BANGKO Sentral ng Pilipinas (BSP) Governor Benjamin Diokno announced on Thursday that the Central Bank has reviewed and revised upward its balance of payments (BoP) projection on the back of optimism for prospects in 2021.
Diokno said they now expect the country’s BoP to hit a surplus of $6.2 billion by the end of this year, doubling the earlier projection of $3.3 billion. This represents 1.6 percent of the country’s gross domestic product (GDP).
For next year, the BSP said the BoP is expected to taper off to a surplus of $3.8 billion.
The country’s BoP is the summary of the Philippines’s transactions with the rest of the world. It is usually considered an important economic indicator in an economy as it shows the level of earnings or expenses of the Philippines with its transactions with the world.
A surplus means the country made more dollar earnings than its expenses during the period.
Cash remittance projections are retained at a growth rate of 4 percent. The projection for foreign direct investments (FDI) was also slightly raised to $7.8 billion from the earlier projection of $7.5 billion. Foreign portfolio investments (FPI), or hot money, are now expected to hit a net inflow of $5.7 billion from the earlier projection of $3.5 billion.
Strong external position, risks
In a separate report published on Thursday, Fitch Solutions, the research arm of the Fitch Group, said the Philippines’s external position will remain strong in 2021, but warned of long-term challenges.
Fitch Solutions expects the Philippines’s current account to remain in surplus this year on the back of a low base, coupled with the government-led investment drive.
“The rebound is largely contingent on the economy being able to reopen and infrastructure spending to go as planned by the 2021 budget,” Fitch Solutions said.
While prospects are positive for this year, the international think tank warned of potential challenges for the country’s external position in the long run.
“Over the longer term, we do see challenges for the Philippines’s external position, which will likely drag the current account into a widening deficit. As we have noted previously, the Philippines has struggled to attract foreign direct investment, a long-term and more stable form of external funding. While reforms to address the country’s relatively high corporate income tax rate and restrictive foreign ownership rules are in the works, the delays in implementing them mean the country is failing to benefit from the relocation of low value add manufacturing out of China to South-East Asia, weakening the outlook for its manufacturing base,” Fitch Solutions said.
“Our Operational Risk team ranks the Philippines below its major regional peers in regards to the operating environment, particularly from a logistical perspective,” it added.
Image credits: Photo courtesy Bangko Sentral ng Pilipinas
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