THE Bangko Sentral ng Pilipinas (BSP) said it expects a larger balance of payments (BoP) surplus this year, with the current account seen to post a $6-billion surplus as the economy gradually recovers from the coronavirus crisis.

“Against a backdrop of a global economy showing signs of recovery but remaining susceptible to setbacks and a domestic economy slowly lifting its way out of containment measures, the BSP sees the overall BoP position to post a surplus of $8.1 billion in 2020,” the central bank said in a statement.

The BoP estimate is equivalent to 2.2% of the gross domestic product (GDP) and is a wider surplus than the $600 million (0.2% of GDP) outlook given in June. The BoP summarizes the country’s economic transactions with the rest of the world in a given period.

For next year, BoP is expected to reach a $3.4-billion surplus, which is equivalent to 0.9% of GDP.

The Monetary Board approved the new BoP projections in a meeting on Oct. 8.

The BSP said the higher BoP surplus stems from its revised forecast for the current account at a $6-billion surplus (equivalent to 1.6% of the GDP) this year, from the June forecast of a $1.9-billion deficit (equivalent to -0.5% of GDP).

The current account includes trade, remittances, profit from Philippine investments abroad, interest payments to foreign creditors, and grants to and from abroad.

“The significant upward revision in the current account is attributed mainly to the expected narrower trade-in-goods deficit driven by the foreseen broad-based contraction in both goods exports (-16%) and goods imports (-20%), with the latter declining at a faster rate due to weaker domestic demand,” the BSP said.

Cash remittances are expected to contract by 2% this year, lower than the 5% earlier forecast, before rising by 4% next year.  In the first seven months of the year, cash remittances reached $16.802 billion,  2.4% lower from the same period a year ago.

Export revenues from the business process outsourcing industry are still seen to grow by 2% this year, and by 4% in 2021.

Gross international reserves (GIR) are also seen to reach $100 billion, higher than the previous $90-billion projection. The dollar buffers are expected to reach $102 billion by end-2021.

As of end-August, GIR already stood at $98.95 billion, higher by 15% from a year earlier.

By 2021, the current account is projected to see a surplus of $3.1 billion or about 0.9% of the GDP.

“The external sector outlook for 2021 reflects more favorable growth prospects as the global economy proceeds from an earlier restart of economic activity in the second half of 2020,” the BSP said.

“Nonetheless, the balance of risks surrounding the outlook continues to lean toward the downside owing to possible resurgence in virus infections across countries as well as pandemic-induced structural changes in labor conditions (contact-intensive job losses) and trade patterns (heightened protectionism).”

At the same time, the BSP raised its projection for foreign direct investments (FDI) inflows to $5.6 billion this year from the $4.1 billion estimate given in June. FDI inflows are expected to reach $7 billion in 2021.

As of end-July, FDI inflows stood at $3.795 billion, down by 11% from a year ago.

The outlook for foreign portfolio investments remained at a net inflow of $2.4 billion this year, and $3.5 billion in 2021.

“While uncertainty continues to weigh down on business and investor confidence, factors such as expectations of a better-than-initially-anticipated global economic performance for the year; the reopening of advanced economies with investment interest in the Philippines; the country’s investment-grade credit standing; and its expected gradual economic recovery are also seen to support foreign investment inflows for the rest of the year,” the BSP said.

The BSP said the new projections are based on a gradual recovery in the near term, and warned that uncertainty remains over the extent of the pandemic’s impact on the economy. — L.W. T. Noble

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