The country’s trade deficit is expected to widen further on the back of more expensive fuel and food items as well as the soaring dollar, according to local economists.
On Tuesday, the Philippine Statistics Authority (PSA) reported that the country’s balance of trade in goods (BoT-G) amounted to negative $5.68 billion, indicating a trade deficit, which widened by 78.6 percent year-on-year.
The trade deficit in May recorded an annual increase of 72.7 percent. A year ago, the gap widened by 142.1 percent.
“I think these are due both to supply side constraints and the weakening of the peso. This situation depends crucially on the Ukraine war as well as the continued presence of the virus threat,” Ateneo Eagle Watch Senior Fellow Leonardo A. Lanzona Jr. told this newspaper.
“It seems hard to predict how this will go. But both forces seem complementary. So, the cessation of hostilities in Ukraine can go a long way,” he added.
Based on the PSA data, total imported goods in May 2022 reached $11.99 billion representing a growth of 31.4 percent while exports reached $6.31 billion which reflected a 6.2 percent increase.
In terms of imports, fertilizers posted the highest growth at 132 percent followed by Mineral Fuels, Lubricants and Related Materials at 128.7 percent; and fish and fish preparations, 73.3 percent.
Cereal and cereal preparations were also part of the top 5 commodity groups that posted the highest growth in May at 65.7 percent.
“Yes [the trade deficit will widen] because they indicate [that] there’s the economic recovery and demand is strong; the continuing global inflation on fuels and food our major import; the export disruption due global supply chain problems after the pandemic,” former dean of the University of the Philippines School of Economics Ramon Clarete told the BusinessMirror.
“Trade deficit will continue to tighten, pushing up the value of the dollar. The United States Fed [Federal Reserve] monetary supply tightening in the US will exacerbate peso depreciation as forex [foreign exchange] reserves will be going out of the country to the US,” he added.
Former Tariff Commissioner George Manzano told the BusinessMirror in a phone interview that the increase in the imports of fertilizers and fuels, as recorded by the PSA data, takes into account the jump in the value of these products. The rise in the country’s import bill, he said, is due to the spike in the prices of these commodities.
Impact of Ukraine war
Manzano said prices of certain products, such as fertilizer and wheat, are due to the sanctions imposed on Russia as well as the fact that Ukraine was one of the world’s top sources of wheat. With the war, the prices of these commodities would still rise even if countries like the Philippines are able to source these products elsewhere.
“When the world market is depressed, the price will go up whether it [commodity] comes from India or from the US because these are commodity prices, [this is the behavior of] world markets. Effectively, you have sanctions on Russia and you have a disturbance in Ukraine, [this] will affect supply,” Manzano said.
At the commodity level, imports of urea which is used by rice farmers, reached $58.8 million in May from $19.03 million last year. This represented a growth of 209 percent.
On average, urea imports reached $171.11 million in January to May, 101.3 percent higher than the $85.01 million recorded a year ago.
Data from the PSA also indicated that import payments for wheat soared 156.1 percent to $245.2 million in May from $95.76 million last year.
In January to May, wheat imports nearly doubled to $1.048 billion, from $527.17 million in the same period in 2021.
“The fertilizer and fuel imports comprised a large portion of imports because the global inflation caused by the Russian-Ukraine war led to a rise in oil and gas prices. Since fertilizer production is energy intensive, food production that uses fertilizers is also costly,” University of the Philippines Professor Emeritus Epictetus Patalinghug told the BusinessMirror.
“Given global oil and fertilizer supply and price trends, food is expected to be expensive. The depreciation of the peso is going to make food imports more expensive and will most probably widen the trade deficit the rest of this year,” he added.
Under Mineral Fuels, Lubricants and Related Materials, imports of coal and petroleum crude surged by 142.7 percent and 59.1 percent, respectively. Imports of coal in May reached $476.76 million while petroleum crude amounted to $210.51 million.
However, the import bill of these products was much higher in the January to May period. The country’s coal imports since January leaped by 161.6 percent to $1.828 billion while petroleum crude shipments jumped by 397.2 percent to $1.052 billion.
The data also showed the “Others” under Mineral Fuels, Lubricants and Related Materials, also posted a growth of 138.5 percent and in the January to May period, 116.5 percent.
PSA said “Others” includes diesel fuel and fuel oils, light oils and preparations, aviation turbine fuel, and other mineral fuels, lubricant and related materials.
“My sense is that the deficit still has room to widen, but the cheaper peso will start to slow down the pace of growth,” Philippine Institute for Development Studies (PIDS) Senior Research Fellow Roehlano Briones told this newspaper.
Trade performance
In May, the country’s total external trade in goods amounted to $18.3 billion and grew by 21.5 percent on an annual basis. In the previous month, the annual increase was slower at 20.3 percent, while in May 2021, it grew by 44.9 percent.
“Of the total external trade in May 2022, 65.5 percent were imported goods, while the rest were exported goods,” PSA said.
Export earnings in January to May reached $31.87 billion. This is 8.4 percent higher than the total export value recorded last year.
The country’s import bill in the same period reached $56.8 billion, or 29 percent higher than last year’s $44.02 billion.
Of the top 10 major exported commodity groups, 7 recorded annual increases in terms of value, led by coconut oil at 180.5 percent, followed by other mineral products at 32.9 percent, and chemicals, 23.6 percent.
Most of the imported goods were electronic products with an import value of $2.78 billion or a share of 23.2 percent to total imports in May. This was followed by mineral fuels, lubricants and related materials, valued at $2.26 billion or a share of 18.8 percent; and transport equipment which amounted to $908.95 million or 7.6 percent of the total.
In terms of markets, the country’s top export destination was the United States, which accounted for $940.09 million or 14.9 percent of total exports during the month.
The other top buyers of Philippine goods in May were Japan with $900.46 million or 14.3 percent of total exports; Hong Kong, $896.02 million or 14.2 percent; People’s Republic of China, $865.74 million or 13.7 percent; and Singapore, $382.98 million or 6.1 percent.
China was the country’s top import source, accounting for $2.43 billion or 20.3 percent of the total import bill in May.
The other top import sources of the Philippines were the Republic of Korea with $1.21 billion or 10.1 percent of total imports; Japan, $1.04 billion or 8.7 percent; Indonesia, $947.62 million or 7.9 percent; and Taiwan, $740.37 million or 6.2 percent.
Image credits: Nonie Reyes
