BSP sees wider BoP deficit this year amid uncertain global outlook

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THE BANGKO SENTRAL ng Pilipinas (BSP) sees the country posting a wider balance of payments (BoP) deficit this year as the global outlook remains clouded with uncertainty.

The central bank said the revised BoP projections for this year and 2023 were mainly influenced by the same risk factors incorporated in September forecast round.

“In particular, risk factors such as persistent high inflation, the protracted Ukraine-Russia conflict, and pandemic-related legacies continue to weigh on the external sector outlook over the near term,” the BSP said.

“While the assumption for global GDP (gross domestic product) growth for 2022 was kept unchanged from the last projection exercise, the downward revision in the growth assumptions for the United States and China, which are the country’s major trading and investment partners, reflects a weaker trajectory for external demand going forward,” it added.

The country’s BoP is now expected to yield a deficit of $11.2 billion this year or equivalent to -2.8% of GDP, bigger than the previous projection of a $8.4 billion (-2% of GDP) announced in September.

Latest BSP data showed the country’s BoP stood at a $7.8-billion deficit in the January-September period, wider than the $665-million gap in the same period last year.

Meanwhile, the current account deficit is seen to end the year at a $20.5-billion deficit equivalent to -5.1% of GDP, slightly narrower than the $20.6-billion (-5% of GDP) forecast in September.

The current account deficit was at $5.8 billion in the third quarter, higher than the $974-million gap seen the year prior, amid a wider trade in goods deficit.

“For 2022, external sector prospects continue to be primarily constrained by elevated global inflation which has prompted central banks to maintain an aggressive monetary tightening stance, with attendant effects on growth and demand,” the BSP said.

“Against this backdrop, the key growth drivers that supported domestic recovery, that of expanded vaccine coverage and a gradual full reopening of the economy, have also resuscitated high value services exports which were earlier hampered by the pandemic, such as travel and travel-related activities as well as BPO (business process outsourcing) services.”

For the current account’s components, the BSP kept its growth forecasts for goods imports and exports at 20% and 4%, respectively.

Meanwhile, services imports and exports are now expected to expand by 18% and 16%, respectively, from 14% for both in September.

The BSP maintained its 9% growth forecast for BPO receipts, while travel receipts are now expected to surge by 400% from just 250% previously.

The central bank likewise retained its 4% growth forecast for overseas Filipino workers’ cash remittances. In the first nine months of 2022, cash remittances rose by 3.1% year-on-year to $23.825 billion.

“As mobility conditions continue to improve and travel protocols ease, inflows from overseas Filipinos remittances are likewise projected to remain resilient, backed by strong recovery in overseas deployment,” the BSP said.

The current account deficit was at $5.8 billion in the third quarter, higher than the $974-million gap seen the year prior, amid a wider trade in goods deficit.

As for the financial account, it is expected to register inflows of $8.2 billion, lower than the previous projection of $11.1 billion, as the central bank sees a downtrend in foreign direct and portfolio investments.

The central bank now expects foreign direct investments (FDI) to end the year at a net inflow of $8.5 billion, smaller than the $10.5-billion projection in September.

Meanwhile, foreign portfolio investments (FPI) are expected to close 2022 at a $3.5-billion net inflow, lower than the $4.5 billion forecast given in September.

“Both foreign direct investments and foreign portfolio investments are expected to lead to sustained inflows, albeit at a more modest level than initially anticipated, following dampened investor sentiment from external headwinds,” the central bank said.

Lastly, the country is now expected to end the year with gross international reserves (GIR) of $93 billion, equivalent to seven months’ worth of import cover, lower than the previous forecast of $99 billion (7.5 months). GIR was at $93 billion at end-November.

2023 FORECASTS

For 2023, the BoP is forecasted to end at a wider deficit of $5.4 billion, equivalent to -1.3% of GDP versus the previous forecast of $2.5 billion (-0.6% of GDP).

“For 2023, the overall BoP balance is expected to post a wider deficit relative to the previous forecast amid weaker global growth prospects. Both advanced and emerging market economies are expected to feel the full impact of monetary policy tightening this year, particularly by the US Federal Reserve, in terms of reduced credit activity and slower spending,” The BSP said.

“With the likelihood of the current tightening cycle extending into 2023 remaining high, the risks to the growth outlook tend largely toward the downside. Domestic activity will continue to provide the means by which to prop up the country’s external payments position,” it added.

The central bank said it expects a slightly narrower current account deficit of $19.9 billion (-4.7 of GDP) next year from $20.1 billion (-4.5% of GDP) previously as the country’s trade in goods gap is expected to taper.

Goods exports and imports growth forecasts were unchanged at 3% and at 4%, respectively.

Services exports are now expected to increase by 15% next year from 12% previously. Meanwhile, growth projections for services imports, BPO receipts and travel receipts were retained at 8%, 5% and 150%, respectively.

“The further easing of foreign entry and mobility restrictions could propel tourism and travel-related activities as well as BPO services,” the BSP said.

The BSP likewise kept its cash remittances growth forecast for 2023 at 4%.

On the other hand, the financial account is now expected to register slightly lower inflows of $13.4 billion in 2023 from $16.5 billion previously.

FDI net inflows are now seen at $11 billion in 2023, lower than the previous forecast of $12.5 billion, while FPI net inflows are expected to amount to $5 billion versus $6.7 billion previously.

Lastly, the central bank lowered its 2023 GIR projection to $93 billion from the September forecast of $100 billion.

“The government’s continued push for its infrastructure agenda and recently enacted structural reforms likewise lend support to expectations of sustained imports and foreign investments, albeit at a more modest pace given expected deceleration in international oil prices as well as subdued investor sentiment. Foreign reserve buffers are also expected to support investor confidence amid the current challenging global environment,” the central bank said.

“The BSP will continue to monitor closely emerging external sector developments and risks and how these may impact the BSP’s fulfillment of its price and financial stability objectives,” it added. — K.B. Ta-asan