THE country’s trade deficit will continue to widen as the government’s “Build, Build, Build” kicks into high gear next year, according to local economists.
The Philippine Statistics Authority (PSA) on Tuesday disclosed that the country’s trade deficit reached a record high of $4.2 billion in October. In the January-to-October period, the trade gap widened to $33.9 billion this year.
The wider trade deficit was largely due to the 21.4-percent growth in imports worth $10.32 billion in October. In the January-to-October period, imports grew 16.8 percent to $90.985 billion in 2018.
“Trade deficit will continue because of large infra spending, which is import- intensive. My concern is the weak export growth despite a more favorable exchange rate for exports,” Action for Economic Reform (AER) coordinator Filomeno Sta. Ana III said.
Data showed capital goods imports grew 16.8 percent to $29.667 billion in the January-to-October period. In October, capital goods imports grew 21.2 percent to $3.47 billion in 2018.
This is higher than the cost of fuel imports, which some economists believe was the cause for the increase in the country’s imports for October and, consequently, the trade deficit.
Petroleum crude imports reached $539.03 million in October 2018, representing a 112.8-percent growth from $253.27 million in October 2017.
In the January-to-October period, petroleum crude imports reached $4.16 billion in 2018, a growth of 55.9 percent from $2.67 billion in the same period in 2017.
“I am more interested in medium and long terms. Infrastructure and removal of uncertainty by resolving fiscal incentive rationalization [which will actually modernize the incentive system] will drive exports. Part of the problem of the current incentives is it awards low-value exports,” Sta. Ana said.
Oil factor
However, University of Asia and the Pacific School of Economics Dean Cid Terosa said the projected slowdown in oil prices next year will contribute to slower import growth, and possibly, the narrowing of the trade deficit.
Based on Moody’s Oil and Gas outlook for 2019, oil prices could settle at the $50-$70 per barrel range until 2020. It can be noted that oil prices this year peaked at around $80 per barrel.
“It will be better next year because of weaker oil prices, but we need to be cautious about global trade or market trends that appear to be less rosy,” Terosa said.
These threats could further affect the country’s export performance, which peaked at only 3.4 percent this year. In October, exports growth was at 3.3 percent to $6.11 billion in 2018, from $5.91 billion in the same period in 2017. The country’s total export earnings contracted 1.2 percent in the January-to-October period to $57.07 billion from $57.75 billion in the same period in 2017.
In order to cope, Terosa said the country should continue to boost its efforts to diversify products and market as well as “exploit new and thriving domestic markets.”
Socioeconomic Planning Secretary Ernesto M. Pernia, for his part, said implementing agencies can help exporters meet targets by implementing the Philippine Export Development Plan 2018-2022.
Strategies include simplifying regulation, promoting competitiveness of industries, upgrading export quality and standards, facilitating access to financing and promoting innovation. Pernia also emphasized the importance of reforming the Foreign Investment Act to allow foreign investments in domestic market-oriented firms besides export-oriented enterprises.
“This will allow foreign firms to transfer their manufacturing facilities to the Philippines to take ad-vantage of the growing domestic market—including the rising middle class—as well as to serve the Asian regional markets. We expect this move to reduce our imports and current account deficit, ease inflation, and create more and better jobs,” he said.