DOF ECONOMIC BULLETIN ON CURRENT ACCOUNT BALANCE
The current account moderated in the first half of 2018 as the current account deficit rose from a negligible 0.09% of GDP in 2017 to 1.95% in 2018 (Table 1) but it is financeable given the surplus in services trade and income balances and the upsurge in foreign investment. The current account is the balance of exports and imports of goods, services and income balances.
Table 1. CURRENT ACCOUNT 2017 2018
Jan-Jun Jan-Jun
CURRENT ACCOUNT BALANCE
(US$M) (133) (3,087) CURRENT ACCOUNT SURPLUS
(% OF GDP) -0.09% -1.95%
The deficit in the trade in goods balance widened by 27.9% from US$18.238B to US$23.324B, from 12.11% to 14.72% of GDP. (Table 2) Imports of goods rose faster than exports of goods on account of rising investment goods purchased from abroad to bolster productive capacity. Investment growth enabled the economy to grow by 6.3% during the period and continue to be one of the fastest growing in Asia.
This deficit was financed partially by the surplus in the trade in services and income balances which rose by 11.8%, from US$18.106B to US$20.237B in the first half of 2018, rising from 12.03% to 12.77% of GDP. Earnings from business process outsourcing (BPOs), remittances inflows and earnings from investments abroad by Filipino citizens accounted for these substantial receipts.
Table 2. TRADE IN GOODS &
TRADE IN SERVICES BALANCES
2017 2018
Jan-Jun Jan-Jun Growth/ppt
change TRADE IN SERVICES & INCOME
BALANCES, US$M 18,106 20,237 11.8%
% OF GDP 12.03% 12.77% 0.74
TRADE IN GOODS, BALANCE
(US$M) -18,238 -23,324 27.9%
TRADE IN GOODS, BALANCE (%
of GDP) -12.11% -14.72% -2.60
Net trade in services grew by 55.0% from US3.785B to US$5.867B. This is accounted for by earnings of BPOs less imports of services. (Table 3)
Primary income which is accounted for by earnings of the country from placements abroad less earnings of other countries from local placements dropped by 12.8%
from US$1.544B to US$1.347B.
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On the other hand, secondary income which is accounted for by remittances accruing to OFWs less incomes of expatriates remitted abroad grew by 1.9%, from US$12.777B to US$13.023B.
TABLE 3. SERVICES TRADE &
INCOME BALANCE
2017 2018
Jan-Jun Jan-Jun Growth TOTAL (SERVICES & INCOME) 18,106 20,237 11.8%
% OF GDP 25.35% 26.60%
TRADE IN SERVICES, BALANCE
(US$M) 3,785 5,867 55.0%
TRADE IN SERVICES, BALANCE
(% of GDP) 2.51% 3.70%
PRIMARY INCOME, BALANCE
(US$M) 1,544 1,347 -12.8%
PRIMARY INCOME, BALANCE
(% of GDP) 2.16% 1.77%
SECONDARY INCOME
BALANCE (US$M) 12,777 13,023 1.9%
SECONDARY INCOME,
BALANCE (% of GDP) 17.89% 17.12%
OTHERS*/ 5,085 (23,324) -558.7%
*/Net unclassified items
The rest of the deficit (US$3.087B) was financed by foreign investment (foreign direct investment and portfolio investment) which rose by 75.3% from US$3.573B to US$6.261B (2.37% to 3.95% of GDP) and drawdown from international reserves which decreased to US$3.646B. On the other hand, net foreign borrowing declined by US$641.45M as domestic players cut down on their foreign exposures.
TABLE 4. FOREIGN INVESTMENT & FOREIGN BORROWING
Jan-Jun
2017 2018
BALANCE OF PAYMENTS,
US$M) -706 -3,257
OVERALL BALANCE (% of
GDP) -0.79% -2.02%
FOREIGN INVESTMENT (US$M) 3,573.1 6,261.5 FOREIGN INVESTMENT (% OF
GDP) 2.37% 3.95%
NET FOREIGN BORROWING
(US$M) (1,096.20) (641.45)
NET FOREIGN BORROWING (%
OF GDP) -0.73% -0.40%
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CHANGE IN RESERVES (3,963.30) (3,645.70)
DOF View
The current account remains manageable even with the deficit rising moderately in the first half of 2018. Maintaining good fundamentals by keeping the twin deficits--- budget and current account---low by maintaining interest rates at the level that sustains the both the volume of savings and investments will enable the country to achieve rapid economic growth in the medium-term.
-oOo-
