The country’s current-account (CA) balance in relation to the GDP is expected to shrink with the new administration’s plan to aggressively expand infrastructure spending in the next six years, the economist of an international bank said on Thursday.
HSBC economist Joseph Incalcaterra said in an economic briefing in Makati City the country’s current account will likely remain in surplus, but will decline to 1.3 percent of GDP for this year and 0.9 percent of GDP in 2017.
Assuming President Duterte’s economic managers’ deficit spending target of 3 percent is met, the current account’s share to the Philippine GDP would likely fall to as low as 0.5 percent.
This is below the government’s projection for the year, which is at 1.9 percent, as announced by the central bank mid-June this year.
The current account is the biggest and most stable component of the country’s balance of payments, or the sum of the Philippines’s transactions with the rest of the world.
This component is usually buoyed by remittances from overseas Filipino workers, and the revenues from the business-process outsourcing (BPO) sector.
In the first quarter of the year, however, the two powerhouse dollar-generating sectors for the Philippine economy were affected by the weakness in the country’s trade sector due to the slump in Asian exports.
Aside from the weak export numbers, Incalcaterra said an expected surge in capital imports needed for the construction of infrastructure in the country—as promised by the new administration—will widen the trade deficit and affect the overall current-account position of the Philippines.
The economist said the decline in the current account’s share to GDP is a positive development for the Philippines, as this translates to more productive business activities that will increase the country’s economic capacity in the long term.
The Philippine current account registered a surplus of $477 million, which is equivalent to 0.6 percent of GDP, in the first quarter of 2016.
This is lower than the $2.2-billion surplus—or 3.2 percent of GDP—posted in the first quarter of 2015.
“The sharp decline in the current-account surplus was attributed to the significant widening of the trade-in-goods deficit, as merchandise exports fell while merchandise imports increased.
Higher net receipts in the services, primary and secondary income accounts kept the current account in surplus territory, offsetting the widened trade-in-goods deficit,” the central bank said earlier.
HSBC hiked its growth forecast for the year to 6.3 percent, up from its February forecast of 5.8 percent.
HSBC’s new forecast is within the government’s new growth target for 2016 at 6 percent to 7 percent.
For next year, HSBC sees growth also hitting 6.3 percent, which means 2017 growth will miss the higher growth target of the current administration at 6.5 percent to 7.5 percent as announced
this month.