Lower current account surplus seen on weaker OFW inflows

MANILA, Philippines - Singapore-based DBS Bank Ltd. sees the country’s current account surplus narrowing further this year as the economic uncertainty in the US and the debt crisis in Europe takes a toll on remittances of overseas Filipino workers (OFWs).

DBS said in its latest Daily Breakfast Spread that the country’s current account position would continue to come under pressure due to a slowdown in remittances from the US and Europe which account for about 59 percent of the country’s total OFW remittances.

“The Philippines current account outlook for the near term has become cloudier amid rising external headwinds. Indeed, remittance growth will slow in the coming months amid the slew of poor data from the US and the ongoing European sovereign debt crisis,” DBS stressed.

The current account balance is the difference between a country’s savings and its investment. If the current account balance is positive, it measures the portion of a country’s saving invested abroad; if negative, the portion of domestic investment financed by foreigners’ savings.

The country’s current account surplus declined by 9.5 percent to $8.465 billion last year or 4.5 percent of gross domestic product (GDP) in 2010 from $9.358 billion or 5.8 percent booked in 2009 due to a higher deficit in trade in goods as the value of imports outpaced the volume of exports as well as trade in services due to higher net repayments.

The actual current account surplus booked last year was lower than the BSP target of $10.7 billion.

OFW remittances went up by 8.2 percent to a new record level of $18.76 billion last year from $17.35 billion in 2009 exceeding the revised eight percent growth forecast set by the BSP for 2010. Originally, the BSP had a six-percent growth for OFW remittances last year but revised the target due to the strong demand for skilled Filipino workers abroad.

However, the BSP lowered its OFW remittance growth forecast to seven percent or $20.1 billion instead of the original target of eight percent or $20.2 billion this year due to the tensions in the Middle East and North African (MENA) states and the disasters in Japan.

Next year, the BSP expects a slower growth of five percent or $21.2 billion.

BSP officials and analysts have downplayed the impact of the tensions in the MENA region and the disasters in Japan on OFW remittances.

“The only silver lining lies with the fact that remittance from the Middle East region appears to have stabilized, with the amount of remittance growth turning positive for the first time in four months in April,” DBS added.

OFW remittances grew six percent to $6.21 billion from January to April compared to $5.86 billion recorded in the same period last year. Major sources of remittances in the first four months of the year include the US, Canada, Saudi Arabia, United Kingdom, Japan, Singapore, United Arab Emirates, and Italy. 

In 2010, the Philippines booked a record balance of payments surplus of $14.4 billion from $6.42 billion in 2009 while gross international reserves (GIR) reached an all-time high of $62.37 billion from $45.03 billion.

The BSP is confident that the GIR, which refers to the sum of all foreign exchange flowing into the country, would hit $70 billion while the BOP surplus would amount to $6.7 billion this year.