Philippines seen posting bigger dollar deficit amid expensive imports

MANILA, Philippines — The Bangko Sentral ng Pilipinas reported on Friday that the country's balance of payments (BOP) position will likely land at a deficit this year due to a higher import bill as supply chain disruptions and rising commodity prices will continue to roil global economic recovery.

In its quarterly report, the BSP raised its projection for the BOP position to hit a $6.3 billion deficit this year, higher compared to the central bank's previous forecast of a $4.3 billion deficit.

The latest BOP deficit forecast is equivalent to 1.5% of the country's gross domestic product. The forecast means more dollars would leave the country than those that would enter.

If this projection holds true, it would reverse the $1.3 billion BOP surplus recorded last year. The BSP said its outlook is hinged on external headwinds, such as Russia's continued invasion of Ukraine, which is causing headaches to the global economy as fuel prices remain expensive and commodity prices keep rising everywhere.

"The emerging BOP outlook for 2022 and 2023 remains quite circumspect in view of the recent buildup in external risks. Of note is the downgraded global growth outlook following the escalation of the Ukraine-Russia conflict and its international ramifications, most notably the increase in food and fuel prices. The anticipated slowdown of China’s economy could also put pressure on trade prospects," the BSP said in a statement.

A BOP deficit also means a weaker currency, which could further bloat import costs. For this year, BSP expects imports to grow 18% annually, higher than its old projection of 15% increase.

Forecast for exports was unchanged at 7% year-on-year growth. If realized, it would be lower than 12.4% expansion in 2021 as global supply chain disruptions and higher input costs hit exporters, while lockdowns in China, a major trading partner, crimp demand for Filipino products.

For Nicholas Antonio Mapa, senior economist at ING Bank in Manila, the Philippines’ some of the Philippines’ major dollar drivers might not be able to counteract the deficits.

“Remittance and BPO receipt growth will remain robust but will clearly fail to offset a much wider trade deficit," Mapa said in an emailed commentary.

Remittance from overseas Filipinos is expected to grow 4% this year and the next, as the BSP retained its projection due to its relative resilience amid the pandemic and the resumption of deployment abroad.

The BSP also kept its forecast on business process outsourcing receipts this year at 8% annually, before slowing down to 5% in 2023.

Likewise, the projection for travel receipts are expected to bounce back to 100% this year as easing restrictions allowed more tourism activities to reopen.