In recent days a fair amount of the discussion on economic issues centered on the current account, which is a component of the balance of payments that signals the direction of trade, and had been in a state of surplus since 2003. The current-account surplus had been a source of pride among the monetary authorities, mostly because it has counterbalanced the impact of the budgetary shortfalls in the fiscal sector the past 10 years, for example. The literature on national economies is filled with horror stories about the twin deficits in the current account and the government budget program.
Now, three of the more astute analysts and thinkers at such influential financial services giants as HSBC, DBS and ING all forecast a shortfall this year in the country’s current-account balance. Should these guys’ considered view come to pass, then our $292-billion economy may be in troubled waters sooner than we like. Latest data from the Bangko Sentral ng Pilipinas (BSP) show the current account still in surplus, amounting to $389 million as of end-June this year. But even the BSP has to admit that, while the current account remains in a state of surplus, the same represents a moderation from higher surplus levels. At one point, the current-account surplus hit $1.810 billion in June 2014.
To be sure, the continued moderation in the current-account surplus had been explained as the result of a wider trade in goods shortfall in the first six months this year. This, in turn, had been traced to rather frenetic importation of capital goods that tells on the country’s ability to sustain growth over a long horizon. It was for this reason that BSP Deputy Governor Diwa C. Guinigundo argued that the moderation in the current-account surplus may be viewed as investing for the future: “Over time, you improve your ability not only to export but also to produce for the domestic economy.”
We have no quarrel with the monetary sector’s view on the state of the current account. The economy needs to import capital goods, raw materials and so-called intermediate products to put itself in a position to sustain growth over the next five or six years under our firebrand of a President Rodrigo Duterte. But, while we welcome the prompt activity of creating a buffer from which continued future expansion may be financed, we fear its twin in the fiscal sector. Sure, the budget deficit has similarly moderated from a high 3.7 percent of GDP in 2009 to only 0.9 percent of GDP last year. But the steady moderation in the budgetary shortfall President Duterte inherited from President Aquino was the result of willful official neglect on the state of public infrastructures groaning under the weight of an expanding economy. Roads, ports and bridges simply were not built and those that were built proved woefully inadequate. Sadly, President Aquino reported a steadily diminishing budget deficit but at the cost of public inconvenience so arrant it drives women commuters crazy on most mornings at all three lines of Manila’s light rail system.
Now, President Duterte may be forced finally to build the infrastructure everyone wanted built. And when he does, the budgetary shortfall should be worth watching out for. We will watch it from the point of view of revenue generation because there might not be enough to convince local and overseas financiers to finance hundreds of billions of pesos worth of projects and programs to buy the bonds needed to underwrite such an ambitious undertaking. We will watch it especially because we have a local executive turned chief executive who comports himself in so many uninspiring ways that elicit uncertainty. Bondholders, particularly foreign, are particularly quick to panic and sell the sovereign IOUs like nothing. When that happens, we like to see what the budget deficit will be then and see whether we can extract ourselves from this hole we ourselves have created.