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BoP estimates raised as current account swings to surplus

The Philippine central bank on Friday raised its balance of payment projections for this year and 2021 amid a prolonged coronavirus pandemic, as the country’s current account reverted to a $4.1-billion surplus in the third quarter.

The surplus came as the trade in goods deficit fell and net receipts of secondary income rose, making up for the lower net receipts of primary income and trade in services, the Bangko Sentral ng Pilipinas (BSP) said in a statement.

Last quarter’s current account surplus was a turnaround from the $456-million deficit in the third quarter of last year, but smaller than the $4.4-billion surplus in the second quarter.

“The latest BoP assessment for 2020 reflects the apparent bottoming out of the COVID-19 impact in Q2 2020,” the BSP said in a statement. “While recent external account figures remain below pre-pandemic trend and still in the negative territory, these are expected to improve from the first half of the year,” it added.

The payment position is expected to post a surplus of $12.8 billion in 2020, equivalent to 3.4% of economic output and higher than its previous estimate of P8.1 billion.

This reflects largely the $10.3 billion overall BOP position in the 10 months through October, supported by higher foreign borrowings by the National Government and lower merchandise trade deficit, the central bank said.

For 2021, the major BoP accounts are expected to show continued improvements but could still remain below pre-pandemic levels, the central bank said. “The overall BoP position is projected at $3.3 billion in 2021, attributed mainly to the expected moderation of the current account surplus next year.”

The central bank said it had raised its projected current account surplus to $8.4 billion, or equivalent to 2.3% of gross domestic product (GDP) this year from the $6-billion estimate in October.

This is expected to narrow to $6.1 billion or 1.5% of the economic output next year, higher the previous estimate of $3.1 billion or 0.8% of output.

The BSP expects a “sustained surplus in the current account over the medium term but one that is moderating as the economy recovers and imports also recover,” Deputy Governor Francisco Dakila, Jr. told an online news briefing.

Keeping more outflows than inflows might bode well for economic growth when imports were strong before the pandemic since the Philippines is a net importing country and has been posting a current account deficit in the past, said Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc.

“This means that a surplus may not actually be good in a crisis and that the challenge is to get the economy moving again to a point when the current account settles in a healthy deficit,” he said in a Viber message.

BSP data showed the trade in goods deficit narrowed to $4.227 billion from $8.605 billion. Primary income fell by 15.7% from a year earlier to $1.061 billion, while secondary income rose by 4.1% to $7.28 billion.

In the nine months to September, the current account balance posted an $8.7-billion surplus from a $3-billion deficit a year ago, it said in a separate statement.

The central bank traced the surplus to a fall in the trade in goods deficit, offsetting the lower net receipts of trade in services, primary and secondary income.

The current account shows the country’s economic interaction with the rest of the world. It includes trade in goods and services, remittances from migrant Filipino workers, profits from Philippine investments overseas, interest payments to foreign creditors and gifts, grants and donations to and from abroad.

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