BSP revises downward current account deficit forecasts for 2023, 2024

By Keisha B. Ta-asan, Reporter

THE BANGKO Sentral ng Pilipinas (BSP) on Friday lowered its current account deficit projections for this year and 2024 as exports and imports of goods may contract amid weaker global economic conditions.

The BSP projects the current account deficit to reach $11.1 billion, or equivalent to -2.5% of gross domestic product (GDP), which is down from the previously forecasted $15.1 billion (-3.4% of GDP). Current account transactions encompass transactions involving goods, services, and income.

In the second quarter, the current account deficit reached $3.6 billion (-3.4% of GDP), which was lower than the $8 billion shortfall a year ago, due to a narrower trade in goods deficit.

In the first semester, the current account deficit stood at $8.2 billion (-4% of GDP), marking a 32.2% reduction from the $12.1 billion deficit (-6.1% of GDP) recorded in the same period last year.

The central bank also lowered its balance of payments (BoP) projection for this year. The BoP now shows a deficit of $127 million (0% of GDP), which is significantly lower than the previous forecast of a $1.2 billion deficit (-0.3% of GDP).

“The overall BOP position is projected to register a smaller deficit owing mainly to the foreseen narrower current account gap for the year,” the BSP said in a statement.

The BoP provides a glimpse of the country’s transactions with the rest of the world at a given time. A deficit indicates that more funds are leaving the country than entering it, while a surplus indicates that more money has entered the economy.

Latest BSP data showed a $1.2 billion deficit in the country’s BoP position in the second quarter, marking an improvement from the $3.6 billion deficit a year ago.

In the first half of the year, the BoP position saw a surplus of $2.3 billion, marking a turnaround from the $3.1-billion deficit in the same period in 2022.

“Consistent with the emerging trend observed in most economies, both goods exports and imports are predicted to contract this year,” the BSP said.

The BSP revised its forecast for goods imports, which it now expects to contract by -3% this year, compared to the previous projection of 2% growth.

It also expects a -4% decline in goods exports this year, reversing the 1% growth forecast gived in June.

“Goods imports are expected to drop as international commodity prices have decelerated since the last projection round,” the BSP said.

“Meanwhile, services trade is anticipated to retain its strong growth momentum supported by the upbeat demand for BPO (business process outsourcing) services and stronger-than-expected rebound in international tourist arrivals,” it added.

The central bank also lowered its projection for services imports to 9% from 11%, while it anticipates services exports to grow 19% this year, up from the previous forecast of 12%.

The BSP maintained its growth forecast for BPO receipts at 9% and for remittances from migrant Filipinos at 3% for this year. It increased its projection for travel receipts to 100% from the previous 80% provided in June.

Based on central bank data, cash remittances coursing through banks increased by 2.6% to $2.99 billion in July, up from $2.92 billion a year earlier, marking the highest figure since December.

For the first seven months, cash remittances rose by 2.9% to $18.79 billion compared to the previous year.

As for the financial account, it is expected that outflows may reach $10.4 billion, which is lower than the previous estimate of $13.3 billion in net outflows given in June. The financial account records transactions between residents and non-residents involving financial assets and liabilities.

BSP data also showed that financial account inflows declined by 34.9% to $2 billion in the second quarter compared to the $3 billion net inflows reported in the same period in 2022. This brought inflows to $8.4 billion in the first half of the year.

“The prospects for the financial account turned softer during this projection round, following less notable performance of both FDIs (foreign direct investments) and FPIs (foreign portfolio investments) during the first half of the year,” the BSP said.

The BSP also revised its expectations for FDI net inflows to reach $8 billion by the end of this year, slightly lower than the previous forecast of $9 billion.

Data from the central bank indicates that FDI net inflows decreased by 3.9% year-on-year to $484 million in June, marking the lowest level in five months. For the first half of the year, FDI net inflows declined by 20.4% to $3.9 billion.

The BSP also reduced its FPI net inflow projection to $2 billion for this year, down from $2.5 billion. FPIs recorded a net inflow of $962 million in July, a reversal from the $103.14 million in outflows the previous year.

Gross international reserves (GIR) are expected to reach $99.5 billion this year, down from the previous forecast of $100 billion. Dollar reserves decreased by 0.14% to $99.81 billion as of the end of August, compared to $99.95 billion at the end of July.

“The lingering high interest rate environment has further impeded trade and investment decisions, thus, adding another layer of uncertainty to the BoP outlook for the year,” the BSP said.

From May 2022 to March 2023, the BSP raised rates by 425 basis points to 6.25%, marking a nearly 16-year high.

2024 FORECASTSThe central bank expects a narrower current account deficit of $10.3 billion (-2.1% of GDP) next year as the country’s trade in goods gap is expected to decrease.

Meanwhile, the country’s BoP is now seen to reach a $1 billion surplus next year, equivalent to 0.2% of GDP, a change from the previous forecast of a $0.5 billion deficit.

“For 2024, the overall BOP is seen to pivot into a surplus position propped up by expectations of sustained improvements in the current account as well as the financial account,” the BSP said.

While the outlook for next year is optimistic, some risks may intensify in 2024, according to the central bank.

“Among these include possible tightening in financial conditions and worsening global trade imbalance which may complicate the already tight monetary and fiscal policy space of many economies,” it said.

The BSP revised its growth forecasts for goods imports and exports next year to 7% (from 8%) and 5% (from 6%), respectively.

Services imports and exports are projected to increase by 16% and 10%, respectively, in 2024, which remains unchanged from the June forecasts.

“On the domestic front, prospects for goods imports are backed in part by the national government’s plan to catch up on its spending and accelerate infrastructure development in the country,” the BSP said.

BPO receipts are expected to continue expanding at 9%, while travel receipts may grow by 40% next year.

The central bank foresees cash remittances growing by 3% in 2024.

At the same time, the BSP reduced its financial account forecast to a $10.8 billion deficit next year from the previous estimate of $14.4 billion. FDI net inflows are now projected to reach $10.5 billion in 2024, with FPI net inflows expected at $3 billion.

The BSP also expects its dollar reserves to reach $102 billion by the end of 2024.

“The BSP continues to emphasize limitations to the forecasts, particularly given the continued buildup of external challenges,” it 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.