Philippines seen returning to dollar deficit as expensive oil bloats imports

MANILA, Philippines — After posting large dollar surpluses in the past two years, the Philippines is bound to witness more dollar outflows this year as high oil prices weigh heavily on the country’s import bill.

The Bangko Sentral ng Pilipinas now projects the country's balance of payments (BOP) position to post a $4.3-billion deficit this year, equivalent to 1% of gross domestic product. The forecast means more dollars would leave the country against those that would enter.

If the BSP’s prediction is realized, it would be a reversal from $1.3 billion BOP surplus recorded last year. The central bank said it took into account the impact of the ongoing Russia-Ukraine war, which has been making fuel prices ultra-expensive for countries like the Philippines, a net oil importer.

"The assessment of the BOP outlook for 2022 and 2023 takes on a more guarded view as the ongoing Russia-Ukraine conflict complicates the global and domestic recovery picture, magnifying the disruptions and uncertainties caused by the pandemic," the BSP said in a statement.

Prior to the conflict in Europe, the BSP was expecting a $700-million BOP surplus for this year. But the central bank decided to tweak its projections as the sharp increase in global oil prices are seen “pushing up the import bill”.

A BOP deficit also means a weaker currency, which could further bloat import costs.

Broken down, the BSP forecasts imports to grow 15% year-on-year in 2022, lower than 31% actual expansion posted in 2021 due to effects of a high base. Exports, meanwhile, are seen growing at an annual rate of 7% from 12.4% uptick chalked up last year.

Sought for comment, Jun Neri, lead economist at Bank of the Philippine Islands, said that even without the impact of the Russia-Ukraine conflict, the country's external position was still poised to weaken.

"Our BOP was bound to be in deficit even without the European conflict to be driven by a sharp rebound in imports, surge in external debt payments and capital outflows (given our slower monetary policy normalization vs the Federal Reserve)," Neri said in a Viber message.

"We won't be surprised if the BOP deficit hits 2% of GDP or higher," he added.

Dissecting the other components of BOP, the BSP said foreign direct investments are forecast to post a net inflow of $11 billion this year, which would beat the $10.5 billion net inflow in 2021. Foreign portfolio investments, also known as “hot money”, are expected to reverse to a $4 billion net inflow this year, from a $1.4 billion net outflow last year.

Receipts from business process outsourcing would grow 8% year-on-year this year, then slow down to 5% next year, the BSP said.

Meanwhile, the central bank said growth of cash remittances would likely be steady at 4% this year and next.

Tourism receipts are expected to skyrocket to 100% this year, from 66.5% contraction last year.