Angelo Taningco
Economist, Treasury Group

The Philippines’ current account balance was in a deficit position for the second-consecutive quarter in Q1 2017, amounting to $318 million or 0.4% of gross domestic product (GDP), according to the Bangko Sentral ng Pilipinas (BSP) latest balance of payments (BOP) report released on 16 June. This was lower than the previous quarter’s current account deficit of 1.2% of GDP and a shift from its surplus of 1.1% of GDP four quarters ago. Nevertheless, the first-quarter deficit in the current account was partly responsible for the balance of payments (BOP) to incur a deficit of $994 million (1.1% of GDP) in the same quarter.

Figure: BOP & Current Account Balance
Q1 2015 – Q1 2017
(percent of GDP)

 
The first-quarter current account deficit was brought about by a trade-in-goods deficit of $9.8 billion that was partly offset by net receipts in trade-in-services ($2.4 billion), primary income ($678 million), and secondary income ($6.5 billion). The trade-in-goods deficit was solely due to goods exports being outweighed by importable items while net receipts for trade-in-services, primary income, and secondary income were bolstered by business process outsourcing (BPO) export revenues, compensation inflows from resident overseas Filipino (OF) workers, and non-resident OF worker remittances, respectively.

On a year-on-year (yoy) basis, the first-quarter current account balance shifted to a deficit from a surplus level due to a relatively sharp 25.9% growth in the trade-in-goods deficit that was moderated by increases in the net receipts of trade-in-services (19.0%), primary income (5.7%), and secondary income (9.5%). The widening of the trade-in-goods deficit stemmed from faster growth in merchandise imports vis-à-vis goods exports (19.2% yoy versus 14.1% yoy). On the other hand, the bigger net receipts in trade-in-services was heavily reinforced by a 9.9% yoy growth in BPO export proceeds while that for secondary income largely offspring from a 10.9% yoy surge in personal transfers, of which 98% were in the form of non-resident OF worker remittances.

BSP has revised downward its 2017 BOP forecast to a $0.5 billion deficit from its initial projection of $1 billion surplus made last December. Meanwhile, we maintain our BOP surplus forecast of $0.5 billion (0.2% of projected GDP) for the current year, especially in light of more recent monthly developments on the BOP, in which it recorded a $917 million surplus in April that resulted in a sharp narrowing in its cumulative deficit level down to $78 million in January-April. Our full-year BOP projection is premised on our expectations of the current account reverting to a surplus on the back of a narrowing in the trade-in-goods deficit and an increase in the combined net receipts in trade-in-services, primary income, and secondary income as well as a lowering in the net outflow position of the financial account.

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