MANILA, Philippines — The ballooning trade and current account deficits arising from strong imports are still manageable as the country’s foreign exchange buffer remain sufficient, the Bangko Sentral ng Pilipinas (BSP) said.
BSP assistant governor Francisco Dakila said the country’s balance of payments (BOP) deficit is “financeable,” while the current account (CA) shortfall is manageable as the country’s gross international reserves (GIR) remain well above international standards.
Dakila said the GIR level stood at $77.5 billion as of end-June and is enough to cover 7.1 months’ worth of imports of goods and services.
“Reserves remain to be in a very comfortable level. The international norm is just between three and four months so we are pretty much above the international norm,” Dakila added.
The GIR is the sum of all foreign exchange flowing into the country. It serves as buffer to ensure that the Philippines would not run out of foreign exchange that it could use to pay for imported goods and services, or maturing obligations in case of external shocks.
The buffer is also the major source of funds of the BSP to smoothen the volatility of the peso in the foreign exchange market. The central bank has been active in the market to check sudden and sharp movement of the peso that recently pierced the 54 to $1 mark to hit its lowest level in almost 13 years.
Dakila said there are others structural sources of foreign exchange, including remittances from overseas Filipinos, that usually pick up in the fourth quarter of the year in time for the Christmas holidays.
“Come the fourth quarter of the year, we have a lot of inflows expected,” he added.
He said, the markets have already anticipated additional rate hikes by the US Federal Reserve.
“When you do shift from a structural CA position and we are now in a deficit, then some adjustments to the exchange rate is anticipated to take place. That is what we are seeing when we have quite a strong imports,” Dakila said.
Dakila added the exchange rate would settle at some point as it shifts from one equilibrium to another.
Redentor Paolo Alegre, head of the BSP’s Department of Economic Statistics, reported on Friday the country’s current account deficit amounted to $3.09 billion or 1.9 percent of gross domestic product (GDP) in the first half of the year.
Data showed the CA shortfall from January to June already matched the projected $3.1 billion CA deficit for 2018 and almost 25 times the $133 million deficit equivalent to 0.1 percent of GDP booked in the same period last year.
The wider shortfall was attributed mainly to the widening deficit in the trade-in-goods account and lower net receipts in the primary income account, which more than offset the higher net receipts in the trade-in-services and secondary income accounts.
The trade-in-goods deficit widened 27.9 percent to$23.3 billion as imports of goods jumped10.7 percent to $48.7 billion while exports of goods slipped 1.6 percent to $25.3 billion.
As a result, the country’s balance of payments position (BOP) yielded a deficit of $3.3 billion in the first half of year, more than four times higher than the $706 million recorded in the same period last year.