percent of GDP under the July projected numbers.
“Based on the assessment of impact of latest developments, we believe that the current account will show a surplus which is higher than the forecast or the projection that we issued in July because of the smaller trade deficit given that imports have increased slower than earlier projected,” Tetangco said.
“Structural flows continue to be strong as seen in the current account. What is being affected is the capital account because of the reaction of asset managers and foreign funds to policy decisions in the advanced economies, particularly the Fed. Structurally, the external accounts continue to be sound,” he added.
Other revisions to the projection include export growth averaging only 2 percent under latest forecasts, from growth of 6 percent when first projected in July.
The number excludes the performance of the electronics sector now classified under services based on the so-called new balance of payments and international investment, or BPM6 computation.
Imports, meanwhile, are now expected to grow by 5 percent, slower than the 9-percent growth earlier anticipated.
Remittances are now also expected to grow faster to 5.5 percent from only 5 percent projected earlier.