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The Philippines’ trade-in-goods deficit ballooned to USD 4.3 billion in June as imports and exports contracted, the Philippine Statistics Authority (PSA) said on Tuesday.

Preliminary data from the PSA showed that the country’s trade-in-goods balance — the difference between exports and imports — stood at a USD 4.3-billion deficit in June, 9.3% bigger than the USD 3.94-billion gap in the same month last year.

Month on month, the June trade gap shrank from the USD 4.71-billion deficit in May.

For the first six months of the year, the trade deficit narrowed by 9.5% to USD 25 billion.

The country’s balance of trade in goods has been in the red for 109 straight months (nine years) or since the USD 64.95-million surplus in May 2015.

In June, the value of exports slumped by 17.3% to USD 5.57 billion from USD 6.73 billion a year ago, the first double-digit decline since November 2023. Month on month, exports slid by 12%.

This was the lowest export value in 13 months or since USD 4.92 billion in April last year.

Year to date, exports rose by 3% to USD 36.41 billion.

On the other hand, the value of imports declined by 7.5% year on year to USD 9.87 billion in June from USD 10.67 billion in the same month a year ago. Month on month, it dropped by 10.6%.

The value of imports was the lowest since USD 9.57 billion in March, the PSA said.

For the first six months, imports slipped by 2.5% to USD 61.41 billion.

“Exports are among one-year lows and imports also near one-year lows amid slower economic conditions in China, the world’s second-biggest economy and among the country’s biggest trading partners,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Facebook Messenger chat.

The Development Budget Coordination Committee projects 5% and 2% growth in exports and imports, respectively, this year.

DROP IN ELECTRONICS EXPORTS
Among major types of goods, manufactured goods exports dropped by 21.1% year on year to USD 4.34 billion in June but still made up the bulk or 78% of the total. Exports of mineral products slipped by 7.7% to USD 632.4 million.

By commodity group, exports of electronic goods fell by 24.4% to USD 2.99 billion in June from USD 3.96 billion a year ago. Electronic products accounted for 53.7% of the country’s total exports in June. Among electronic products, semiconductor exports slid by 29.5% to USD 2.32 billion in June.

Exports of other manufactured goods dropped by 17.36% year on year to USD 285.56 million, accounting for 5.1% of total exports.

Exports of other mineral products slipped by 16.4% to USD 252.03 million in June.

The United States remained the top destination for Philippine-made goods, with exports valued at USD 897.8 million. This made up 16.1% of the country’s total exports in June.

Hong Kong was the second-biggest market for Philippine exports with a value of USD 886.64 million (15.9% share), followed by China with USD 868.44 million (15.6%), Japan with USD 746.97 million (13.4%) and South Korea with USD 240.26 million (4.3%).

Other top export destinations include the Netherlands, Singapore, Taiwan, Germany and Thailand.

IMPORTS

Meanwhile, imports of raw materials and intermediate goods declined by 10.3% to USD 3.54 billion in June. This accounted for 35.9% of the total imports in June.

Imported capital goods slipped by 8.8% to USD 2.82 billion, while imports of consumer goods went down by 7.3% to $1.9 billion.

In terms of value, electronics had the highest import value at USD 2.23 billion in June, up by 5.3% from last year. It made up 22.6% of the total imports in June.

Imports of mineral fuels, lubricants and related materials rose by 2.2% year on year to USD 1.57 billion in June, while transport equipment slid by an annual 36% to USD 787.92 million.

George N. Manzano, who teaches political economy at the University of Asia and the Pacific, said the lower imports of transport equipment could be attributed to the weaker peso.

The peso weakened by 13.4 centavos to close at P58.66 at end-June from its P58.52 finish at end-May.

“Because capital goods and raw material imports are indicators of future production, this may mean weaker production in the near future,” Mr. Manzano said in a Viber message.

In June, China was the biggest source of imports valued at USD 2.6 billion, accounting for 26.3% of the total import bill.

It was followed by Indonesia with imports valued at USD 861.69 million (8.7% share), Japan with USD 763.2 million (7.7%), South Korea with USD 715.14 million (7.2%) and the United States with USD 658 million (6.7%). – Beatriz Marie D. Cruz, Reporter

The government will only consider introducing new taxes if revenue collection falls short of target, the Department of Finance (DoF) said.

“It’s easy to pass a tax law. It’s easy to do a tabletop revenue estimate. What’s always harder is implementing the law and collecting the tax,” Finance Secretary Ralph G. Recto told reporters on the sidelines of a House Committee on Appropriations hearing late on Monday.

He said new taxes may be considered if revenue collections are not enough.

The National Government (NG) aims to collect PHP 4.64 trillion in revenues next year, up 8.77% from this year’s projected PHP 4.27-trillion collection. Of this, the government looks to collect PHP 4.33 trillion in tax revenues, 13.41% lower than this year’s target.

“It’s a high target. Assuming there’s a shortfall in that, then we just manage the expenditures,” he added.

While Mr. Recto has repeatedly said there are no plans to introduce new taxes, the DoF has urged Congress to approve tax reforms that will generate as much as PHP 28.38 billion in revenues next year.

Priority bills include the value-added tax on digital service providers, excise taxes on single-use plastics and pickup trucks, the rationalization of the mining fiscal regime, the motor vehicle road user’s charge, and the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy.

Filomeno S. Sta. Ana III, cofounder and coordinator at the Action for Economic Reforms, said that better tax administration is not enough to fund the government’s deficit.

“The challenge that the government faces is to unwind the deficit resulting from the heavy borrowing during the pandemic, and at the same time, it has to sustain high investments in social development, infrastructure, and green energy,” he said in a Viber message.

“In this context, careless and wasteful spending is a no-no, and the government is pressured to generate new revenues. Tax administration, with recent economic episodes as a guide, is insufficient,” he said in a Viber message.

For 2025, the NG set a deficit ceiling of PHP 1.54 trillion or equivalent to 5.3% of gross domestic product.

BORROWINGS

Meanwhile, Mr. Recto said the borrowing mix for 2025 was raised in favor of domestic sources to minimize foreign exchange risk.

Next year’s borrowing program is set at PHP 2.55 trillion, 0.97% lower than PHP 2.57 trillion this year. Broken down, 80% will come from domestic sources with the remaining 20% from external sources. The government previously adopted a 75-25 borrowing mix.

Mr. Recto said the department is also aiming to secure its borrowings at the “lowest possible cost” and will opt for longer-term tenors, depending on the rates.

“Domestic borrowing can also be a sign of confidence in the local economy and may stimulate growth if the funds are used for productive investments that improve infrastructure and public services,” Jonathan L. Ravelas, senior adviser at Reyes Tacandong & Co., said in a Viber chat.

Mr. Recto said this won’t likely weaken output and consumption, with interest rates expected to go down. — Beatriz Marie D. Cruz

Economic growth is on track to outpace the rise in the National Government’s (NG) debt, with borrowing costs expected to go down as global central banks cut interest rates, the Department of Finance (DoF) said on Monday.

During the Development Budget Coordination Committee’s (DBCC) briefing before the House Committee on Appropriations, Finance Secretary Ralph G. Recto said the cost of borrowing remains manageable as it is “much lower” than the country’s gross domestic product (GDP) growth.

“In fact, our effective interest rate for next year is only 5.3%, which is very cheap considering that the average term of our debt is 7.5 years. If we remove inflation, our real interest rate is only 2.3%, far lower than our expected real GDP growth of 6.5%, which means we are on track to outgrow our debt,” he said.

A country’s debt is more appropriately measured on the size of its economy as this identifies its capacity to pay its obligations, Mr. Recto said.

“From 60.9% (debt-to-GDP ratio) in 2022, it fell to 60.1% in 2023. And we are determined to continue pushing it below 60% so we have enough buffer in case another crisis hits us,” he said.

According to the Bureau of the Treasury, the debt-to-GDP ratio is expected to inch up to 60.6% by end-2024. It sees the debt-to-GDP ratio falling to 60.4% in 2025, 60.2% in 2026, 58.4% in 2027 and 56.3% in 2028.

“The continuous decline in our debt-to-GDP ratio since the pandemic is one of the reasons why our credit ratings remain high… This means that we not only have the capacity to pay our debts, but we can have more access to cheaper financing,” he said.

The DBCC is targeting 6-7% GDP growth this year and 6.5-7.5% GDP growth in 2025.

As of end-June, the NG’s outstanding debt rose to a fresh high of PHP 15.48 trillion, up 9.4% from a year ago. Debt is expected to reach PHP 16.06 trillion at the end of 2024 and PHP 17.35 trillion by end-2025.

“Mukha mang patuloy na lumalaki ang ating utang ngayon, pero patuloy naman na mas lumalago ang ating ekonomiya. Ibig sabihin, kayang kaya nating bayaran ang ating mga obligasyon (Even if it looks like our debt is growing now, but our economy is also expanding faster. This means we can repay our obligations),” Mr. Recto said.

Mr. Recto said the government is now paying off the “pandemic borrowings” inherited from the previous administration.

“We are now refinancing the large borrowings contracted during the low-interest rate period in 2020 to 2022 with new debts that bear higher interest rates. This is the reason why our interest payments for next year are higher by around 11%,” he said.

For 2025, the NG set its borrowing program at PHP 2.55 trillion, 0.97% lower than this year.

The government is also allotting PHP 2.05 trillion for its debt servicing program next year, up 1.19% from this year. Of this, PHP 848.03 billion will go to interest payments.

Mr. Recto said he expects the growth in interest payments to moderate as central banks begin cutting policy rates.

Last week, the US Federal Reserve kept its key policy rate at the 5.25-5.5% range last week, but could start easing by September.

The Bangko Sentral ng Pilipinas has signaled a potential 25-basis-point cut at its Aug. 15 meeting.

Mr. Recto reiterated that the government’s current debt level is not a cause for concern.

“There is nothing inherently wrong with a country having debt, as long as the money’s used for the right purposes, such as growing the economy, which in turn creates more jobs, increases income, and provides more revenues for the government,” he said.

“In our case, we are using debts to spur our stronger economic recovery by investing in more infrastructure and human capital development projects which have the highest multiplier effect on the economy.”

Meanwhile, Mr. Recto said that the country’s budget deficit is also still manageable.

“As a percentage of GDP, our deficit remains very manageable, at 4.5% in the first quarter,” he said.

The government set the budget deficit ceiling for this year at PHP 1.48 trillion or equivalent to 5.6% of GDP. For next year, the budget deficit ceiling is at PHP 1.54 trillion or 5.3% of GDP. — BMDC

Philippine economic growth likely picked up in the second quarter as higher government spending may have offset the impact of El Niño on agriculture, analysts said.

A BusinessWorld poll of 19 economists and analysts conducted late last week yielded a median gross domestic product (GDP) year-on-year growth estimate of 6% for the April-to-June period.

If realized, this would be faster than the preliminary 5.7% growth in the first quarter and the 4.3% clip recorded in the second quarter of 2023.

This would also bring the first-half growth to an average of 5.9%, below the 6-7% growth target for the year.

The Philippine Statistics Authority will release the second-quarter GDP data on Thursday (Aug. 8).

“The main driver of growth was likely government spending. In contrast to last year’s underspending, the utilization rate of the 2024 budget has significantly improved,” HSBC ASEAN (Association of Southeast Asian Nations) economist Aris D. Dacanay said in an e-mail.

In an e-mail, Sarah Tan, an economist from Moody’s Analytics, said government spending and “robust” goods exports are expected to be the bright spots in the second quarter.

Data from the Bureau of the Treasury (BTr) showed that government spending rose by 14.6% year on year to P2.76 trillion in the second quarter.

Mr. Dacanay said the strong labor market may have also helped sustain household spending despite elevated inflation and high interest rates.

The country’s employment rate reached 95.9% in May, slightly higher than the 95.7% recorded a year ago. The unemployment rate also slipped to 4.1% in June from 4.3% in May 2023.

Victor A. Abola, an economist at the University of Asia and the Pacific, said high employment, “very elevated” government spending, and better-than-expected remittances have also contributed to faster growth.

Overseas remittances in the January-to-May period grew 3% to $13.37 billion from $12.98 billion a year ago.

EL NIñO

Meanwhile, El Niño’s impact on agriculture and slower household consumption may have constrained growth in the second quarter, analysts said.

Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said El Niño was likely a drag on the economy, both demand and supply side, as early as the first quarter.

Ruben Carlo O. Asuncion, chief economist of Union Bank of the Philippines, Inc., said El Niño had a “scalding impact” on farm employment and rural incomes.

“Aside from the severe El Niño-related drought effects that cut down farm production, agricultural jobs and incomes, and contributed to higher food costs, the BSP (Bangko Sentral ng Pilipinas) sentiment that reeked of more pessimism among households and business respondents, likely translated to lackluster spending during the quarter,” he said in an e-mail.

Mr. Asuncion said “price-conscious” households may have postponed purchasing big-ticket consumer items until incomes fully recover.

Headline inflation eased to 3.7% year on year in June. For the first six months of 2024, headline inflation averaged 3.5%, slightly higher than the central bank’s 3.3% full-year forecast.

The BSP kept its key rate steady at 6.5% in June, the highest in over 17 years.

“Private consumption and investment will likely slow from the prior quarter as the high borrowing costs continue to weigh on their budgets and confidence,” Ms. Tan said.

For the rest of the year, analysts expect growth to continue as inflation eases.

“We are hopeful that slower inflation in [the second semester] will help boost consumer confidence further. Slower rice inflation should help free up some of the Filipino consumers’ budget to help boost demand for nonfood consumer items. We also expect midterm elections spending to pick up even faster in the second semester to boost public sector spending,” Mr. Neri said.

BSP Governor Eli M. Remolona, Jr. earlier said that he expects inflation to ease in the second semester with the implementation of lower tariffs on rice.

Last month, President Ferdinand R. Marcos, Jr. signed Executive Order No. 62 which slashed tariffs on rice imports to 15%, helping tame rice prices.

“We do expect year-on-year growth to ease in [the second semester] as favorable base effects ease. Nonetheless, we expect sequential growth to still be punchy, most especially when rice prices begin to drop, freeing up a big portion of household budgets and boosting private consumption,” Mr. Dacanay said.

However, Ms. Tan sees full-year economic growth to be below the government’s target of 6-7%.

“Across 2024, the Philippine economy is expected to grow 5.9%, outperforming many of its regional peers. An acceleration in exports from 2023 will bring this to fruition while private consumption will be the weakest link resulting in the economy missing the government’s growth target of 6-7% for the year. Still, a relatively tight labor market and a healthy inflow of remittances will cushion some of that pain,” she said. – Karis Kasarinlan Paolo D. Mendoza

The Philippines’ overall agricultural output may have declined in the second quarter after crop production likely bore the brunt of droughts caused by the El Niño weather phenomenon, analysts said.

University of Asia and the Pacific (UA&P) Center for Food and Agribusiness Executive Director Marie Annette Galvez-Dacul said in a Viber message that farm production likely fell by 1.5% to 2.5% in the April-to-June period due to El Niño.

If realized, this would be worse than the 1.3% decline in the value of production in agriculture and fisheries seen in the second quarter of 2023. It would also be a reversal of the 0.05% growth in the first quarter of 2024.

El Niño, which began in June 2023, brought below-normal rainfall conditions, dry spells and droughts that affected crop production.

In early June, the state weather bureau declared the end of the El Niño although dry spells persisted in some parts of the country.

“I am expecting a drop due to the lingering effects of El Niño during the second quarter. Some of the crops may have survived, but output and productivity would have been affected due to water stress,” Federation of Free Farmers National Manager Raul Q. Montemayor said in a Viber message.

The Philippine Statistics Authority is set to release second-quarter data on farm output on Aug. 7 (Wednesday). The agriculture sector contributes about a tenth of the country’s gross domestic product (GDP) and provides around a quarter of all jobs.

UA&P’s Ms. Dacul said she expected a decline in crops and fisheries output in the second quarter due to the unseasonably warm weather brought by El Niño.

The crop subsector contributes more than half to the country’s overall agricultural production. As of the first quarter, rice contributed about 20% to the total, while corn accounted for 8%.

On the other hand, Philippine Chamber of Agriculture and Food, Inc. President Danilo V. Fausto said farm growth for the second quarter was likely flat.

“(El Niño) didn’t hit too hard but there was still an effect. So, whatever we are expecting to have an increase in yield, in output, it might be dampened because of the El Niño,” Mr. Fausto said in a phone call.

Farm damage due to El Niño totaled PHP 15.3 billion, with rice and corn being the most affected crops, according to the Department of Agriculture’s (DA) final bulletin issued on Aug. 2.

The DA reported that total crop damage was at 784,344 metric tons covering 270,855 hectares of farmland, of which 68% or 184,182 hectares were deemed recoverable. It had affected 333,195 farmers and fisherfolks.

Ms. Dacul said that the poultry sector likely posted an increase in output in the second quarter, while livestock production may have been flat.

LA NIÑA

This year, the DA is targeting 1-2% agricultural growth, accounting for the effects of the El Niño and La Niña weather events.

Agriculture Secretary Francisco P. Tiu Laurel, Jr. said last month that the DA’s target would be achievable if no major typhoons hit the country during the second half of the year.

“For the second half, we are challenged because of La Niña. So, the agriculture sector really will be (impacted by it),” Mr. Fausto said.

The Philippine Atmospheric, Geophysical, and Astronomical Services Administration said that there is a 70% likelihood of La Niña occurring during the months of August, September, and October. It would increase the likelihood of tropical cyclone activity in the coming months.

Roehlano M. Briones, a senior research fellow at the Philippine Institute for Development Studies, said that agricultural growth would likely be at 1% for the full year if the livestock, poultry, and aquaculture subsectors recovered.

“The start of rains in July would have helped farmers recover, but the recent typhoon shows how unpredictable the weather can be and how vulnerable agriculture is to natural calamities,” Mr. Montemayor said.

However, former Agriculture Undersecretary Fermin D. Adriano said in a Viber message that it is unlikely that the agricultural output would hit the DA’s target for the year.

“Now with incoming La Niña, further crop damage will be experienced. Assuming the optimistic projection is true, where will growth come from?” he asked. – Adrian H. Halili, Reporter

The National Government’s (NG) gross borrowings declined by 11% year on year in June as external debt dropped, the Bureau of the Treasury (BTr) reported.

The latest data from the BTr showed that gross borrowings in June fell to PHP 148.18 billion from PHP 166.49 billion in the same month a year ago.

Gross external debt in June slumped by 30.43% to PHP 15.7 billion from PHP 22.57 billion a year ago, BTr said.

This consisted of PHP 5.06 billion in program loans and PHP 10.64 billion in new project loans.

On the other hand, domestic debt, which accounted for 89.4% of total borrowings, declined by 7.95% to PHP 132.48 billion in June from PHP 143.92 billion a year prior.

Gross domestic borrowings included PHP 110.23 billion in fixed-rate Treasury bonds and PHP 22.25 billion in Treasury bills.

In the first half of the year, gross borrowings rose by 12.89% to PHP 1.57 trillion from PHP 1.39 trillion in the same period in 2023.

Gross domestic borrowings stood at PHP 1.3 trillion in the January-to-June period, up by 27.16% from PHP 1.02 trillion a year ago.

Domestic debt in the first half of the year consisted of PHP 584.86 billion in retail Treasury bonds, PHP 609.21 billion in fixed-rate Treasury bonds, and PHP 109.07 billion in Treasury bills.

On the other hand, external gross borrowings dropped by 27.02% to PHP 267.41 billion in the period ending June from PHP 366.44 billion a year ago.

This was made up of PHP 100.5 billion in program loans, PHP 51.67 billion in new project loans, and PHP 115.25 billion in global bonds.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the government may not have needed to boost borrowings in June because of higher dividends from government-owned and -controlled corporations (GOCCs).

“More dividends from GOCCs remitted to the National Government (NG) would have helped reduce the need for the NG to borrow to be able to finance the budget deficit,” he said in a Facebook Messenger chat.

GOCCs have remitted PHP 92.15 billion in dividends to the NG as of end-June, the BTr said.

In April, the Department of Finance raised the mandatory dividend remittances of GOCCs to 75% of their annual net earnings in 2023 from 50% previously.

The government may also be waiting for the Philippine and US central banks to ease monetary policy before it could borrow more, Mr. Ricafort said.

“Market expectations of lower Fed and local interest rates could have also provided the NG some leeway to wait for interest rates/borrowing costs to further go down to be able to save on financing costs/debt servicing costs,” he said.

The US Federal Reserve kept its key policy rate at the 5.25-5.5% range last week, but could start easing by September amid its weakening job market.

On the other hand, the Bangko Sentral ng Pilipinas earlier signaled a potential 25-basis-point cut at its Aug. 15 meeting.

The NG’s borrowing plan for this year is set at P2.57 trillion, of which 75% will come from domestic sources and 25% from foreign sources. — B.M.D.Cruz