BUDGET Secretary Benjamin E. Diokno disputed the Capital Economics’s projection that the peso will further fall to 58 against the dollar next year, branding it as “out of this world.”
Aside from this projection, London-based think tank Capital Economics said in its September 14 report that the peso will further weaken to 55 to $1 this year due to concerns on the widening trade deficit.
Diokno said this is unlikely to happen because of the country’s “sound” fundamentals, citing growth in remittances, tourism arrivals and foreign direct investments (FDI).
“I think we have hefty [gross international] reserves [GIR]. We continue to get remittances. Remittances increased by 5 percent this year compared to last year. Tourists are increasing and we have foreign direct investments increasing…I am confident that [peso to dollar exchange rate] won’t reach [the 58 to $1 level],” he told reporters on the sidelines of the forum.
The July 2018 cash remittances were also a recovery from the 4.5-percent decline in remittances in June.
FDI also surged by more than 42 percent to $5.75 billion in the first half, from $4.04 billion a year ago, according to the Central Bank. Despite the continuous drop in the GIR, the BSP said the July GIR at $76.89 billion is still an “adequate liquidity buffer.”
Tourist arrivals also hit P3.7 million in the first half of the year, an increase by 10.4 percent compared to the 3.3 million recorded for the same period last year.
Diokno said they will also stick to the current projection of the Development Budget Coordination Committee (DBCC) that the peso to dollar exchange rate will remain at 50 to 53 until 2022.
“The DBCC [projection], we stick to that in the meantime,” said Diokno, the DBCC chairman.
Capital Economics also attributed the widening trade deficit to imports of capital goods continuing to flood in to support the government’s massive infrastructure program.
Last week the peso plunged to a 13-year low at 54 to $1 level.
The trade deficit for the first seven months of the year was also the highest recorded in history for all the seven-month trade deficits, according to the Philippine Statistics Authority.
The country’s trade deficit from January to July jumped to a record $22.49 billion due to weak exports.
A trade deficit happens when the total value of country’s imports exceeds its exports.
According to Capital Economics, the peso depreciated by 8 percent year-to-date against the US dollar, describing it as “one of the worst-performing Asian currencies” so far this year.