BSP expects balance of payments to shift to surplus in 2024

The Bangko Sentral ng Pilipinas (BSP) is expecting the country’s balance of payments (BOP) to yield a surplus next year, banking on expectations of a stronger economic and trade recovery.

The BOP consists of a country’s economic transactions with the rest of the world during a specific period, including trade in goods, services, and capital.

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

In the third quarter round of the 2023–2024 BOP outlook released Friday, the BSP’s policy-setting Monetary Board said that the overall payments position of the Philippines "is seen to pivot into a surplus position propped up by expectations of sustained improvements in the current account as well as the financial account."

A current account is the record of a country’s transactions in exports and imports of both goods and services, while a financial account refers to the record of international investment transfers between residents of a country and those in other countries.

The overall BOP position next year is expected to settle at a surplus of $1 billion, a reversal from the $500-million deficit projected by the BSP in the second quarter.

The current account is seen to stand at a narrower deficit of $10.3 billion than the $15.4-billion shortfall projected in the previous quarter.

Meanwhile, the financial account—which includes foreign direct and foreign portfolio investments—is also expected to yield a narrower deficit of $10.8 billion from the $14.4-billion gap projected in the second quarter round of the BOP outlook.

Gross international reserves are likewise seen to settle at $102 billion.

"On the domestic front, prospects for goods imports are backed in part by the national government’s plan to catch up on its spending and accelerate infrastructure development in the country," the BSP said.

"With the GDP growth target maintained at 6.5% to 8% in 2024 and the operationalization of the implementing rules and regulations of recently enacted investment-friendly legislation, investment opportunities could widen," the central bank said.

The BSP added that travel export receipts are anticipated to already breach their pre-pandemic level by 2024, "propelled by the aggressive promotion of tourism sites and activities as well as marketing the country as a strong growth center for the medical tourism industry."

"These factors lend support to a more buoyant BOP outlook for next year," it said.

Moreover, the International Monetary Fund forecasts world trade in 2024 to grow at 3.7%, a 0.2 percentage point improvement from the previous report, and global economic activity to sustain at 3%.

A pick-up in global trade activity is likely to ensue by next year sans any surprises, according to the BSP.

"The BSP continues to emphasize limitations to the forecasts, particularly given the continued buildup of external challenges. The BSP will continue to closely monitor emerging external sector developments and risks and how these may impact the BSP’s fulfillment of its price and financial stability objectives," it said.

Narrower deficit in 2023

For 2023, the BSP is expecting the BOP position to register a narrower deficit of $100 million from an earlier projection of $1.2 billion. 

However, the central bank said that, similar to most emerging markets, Philippine merchandise trade performance for the first half of the year has been on a declining trend as the recovery path of external demand has stalled amid elevated inflation, lingering geopolitical tensions, and rising trade barriers, among others. 

"The latest forecast on goods trade also incorporated the latest pronouncement by the country’s semiconductor industry that electronics exports, which account for the bulk of the country’s exports, will fall flat this year. Goods imports are expected to drop as international commodity prices have decelerated since the last projection round," it said.

Nonetheless, the services trade is anticipated to retain its strong growth momentum, supported by the upbeat demand for business process outsourcing services and a stronger-than-expected rebound in international tourist arrivals. 

"The country’s hosting of the FIBA Basketball World Cup 2023 provided an additional boost to the tourism industry," the BSP said.

"Overseas Filipino remittances are seen to remain stable and provide reliable support for the current account," it added.

Moreover, the BSP said that prospects for the financial account turned "softer" during this projection round, following the less notable performance of both FDIs and FPIs during the first half of the year.  

"The lingering high interest rate environment has further impeded trade and investment decisions, thus adding another layer of uncertainty to the BOP outlook for the year," it said.

In the first six months of 2023, the BOP stood at a surplus of $2.3 billion, a reversal from a deficit of $3.1 billion in the same period last year.

"This outcome was due primarily to the decline in the current account deficit, which resulted from higher net receipts of trade in services and a lower trade in goods deficit. Moreover, the financial account posted higher net inflows mainly from other investments," the BSP said.  —VBL, GMA Integrated News