Phl CA shortfall below int’l norm — BSP

The projected shortfall in the country’s current account (CA) position, arising from strong imports to support the growing economy, is way below alarming levels, according to the Bangko Sentral ng Pilipinas (BSP).

Francisco Dakila Jr., BSP managing director for the monetary policy sub-sector, said trade-in-goods deficit has been widening as imports continued to grow faster than exports since 2015.

Last year, the Philippines booked a record trade deficit of $29.8 billion from $24.93 billion in 2016. Imports recorded a double-digit growth of 10.2 percent to $92.7 billion, while exports rose 9.5 percent to $62.9 billion.

Dakila said the import growth last year reflects the broad-based expansion of the economy with raw materials and intermediate goods growing 11.3 percent, mineral fuels and lubricants at 32.9 percent, consumer goods with 8.4 percent, and capital goods with 4.2 percent.

Dakila said the strong growth in goods imports led to the narrowing of the current account balance but was tempered by sustained receipts from traditional sources such as remittances, tourism receipts, and revenues from the business process outsourcing sector.

He said the projected current account deficit of 0.2 percent of gross domestic product (GDP) for this year is way below the international ceiling of five percent of GDP.

The current account position is an important indicator about the economy’s health. It is the sum or the balance of trade in goods and services less imports as well as the net income from abroad and net current transfers.

Dakila said the last time the Philippines booked a current account deficit of more than five percent was during the power crisis in 1990 with 5.7 percent of gross national product (GNP) and during the Asian financial crisis in 1997 with 5.1 percent of GNP.

He added the narrowing of the current account balance implies the convergence of national investments and total savings.

Dakila said the gap between national investments and total savings has closed in 2016 after widening between 2002 and 2007.

“You can see that investment in proportion to GDP has accelerated. The narrowing of the current account balance is taken as a sign that the economy is overheating. But in this case, my take is that the narrowing, if it comes from better investments, is actually what is needed to prevent the economy from overheating,” he said.

The BSP expects the country to book a current account deficit of $700 million or 0.2 percent of GDP this year from a shortfall of $100 million last year.