BSP anticipates higher BOP surplus, sustained GIR build up in 2020-2021

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) approved the revised 2020 and 2021 balance of payments (BOP) projections during its 10 December 2020 meeting.

The new set of forecasts takes into account the latest actual year-to-date BOP data as well as the emerging global and domestic economic developments and outlook.

Overall, the latest BOP assessment for 2020 reflects the apparent bottoming out of the COVID-19 impact in Q2 2020. While recent external account figures remain below pre-pandemic trend and still in the negative territory, these are expected to improve from the first half of the year.

The overall BOP position is projected to post a surplus of US$12.8 billion in 2020, equivalent to 3.4 percent of GDP. This reflects largely the US$10.3 billion overall BOP position in the first ten months of the year supported by higher foreign borrowings by the national government (NG) as well as lower merchandise trade deficit.

The current account is seen to post a surplus of US$8.4 billion or 2.3 percent of GDP in 2020, reflecting in part the estimated narrower trade-in-goods deficit. Goods exports are projected to contract by 14.0 percent,^[1] following better external demand outturn in Q3 2020, while goods imports are forecasted to decline by 21.5 percent weighed down by lower world oil prices and tepid recovery in domestic economic activity.

Services exports are seen to decline by 21.4 percent in 2020 on account of the expected steeper decline in travel receipts as the tourism industry continue to take a hit from the pandemic and the downward revision in the growth of the IT-BPO industry following lower than anticipated revenue turnout in the first half of 2020.

Meanwhile, the projected contraction in OF cash remittances is kept at 2 percent even as the year-to-date actual remittances improved with a lower contraction of 1.4 percent as of September 2020 as COVID-19 cases have risen in some host countries and lockdowns were implemented anew.

The financial account is expected to post net inflows of US$3.0 billion based on the programmed and projected foreign borrowings to be availed by both the public and private sectors as well as the upward revision in expected inflows from foreign direct investments (FDI) and foreign portfolio investments (FPI).

The emerging 2020 GIR is seen at US$105 billion, equivalent to an 11.6 months of import cover taking into account revaluation adjustments and increased foreign loans by the national government in response to the pandemic as well as to fund recovery-supportive infrastructure.

For 2021, the major BOP accounts are expected to show continued improvements but could still remain below pre-pandemic levels. The overall BOP position is projected at US$3.3 billion in 2021 attributed mainly to the expected moderation of the current account surplus next year.

The current account is seen to post a lower surplus of US$6.1 billion or 1.5 percent of GDP in 2021. This considers mainly the expected widening of the trade-in-goods deficit as both exports and imports of goods recover with projected growth rates of 5.0 percent and 8.0 percent, respectively, following expectations of stronger rebound in global and domestic demand conditions next year. Services exports and imports are forecasted to grow by 6.0 percent and 7.3 percent, respectively, in 2021 consistent with the foreseen pickup in both travel and BPO receipts. Inflows from OF remittances are likewise seen to recover with a growth of 4.0 percent. These positive estimates are hinged primarily on increased global mobility as countries and sectors continue to open facilitated by increased availability of the vaccine against COVID-19.

FDIs are projected to rebound with inflows of US$7.5 billion while FPIs are expected to reach US$3.5 billion in 2021 in line with the consensus view of a recovery in investment sentiment given better global and domestic economic prospects next year.

The current and financial account inflows will support the continued build up in the 2021 GIR level which is seen to reach US$106 billion, equivalent to 10.9 months of import cover.

While the revised set of BOP projections are anchored on a narrative of a gradual ascent from the trough of the COVID-19 impact and improved market confidence following positive vaccine news, downside risks remain. Among the major risk factors are the re-imposition of strict lockdowns among the country’s major trading partners as well as the potential economic implications of the unprecedented global debt accumulation and adoption of exit measures from massive financial stimulus.

Moving forward, the BSP will continue to remain vigilant in monitoring emerging external sector developments and assess their impact on the BSP’s fulfillment of its price and financial stability objectives.