BOP deficit may narrow to $300 million

MANILA, Philippines — ANZ Research sees an improved external payments position for the Philippines, with the balance of payments (BOP) deficit narrowing significantly to $300 million this year from a record-high level of $7.26 billion last year.

The sizeable reduction is expected to lower the BOP shortfall to just 0.1 percent of gross domestic product (GDP) in 2023 from 1.8 percent of GDP in 2022.

The Bangko Sentral ng Pilipinas (BSP) is looking at a smaller BOP deficit at $1.6 billion (0.4 percent of GDP) from $5.4 billion (1.3 percent of GDP) in 2023 and $500 million ( 0.1 percent of GDP) in 2024 after hitting an all-time high in 2022.

For the first quarter, the country’s BOP surplus reached $3.45 billion or almost seven times the $495 million recorded in the same quarter last year.

The BOP is the difference in total values between payments into and out of the country over a period.

A deficit means more dollars flowed out for the country to pay for the importation of more goods, services and capital than what came in from exports, remittances from overseas Filipino workers (OFWs), business process outsourcing (BPO) earnings and tourism receipts.

“Although exports have disappointed so far, we are banking on a lower import bill to bring in the desirable outcome,” ANZ Research said.

Latest data from the Philippine Statistics Authority (PSA) showed the country’s trade deficit widened by 13.1 percent to $9.61 billion in the first two months from $8.49 billion in the same period last year.

During the period, exports contracted by 15.6 percent to $10.33 billion from $12.24 billion, while imports slipped by 3.9 percent to $19.94 billion from $20.74 billion.

For February alone, the country’s trade deficit narrowed by 2.7 percent to $3.87 billion from $3.98 billion in the same month last year.

This, after exports shrank by 18.1 percent to $5.07 billion from $6.2 billion, while imports contracted by 12.1 percent to $8.95 billion from $10.18 billion.

“Import prices still have room to retreat while import demand is also expected to weaken in line with the national government’s measured infrastructure spending plan and the impact of monetary tightening,” ANZ Research said.

According to ANZ Research, services exports are set to rise, driven by a recovery in the tourism sector.

It noted that the Department of Tourism (DOT) is projecting a 78-percent jump in tourists arrivals to 4.8 million this year from 2.7 million last year.

Likewise, the research firm cited the potential for a step-up in BPO services exports, with the information technology and business process management (IT-BPM) sector targeting to hit annual revenues of $59 billion by 2028 from around $30 billion in 2021.

Although ambitious, ANZ Research said the recent ratification of the Regional Comprehensive Economic Partnership (RCEP) free trade agreement has opened the door for new opportunities for BPO services exports beyond developed markets such as the US.

It said foreign portfolio investments recovered only partially in 2022, following a $10.2-billion in net outflows in 2021.

“Year-to-date, portfolio flows have become more favorable as the US Federal Reserve turned less aggressive in the aftermath of the banking crisis and the Philippines’ relatively better domestic growth prospects versus its regional peers,” ANZ Research said.

Furthermore, it believes that efforts by the Marcos administration to tap the global debt market should be a source of additional boost this year.