Central bank lowers balance of payments projections

The Bangko Sentral ng Pilipinas (BSP) lowered its balance of payments (BoP) forecasts for this year and 2024 due to a weaker global economic outlook.

The country’s BoP is likely to yield a deficit of $1.2 billion this year, or -0.3% of gross domestic product (GDP), down from the $1.6 billion (-1.3% of GDP) forecast in March.

“The overall BoP position is expected to post lower deficit levels in 2023 and 2024 than previously anticipated due to revisions made in the forecasts for both the current account and financial account,” the BSP said in a statement on Friday.

The BoP had a $3.5 billion surplus in the first three months, up from a $495 million surplus the previous year. The balance of payments serves as an accounting statement of economic transactions between the Philippines and the rest of the world for a specific period.

Meanwhile, the current account deficit is projected to reach $15.1 billion, or -3.4% of GDP, down from the $17.1 billion (-4% of GDP) forecast previously. Current account transactions cover those transactions involving goods, services, and income.

“The current account gap is seen to narrow as goods exports and imports are expected to moderate amid weak global demand and decline in commodity prices,” the central bank said.

The current account deficit was at $4.3 billion (-4.3% of GDP) in the first quarter, up from $4 billion a year ago, amid a wider trade in goods deficit.

For the current account’s components, the BSP lowered its growth forecasts for goods imports and exports at 2% (from 4%) and 1% (from 3%), respectively.

Meanwhile, the central bank kept its projections for services imports and exports at 11% and 17%, respectively.

The BSP also maintained its growth forecast for business process outsourcing (BPO) receipts at 9%, travel receipts at 80%, and remittances from migrant Filipinos at 3% for this year.

Cash remittances from overseas Filipino workers jumped by 3.7% to $2.48 billion in April from $2.4 billion in the same month in 2022. The growth in remittances was the fastest in four months.

As for the financial account, inflows are expected to register a deficit of $13.3 billion, lower than the $15 billion estimate given in March. The financial account records transactions between residents and non-residents that involve financial assets and liabilities.

The central bank also trimmed its foreign direct investments (FDI) projection to $9 billion from $11 billion. FDI net inflows declined by 30.7% to $548 million in March from $792 million a year earlier.

Meanwhile, foreign portfolio investments (FPI) are still expected to reach $2.5 billion this year. FPI yielded a net outflow of $351.87 million in April, reversing a net inflow of $1.41 billion the previous year.

“Net inflows of FDI and FPI were revised downward due to dampened investor sentiment from external headwinds as well as the delay in the finalization of rules and regulations covering recently enacted investment-friendly legislations,” the BSP said.

The country is still expected to end the year with gross international reserves (GIR) of $100 billion. Dollar reserves slid by 0.5% to $101.3 billion in May.

2024 PROJECTIONS

The country’s BoP is still seen at a deficit of $0.5 billion next year, equivalent to -0.1% of GDP.

“For 2024, the overall BOP position is projected to post a slightly lower deficit relative to the previous forecast. This is hinged mainly on the foreseen normalization and return to pre-pandemic levels of global and domestic economic activity,” the BSP said.

The central bank also said it expects a narrower current account deficit of $15.4 billion (-3.2% of GDP) next year as the country’s trade in goods gap is expected to taper.

The BSP’s growth forecasts for goods exports and imports next year stood at 6% and 8%, respectively.

Services exports and imports are likely to increase by 16% and 10%, respectively, in 2024.

BPO receipts are seen to continue expanding at 9%, while travel receipts may grow by 50% next year.

“Growth prospects for BPO and travel sectors remain on a steady course. The latter is forecasted to exceed its pre-pandemic level by 2024 buoyed by much-improved international mobility and supported by government-led tourism promotion programs to regain market losses from the pandemic,” the BSP said.

The central bank sees cash remittances to grow by 3% in 2024.

“Remittance inflows from overseas Filipinos are likely to expand at a steady pace as Filipino workers fill in for the labor shortage resulting from pandemic-induced job losses and aging populations in host economies,” it said.

Meanwhile, the BSP decreased its financial account forecast to $14.4 billion from $15.7 billion next year. FDI net inflows are now seen at $11 billion in 2024, while FPI net inflows are expected at $3.5 billion.

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

“The country’s comfortable level of international reserves likewise continues to provide a sufficient buffer against external shocks and a source of confidence for Philippine external sector prospects moving forward,” it said.

The central bank also said there are limitations to the forecasts given the sustained build-up of external challenges.

“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. – Keisha B. Ta-asan