BSP sees wider balance of payments deficit in 2022

Taking into consideration various external risks that could hamper global growth, the Bangko Sentral ng Pilipinas (BSP) is expecting the country’s balance of payments (BOP) to post a wider deficit than it earlier projected for this year.

The BOP consists of Philippine transactions with the rest of the world during a specific period.

A surplus means more funds entered the country, while a deficit means more funds left.

For 2022, the central bank said it forecasts a BOP deficit of $6.3 billion or -1.5% of gross domestic product.

The latest BOP shortfall projection is wider than the BSP’s earlier forecast of $4.3 billion deficit this year in March.

“The current set of BOP projections incorporates latest available data as well as recent emerging developments,” the BSP said.

The central bank cited 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 as well as the anticipated slowdown of China’s economy, which could also put pressure on trade prospects.

“Meanwhile, capital flows could be particularly volatile following the abrupt monetary policy normalization in the US and in other major economies,” it said.

Nonetheless, the BSP said that despite the external challenges, the Philippines’ sustained strong macroeconomic fundamentals as well as the passage of a series of business-friendly legislations “are expected to serve as the dominant pull factors for investment inflows into the country.”

“The latest forecasts on foreign direct investments and business process outsourcing receipts continue to point to robust expansion,” the central bank noted.

In the first quarter of 2022, the country’s BOP position posted a surplus of $495 million, a reversal from the $2.8-billion deficit in the same period last year.

For 2023, the BSP is expecting a BOP deficit of $2.6 billion unchanged from its earlier projection in March.

However, it said that the challenge of dealing with the COVID-19 crisis legacies, the Ukraine-Russia war, as well as global financial tightening continue to dampen prospects for the country’s external sector next year.

“Even as the global economy is expected to sustain its recovery momentum in 2023, the mounting uncertainty continues to temper expectations for a durable upturn in external demand,” it said.

“As such, the same positive domestic considerations noted for this year are likely to remain as the primary pull factors supporting inward financial flows next year. More importantly, the continued legislation of structural reforms and implementation of business- and investment-enabling laws are seen to further enhance trade and investment viability,” it added.

The BSP said it continues to emphasize limitations to the forecasts, particularly given continued buildup of external challenges.

“The BSP will continue to monitor closely emerging external sector developments and risks and how these may impact the BSP’s fulfillment of its price and financial stability objectives,” the central bank said.—AOL, GMA News