INCREASED imports of equipment and other capital goods are expected to further widen the country’s trade deficit in the coming years, according to local economists.
Philippine Statistics Authority (PSA) data released on Wednesday showed the country’s trade deficit ballooned to $26 billion in the January-to-August period. This was a 64.7-percent increase from $15.79 billion in the same period in 2017.
Ateneo Center for Economic Research and Development (Acerd) Director Alvin P. Ang told the BusinessMirror, however, that the growth in the trade deficit is not yet a cause for concern.
“A big chunk of the country’s imports are still infrastructure-related,” Ang said. “As long as this increase is not caused by consumer goods, the widening of the trade deficit is not a cause for concern.”
Ang expects the trade deficit to continue widening beyond 2022 because of the government’s “Build, Build, Build” (BBB) program and investment growth.
University of Asia and the Pacific School of Economics Dean Cid Terosa said the view that the trade deficit is not a cause for concern is only applicable from a long-term view.
Terosa agreed with Ang that the increase in the trade deficit, which is due to higher imports, is an indication of future investments in the country’s economic growth. In this regard, Terosa said the deficit will continue to widen until next year. However, deficits have a tendency to eventually narrow.
Meanwhile, from a short-term perspective, Terosa said the wider trade deficit is bad news, especially when it comes to the possible impact on the Philippine peso.
“From a short-term perspective, it’s a cause for concern because it can contribute to the weakness of the peso and consequently to macroeconomic instability,” Terosa said.
Action for Economic Reform (AER) Coordinator Filomeno S. Sta. Ana III agreed and said that the country’s weak export performance, in particular, is discouraging.
This may be largely due to unaddressed problems in the agriculture sector, as well as low labor productivity in the country. Sta. Ana added that this also reflects the “complacency” of exporters due to the incentives granted to them.
“Exporters have been complacent and have not innovated given the protection through fiscal incentives given to them. Fiscal incentives are effective when they are time-bound. But many exporters are given almost perpetual incentives that are not based on performance,” Sta. Ana said.
In terms of the increase in imports, Sta. Ana said this was “acceptable” because of the growth in capital equipment and production inputs shipments. This, he said, is an indicator of future economic growth.
In terms of the increase in imports, Sta. Ana said this was “acceptable” because of the growth in capital equipment and production inputs shipments. This, he said, is an indicator of future economic growth.
However, economists such as Calixto V. Chikiamco said the government’s “Trabaho” bill will discourage exports from expanding. This will further cause exports to slow next year.
“[The] trade deficit will even widen next year. Capital imports will surge as BBB takes off. [There is] no reason why exports will increase next year. Agriculture growth remains stagnant while uncertainty on Trabaho bill may keep exporters from expanding,” Chikiamco said.
Government’s take
The PSA data showed the country’s exports grew 3.1 percent, while imports grew 11 percent in August this year. Total export revenues reached $6.16 billion, while total import receipts amounted to $9.68 billion in August 2018.
The National Economic and Development Authority (Neda) pointed out that the country’s total trade grew for the fifth consecutive month in August 2018 by 7.8 percent, reaching $15.8 billion.
In a statement, Neda Officer in Charge and Undersecretary Rosemarie G. Edillon said the total import bill is expected to accelerate further in the coming months driven by capital goods to support the Build, Build, Build program. Payments for oil will also be higher as international prices push upward the costs of importation.
She added global growth is projected to remain steady at 3.7 percent in 2018 and 2019 based on the latest International Monetary Fund outlook as of October 2018. However, this is a downward revision from the July forecast of 3.9 percent for both 2018 and 2019 due to waning momentum in some advanced countries, among others.
“As trade tensions mount between the US and China, some manufacturing firms may seek to relocate their production, especially to Southeast Asia. This opens up opportunities for the Philippines to become a viable destination for export-oriented firms,” she said.
However, Edillon said the government must continue supporting key and emerging export sectors to maintain the country’s trade growth.
She said key strategies to improve the overall climate for export development are identified in the Philippine Export Development Plan 2018-2022.
These include removing unnecessary regulatory impediments, raising productivity and competitiveness of Philippine enterprises, upgrading export quality and standards, improving access to trade finance and enhancing export sectors’ innovative capacities.
“The immediate implementation of the Ease of Doing Business Act will also be vital in attracting competitive firms to enter the country’s exporting industry. The approval of the 11th Foreign Investment Negative List should further ease restriction on foreign investments and prop-up domestic economic activity,” Edillon said.