BSP sees narrower balance of payments deficit for 2023, 2024

The Philippine central bank said it expects a narrower balance of payments (BoP) deficit this year due to a projected decrease in the current account shortfall.

The country’s BoP is likely to yield a deficit of USD 1.6 billion this year or equivalent to -0.4% of gross domestic product (GDP), lower than the previous projection of a USD 5.4 billion gap (-1.3% of GDP) in December, the Bangkok Sental ng Pilipinas (BSP) reported on Friday.

The revised BoP projections for this year and the new forecasts for 2024 were still influenced by expectations of slower global and domestic economic activity, according to the BSP.

“Persistent high inflation, the protracted Ukraine-Russia conflict, and pandemic-related legacies remain the key risks to the country’s external sector outlook, albeit with lesser adverse impact relative to previous estimates,” it said in a statement.

The BoP in the Philippines stood at a USD 7.3-billion deficit in 2022, a reversal from the USD 1.3-billion surplus a year earlier. The balance of payments serves as an accounting statement of economic transactions of the Philippines with the rest of the world for a specific period.

Meanwhile, the current account deficit is seen to end the year at a USD 17.1-billion deficit equivalent to -4% of GDP, narrower than the USD 19.9-billion (-4.7% of GDP) forecast in December. Current account transactions cover those transactions involving goods, services, and income.

The current account deficit was at USD 17.8 billion last year, higher than the USD 5.9-billion shortfall seen in 2021, amid a wider trade in goods deficit.

“For 2023, the external sector is seen to register modest improvements relative to the December 2022 forecast round. This is driven mainly by the better than earlier anticipated actual data for key BoP accounts,” the central bank said.

For the current account’s components, the BSP kept its growth forecasts for goods imports and exports at 4% and 3%, respectively. Goods include fresh and manufactured goods and raw materials, mineral fuels, capital, and consumer goods.

Meanwhile, services imports and exports are now expected to expand by 11% and 17%, respectively. Both forecasts were higher than the 8% and 15% projections given in December. Services include transport, travel, financial, telecommunications, computer and information services, and royalties from patents and copyrights, among others.

The BSP hiked its growth forecast for business process outsourcing (BPO) receipts to 9% from 5%, while travel receipts are now expected to ease by 80% from 150% previously.

The central bank, however, lowered its growth estimate for overseas Filipino workers’ (OFWs’) cash remittances to 3% from 4%, due to a likely slowdown in economic activity in host countries.

Latest BSP data showed cash remittances coursed through banks jumped 3.5% to USD 2.76 billion in January from USD 2.67 billion in the same month last year.

As for the financial account, inflows are expected to register a deficit of USD 15 billion, slightly higher than the previous projection of USD 13.4 billion. The financial account records transactions between residents and non-residents that involve financial assets and liabilities.

The central bank maintained its growth forecast for foreign direct investments (FDI), which is seen to end the year at a net inflow of USD 11 billion. FDI net inflows dropped 23.2% to USD 9.2 billion in 2022.

Meanwhile, foreign portfolio investments (FPI) are expected to close 2023 at a USD 2.5-billion net inflow, lower than the USD 5-billion forecast given in December.

Transactions on FPIs registered with the BSP through authorized agent banks posted a net inflow of USD 292.12 million in January, according to data from the central bank.

Both foreign direct investments and foreign portfolio investments are expected to benefit from the various reforms that make investments easier, such as the Philippine Development Plan 2023-2028 and the ratification of the Regional Comprehensive Economic Partnership or RCEP, the BSP said.

The country is now expected to end the year with gross international reserves (GIR) of USD 100 billion, equivalent to 7.1 months’ worth of import cover, higher than the previous forecast of USD 93 billion. GIR was at USD 99.3 billion at end-February.

2024 forecasts 

For 2024, the country’s BoP is seen to end at a deficit of USD 0.5 billion, equivalent to -0.1% of GDP.

“For 2024, the overall BOP position is anticipated to remain in deficit territory with a smaller deficit than in the previous forecast, consistent with the normalization of global and domestic economic activity,” the BSP said.

“Moreover, with the resumption of economic activity in most jurisdictions, high-value services exports are expected to post a robust rebound,” the central bank said.

The central bank also said it expects a narrower current account deficit of USD 16.8 billion (-3.4% 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, next year.

BPO receipts are seen to continue expanding at 9% in 2024, while travel receipts may grow by 50% next year.

“Resilient foreign exchange inflows from travel and tourism-related activities, BPO transactions, as well as OF remittances, are expected to remain as key growth drivers for the external sector next year,” the BSP said.

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

The financial account is now expected to register inflows of USD 15.7 billion next year. FDI net inflows are now seen at USD 12 billion in 2024, while FPI net inflows are expected to amount to USD 3.5 billion.

The BSP also expects its GIR to end 2024 at USD 102 billion.

“On the downside, weaker global growth, a potential stalling of China’s economic recovery, an escalation of the Ukraine-Russia war, and increased financial market volatility, could adversely influence external sector prospects over the near term,” the BSP 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. – Keisha B. Ta-asan