WEAKER global growth prospects are expected to lower the country’s Balance of Payments (BOP) deficit this year, according to the Bangko Sentral ng Pilipinas (BSP).
On Friday, the Monetary Board approved the new set of BOP projections for 2023 and 2024. The BSP said these projections take into consideration the latest economic developments.
“While some upside risks have been identified, particularly that of China’s economic reopening, the unwinding of supply-side disruptions, and decelerating inflation, downside risks continue to dominate the global and trade outlook particularly in the near term,” the BSP said.
“Weak external demand is likely to continue as uncertainties have been amplified by overseas financial system woes in recent months. These developments continue to weigh on the trade and investment prospects in emerging market economies, including the Philippines,” it added.
The BOP deficit is now expected to reach $1.2 billion as of the end of the second quarter of 2023, from the initial estimate of $1.6 billion in the first quarter of 2023.
The current account projection for 2023 was reduced to $15.1 billion from the initial estimate of $17.1 billion.
This adjustment stemmed from the lower projections made for merchandise goods exports and imports, which are now expected to grow by 1 percent and 2 percent, respectively. Initially, goods exports and imports were projected to grow by 3 percent and 4 percent, respectively.
FDI projected lower, at $9B
The country’s net Foreign Direct Investments (FDI) this year is now projected to only reach $9 billion from the initial estimate of $11 billion.
“Emerging market economies are more susceptible to FDI relocation as most rely heavily on capital investment from distant countries. Furthermore, emerging financial market vulnerabilities combined with the after-effects of monetary policy adjustments in advanced economies, such as the US, cast a shadow on the country’s external sector prospects for the year,” the BSP said.
Meanwhile, BSP data showed that the BOP deficit expected for 2024 was unchanged. However, the projection for the current account was reduced to $15.4 billion from the initial estimate of $16.8 billion.
Net FDI next year is now projected to only reach $11 billion from the initial estimate of $12 billion.
Q1 BOP surplus
The country’s BOP position registered a surplus of $3.5 billion in the first quarter of 2023, higher than the $495-million surplus recorded in the first quarter of 2022.
The BOP surplus increased due to higher net inflows (or net borrowing by residents from the rest of the world) in the financial account amounting to $5.7 billion in the first quarter of 2023 from the $4.7- billion net inflows in the first quarter of 2022.
The current account registered a deficit of $4.3 billion (equivalent to -4.3 percent of the country’s GDP) in the first quarter of 2023, from the $4 billion deficit (equivalent to -4.2 percent of the country’s GDP) in Q1 2022.
“This was due mainly to the widening trade in goods deficit and lower net receipts in the primary income account. This was partly muted by the increase in net receipts in the trade in services account,” BSP said.
The data also showed that the capital account recorded net receipts amounting to $21 million in the first quarter of 2023, a reversal from the $19 million net payments recorded in the same quarter in the previous year.
This was due mainly to the decline in gross acquisitions of non-produced non-financial assets (e.g., patents, trademarks, and copyrights) to $2 million in the first quarter of 2023 from the $42 million comparable figure recorded in the first quarter of 2022.
The financial account recorded net inflows (or net borrowing by residents from the rest of the world) amounting to $5.7 billion in the first quarter of 2023 from net inflows of $4.7 billion in the same period a year ago.
“This was largely on account of the increase in net inflows in the other investment account coupled with the reversal of the portfolio investment account to net inflows. However, this was slightly tempered by the decline in net inflows recorded in the direct investment account,” BSP said.
With this, the country’s gross international reserves (GIR) settled at $101.5 billion as of end-March 2023, lower than the $107.3 billion level registered as of end-March 2022.
The peso appreciated against the US dollar by 4.6 percent to average P54.86 to the dollar in the first quarter of 2023, from an average of P57.39 to the greenback in the last quarter of 2022.
Meanwhile, the peso depreciated year-on-year by 6.1 percent from an average of P51.53 to the dollar in the first quarter of 2022.
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