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The country posted posted a balance of payments (BoP) deficit of USD 724 million in October as the government repaid external debt, the Bangko Sentral ng Pilipinas (BSP) said.

This was a reversal of the USD 1.51-billion surplus a year ago and USD 3.526-billion surfeit in September.

“The BoP deficit in October 2024 reflected the National Government’s (NG) net foreign currency withdrawals from its deposits with the BSP to settle its foreign currency debt obligations and pay for its various expenditures,” the BSP said in a statement.

The BoP summarizes the country’s transactions with the rest of the world. A deficit means more funds left the country, while a surplus shows that more money came in.

Latest data from the Bureau of the Treasury (BTr) showed that the NG’s outstanding debt rose to a record-high PHP 15.89 trillion as of end-September.

The bulk (68.81%) of the debt stock came from domestic sources while the remainder was from foreign creditors.

External debt rose by 9.3% to PHP 4.96 trillion at end-September from a year ago.

Central bank data showed the BoP reflected a final gross international reserve (GIR) level of USD 111.1 billion as of end-October, down from USD 112.7 billion a month earlier.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said that despite the decline, the reserve level has been above the USD 100-billion mark for over a year or 13 straight months.

“Still a relatively high GIR, the second highest on record, partly due to net income from the BSP’s foreign investments amid gains in most global financial markets recently on market expectations on the series of Fed rate cuts from 2024-2026,” he added.

The US Federal Reserve began its rate-cutting cycle in September with a half-percentage-point reduction and delivered another quarter of a percentage-point cut earlier this month.

Markets are anticipating another quarter-point rate cut at its last meeting for the year in December.

Data from the central bank showed the dollar buffer was enough to cover 4.4 times the country’s short-term external debt based on residual maturity.

It was also equivalent to eight months’ worth of imports of goods and payments of services and primary income.

An ample level of foreign exchange buffers safeguards an economy from market volatility and is an assurance of the country’s capability to pay debts in the event of an economic downturn.

Mr. Ricafort said the deficit position in October was due to the country’s continued trade deficit.

The Philippines’ trade-in-goods balance stood at a USD 5.09-billion deficit in September, the widest in 20 months.

The country’s balance of trade in goods has been in the red for over nine years since the USD 64.95-million surplus recorded in May 2015.

Mr. Ricafort also noted volatility due to geopolitical risks and markets pricing in the incoming Trump administration’s restrictive trade policies.

10-month surplus

Meanwhile, the country’s BoP position registered a USD 4.393-billion surplus in the 10-month period, widening from the USD 3.246-billion surplus a year ago.

“The surplus reflected in part the continued net inflows from personal remittances, trade in services, and net foreign borrowings by the NG,” the central bank said.

“Furthermore, net foreign direct and portfolio investments contributed to the BoP surplus,” it added.

Latest data from the BSP showed foreign direct investment (FDI) net inflows rose by 3.9% year on year to USD 6.07 billion in the first eight months.

Meanwhile, foreign portfolio investments yielded a net inflow of USD 3.02 billion in the January-September period, significantly higher than the USD 387.24-million inflow last year.

“For the coming months, the BoP data could improve, thereby could also lead to better GIR, partly due to the proceeds of the National Government’s foreign currency-denominated borrowings from both commercial sources that would also be added to the country’s BoP and GIR,” Mr. Ricafort said.

He also noted continued growth in overseas Filipino worker remittances, business process outsourcing  revenues, exports and foreign tourism receipts.

“Going forward, any improvement in BoP data and in GIR data for the coming months could still help provide a greater cushion for the peso exchange rate (against) the US dollar especially versus any speculative attacks, as well as help strengthen the country’s external position,” he added.

The BSP expects a USD 2.3-billion BoP surplus by yearend, equivalent to 0.5% of economic output. – Luisa Maria Jacinta C. Jocson, Reporter

CEBU — The Philippine central bank’s easing cycle is still underway though it may opt to keep rates steady at its December meeting, its top official said.

“We’re still in the easing cycle. Either we cut in December, or we cut in the next meeting, but gradually,” Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. told reporters on the sidelines of the BSP-International Monetary Fund (IMF) Systemic Risk Dialogue in Mactan, Cebu on Tuesday.

Asked if the central bank could keep interest rates steady at its December meeting, Mr. Remolona said in mixed English and Filipino: “Yes, of course. It depends on the data. We are still not sure about December.”

Mr. Remolona reiterated that the central bank will continue to make rate cuts in 25-basis-point (bp) increments.

He earlier said the BSP may not necessarily reduce rates at every quarter or every meeting.

Since it began its easing cycle in August, the BSP has reduced borrowing costs by a total of 50 bps so far.

The Monetary Board has delivered a 25-bp cut at its meetings in August and October, bringing the benchmark to 6%.

Mr. Remolona had earlier signaled the possibility of a 25-bp cut on Dec. 19, the Monetary Board’s final policy meeting this year.

Meanwhile, he said the weak gross domestic product (GDP) growth in the third quarter was likely an “aberration” and that growth would likely recover in the fourth quarter.

The Philippine economy grew by a weaker-than-expected 5.2% in the third quarter, its slowest growth in five quarters.

This brought GDP growth in the nine-month period to 5.8%. The economy needs to grow by at least 6.5% in the fourth quarter to ensure it can hit the low end of the government’s 6-7% full-year target.

Instead, the central bank is monitoring closely the latest inflation data, Mr. Remolona said.

“The next number to expect is the November inflation number, we’ll see what that is. Our expectation is that it will still be within the target band.”

Headline inflation picked up to 2.3% in October, bringing the 10-month average to 3.3%. This was still within the BSP’s 2-4% target range.

For 2025, the BSP chief said that the Monetary Board could likely deliver rate cuts at the 100-bp range.

“That’s not exact. It could be more, could be less, but that’s in the ballpark,” he added.

Peso performance

Meanwhile, the BSP governor said he is not worried about the peso’s recent performance.

“It’s below PHP 59. We don’t worry so much about whether the peso depreciates, appreciates. We worry about the pass-through effect. Right now, it’s still okay,” Mr. Remolona said.

The peso closed at PHP 58.81 per dollar on Tuesday, depreciating by 13 centavos from its PHP 58.68 finish on Monday, Bankers Association of the Philippines data showed.

Markets are keeping an eye out for whether the peso will sink to the P59-per-dollar level. The peso fell to the record low of PHP 59 per dollar in October 2022.

However, he said the central bank has been intervening in “small amounts.” “A little bit just so it won’t (depreciate sharply against the dollar),” he said.

“We leave it to the guys in the financial markets area, but if it depreciates very sharply, then we talk. If it’s not too sharp, it doesn’t become inflationary. It’s inflationary if it’s sharp and persistent.”

He said the recent peso weakness was expected after Donald J. Trump was elected US president. The US dollar has been on the rise amid market expectations Mr. Trump would implement higher tariffs that could fuel inflation and slow the Federal Reserve’s planned rate cuts.

“We monitor the swings that take place over a few months, not day by day. It is usually expected that the night before, this kind of news will put pressure on the peso.” – Luisa Maria Jacinta C. Jocson, Reporter

CEBU — “Tit-for-tat” retaliatory tariffs could hurt the growth outlook for the Asia-Pacific region, the International Monetary Fund (IMF) said.

“In a region like Asia, which has benefited a lot from globalization, from greater integration with the rest of the world, any kind of tariff or trade restrictions will have an impact,” Krishna Srinivasan, director of the IMF’s Asia and Pacific Department, said at the Bangko Sentral ng Pilipinas (BSP)-IMF Systemic Risk Dialogue here on Tuesday.

“Our analysis shows that over the long run, everybody hurts because the size of the pie becomes that much smaller. So, every country, including the Philippines, will hurt in the long run.”

Mr. Srinivasan said that “tit-for-tat retaliatory tariffs” could threaten growth prospects across the region as it could disrupt supply chains.

“When you have fragmentation, which is across trade and investment and so on, all the work we have done shows that in the long run, every country hurts.”

Global trade could be upended if US President-elect Donald J. Trump pushes through with his campaign promise to impose a 60% tariff on Chinese-made goods and at least a 10% tariff on all other imports.

Such a move could stoke inflation and derail the Federal Reserve’s easing cycle, as well as negatively impact growth in exporting countries like the Philippines.

National Economic and Development Authority Secretary Arsenio M. Balisacan earlier said Mr. Trump’s tariff plan is a cause for worry due to its potential impact on the global economy.

The Philippines heavily relies on the United States for business and economic activity, as it is the top destination of Philippine-made goods and is the biggest source of overseas Filipino worker remittances.

“If China slows down because of fragmentation, it’s going to affect you. If the US slows down, it’s going to affect you,” Mr. Srinivasan said.

“One way or the other, over the long run, all countries will hurt from fragmentation and the risks we have seen have only increased over the past few years,” he added.

Escalating trade tensions could impact financial markets, increase trade costs and affect domestic demand, Mr. Srinivasan said.

In its World Economic Outlook, the IMF expects economic growth in Asia to average 4.4% in 2025, faster than the 3.2% growth for the global economy.

IMF data show that Asia is forecasted to contribute about 60% to global growth this year.

“Growth outlook in Asia remains robust and inflation pressures have eased, thanks to the region’s central banks’ ability to anchor inflation and inflation expectations effectively,” Mr. Srinivasan said.

The IMF sees Philippine gross domestic product (GDP) expanding by 6.1% in 2025.

On the other hand, BSP Governor Eli M. Remolona, Jr. said that the exact spillover effects from Mr. Trump’s policies on the Philippines remain to be seen.

“We don’t know exactly what the tariffs will be because of the size of the tariffs that are being contemplated. We don’t really know what the effects will be. So we have to wait and see, and then we’ll figure it out,” he said.

The BSP chief said that the country’s balance of payments (BoP) is less likely to be impacted by tariff measures.

“In the case of the Philippines, our BoP shows that our service exports are just as large as our goods exports. Our services exports, you have business process outsourcing (BPO) revenues and then we have remittances from abroad,” he said.

“These are less easily subject to tariffs, because these things, BPO business goes over the internet. Whereas remittances, the workers are abroad, or they’re on ships. So maybe we’re a little bit insulated from the tariffs.”

Mr. Remolona also noted the impact of the tariff restriction on Chinese-made goods.

“At the same time, China remains our number one source of imports to the Philippines. If those imports cannot enter the United States easily, then they might send us more of those imports, probably less expensive imports than before. Those are kind of second-round effects that we have to figure out.”

Other risks

Meanwhile, Mr. Srinivasan also flagged the risks that less regulated, nonbank financial institutions (NBFI) pose to the overall financial system.

“These developments could amplify negative shocks, especially given the worsening risk landscape and increased uncertainties with significant implications for financial stability.”

“For instance, the nonbank financial institutions being more agile and subject to fewer constraints can leverage AI in many ways that pose challenges for financial regulators.”

Mr. Remolona also noted the rapid growth of NBFIs.

“The nonbank financial sector has noticeably grown since the Global Financial Crisis. On one hand, this is welcome news because it addresses some of the concentration risks that arise from relying too much on the banking industry,” he said.

Latest data from the BSP showed that NBFIs’ total resources rose by 5.3% to PHP 5.525 trillion as of end-June from PHP 5.248 trillion a year ago.

“On the other hand, financial markets are never an ‘either- or.’ There is much diversity within nonbank financial institutions, just as there are inter linkages with nonbanks and banks,” Mr. Remolona said.

“In exchanging interlinkages, its opportunities and risks should be of great interest to regulators and practitioners.” — Luisa Maria Jacinta C. Jocson

The Philippines’ gross domestic product (GDP) is likely to expand slower than the government’s target until 2025, Citigroup, Inc. (Citi) said.

Citi cut its GDP growth forecast for the Philippines to 5.8% this year but kept its 6% growth forecast for 2025.

This is below the government’s 6-7% target this year and 6.5-7.5% goal next year.

“We lowered 2024 GDP growth slightly from 6% to 5.8%, mainly due to a weak third-quarter outturn that had been a result of several temporary, weather-related factors,” Citi economist for Thailand and the Philippines Nalin Chutchotitham said in a report.

The Philippine economy slowed to 5.2% in the July-to-September period from 6.4% in the second quarter and 6% a year ago.

This was also the weakest growth since the 4.3% expansion in the second quarter of last year.

“Nonetheless, we think it would be misleading to view the weaker third-quarter expansion as the start of a slowdown as several negative factors in the third quarter are one-off events,” Ms. Chutchotitham said.

She said the weakness in third-quarter economic growth mainly stemmed from the drop in agriculture production, construction activity and net exports.

Despite the weak third quarter, Citi expects growth to accelerate in the fourth quarter as domestic demand is seen to pick up due to easing inflation and lower rates.

“We expect fourth-quarter 2024 GDP growth to accelerate to 6% year on year. Household consumption is expected to continue improving, supported by lower interest rates and improved consumer sentiment as inflation continues to stabilize.”

In the first nine months, GDP grew by 5.8%. The economy would need to grow by at least 6.5% in the fourth quarter to meet the lower end of the government’s 6-7% target.

“With the storm season passing soon, we also expect infrastructure projects’ progress to proceed at a faster clip in the fourth quarter and first quarter of 2025,” Ms. Chutchotitham said.

Domestic demand will also likely be sustained by improving employment conditions, remittance growth and bank lending.

“The RRR (reserve requirement ratio) cut of 250 basis points (bps), effective on Oct. 25, would also release more liquidity into the banking system and likely continue to support strong credit expansion,” Ms. Chutchotitham added.

The central bank last month reduced the RRR for universal and commercial banks and nonbank financial institutions with quasi-banking functions by 250 bps to 7%.

“We also maintain our expectation of 6% growth in 2025 but see some upside risks due to tailwinds from more rate cuts,” Citi said.

The Bangko Sentral ng Pilipinas (BSP) will likely cut by 25 bps in December and by a total of 75 bps next year, according to Citi.

This year so far, the central bank has reduced interest rates by 50 bps since August. The Monetary Board is set to hold its last rate-setting meeting of the year on Dec. 19.

BSP Governor Eli M. Remolona, Jr. has said it is possible to deliver a 25-bp rate cut by then. This could bring the benchmark rate to 5.75% by end-2024.

“Looking ahead, the recent enactment of CREATE MORE (Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy) bill should help to lower costs for businesses through lower corporate income tax, larger deductions of electricity expenses, and simpler local tax and VAT regulations,” Ms. Chutchotitham said.

Last week, President Ferdinand R. Marcos, Jr. signed into law the CREATE MORE bill.

The law expands fiscal incentives and lowers corporate income tax on certain foreign enterprises.

“In response to the post-pandemic world, the CREATE MORE law allows firms in special economic zones to implement flexible/hybrid work arrangements while continuing to enjoy their other incentives,” she added. — Luisa Maria Jacinta C. Jocson