Philippines’ CA deficit to widen until 2021 — Fitch

MANILA, Philippines — The country’s current account (CA) deficit would continue to widen until 2021 due to strong import growth, according to Fitch Ratings.

The debt watcher said the subdued export performance and generally strong import growth in 2020 and 2021 would keep the CA in a deficit of between 2.4 percent and 2.6 percent of gross domestic product (GDP).

For 2019, Fitch said the country’s CA shortfall may hit 2.4 percent of GDP due to weak export performance in the first half.

Exports went down by 0.5 percent to $34.22 billion from January to June compared to $34.39 billion a year ago.

On the other hand, imports also declined by around one percent to $53.12 billion from $53.63 billion a year ago.

This translated to a 1.7 percent improvement in the trade deficit to $18.9 billion from January to June compared to $19.23 billion in the same period last year.

The CA position measures the net transfer of real resources between the domestic economy and the rest of the world. It consists of transactions in goods, services as well as primary and secondary income.

The Bangko Sentral ng Pilipinas (BSP) expects a record CA deficit of $10.1 billion this year, 27.8 percent wider than the $7.9 billion shortfall recorded last year.

The projected deficit is equivalent to 2.8 percent of GDP for this year from 2.1 percent of GDP last year.

On Friday, BSP Deputy Governor Francisco Dakila Jr. reported that the country’s CA deficit thinned to $1.74 billion or one percent of GDP from $3.75 billion in the same period last year.

This after, the shortfall narrowed sharply to $145 million in the second quarter from $3.28 billion in the same quarter last year.

Despite the improvement, Dakila said the country’s CA position would remain in deficit for the rest of the year.

“The CA will not swing into a surplus this year. The deficit is lower than what we had projected,” Dakila said.

Government economists expect the country to incur a wider CA deficit due to stronger imports to support the growing economy as well as weak global growth and the trade war between the US and China.

Dakila said the shortfall remains manageable due to the strong inflows of foreign direct investments (FDI) as well as foreign portfolio investments or hot money.