By means of Luisa Maria Jacinta C. Jocson, Reporter
The Philippines’ current account deficit is expected to widen next year, according to Nomura Global Markets Research.Famid a recovering economy and rising commodity prices.
“We still predict a gradual expansion of the current accountFWe are moving from 2.3% in 2024 to 2.5% of gross domestic product (GDP) in 2025, driven by the same factors that led to the return of deficits,” said Nomura analysts Euben Paracuelles and Nabila Amani in a report.
They did not specify an amount.
In the Ffirst half of the year, the country’s current account theFicit amounted to US$7.1 billion, accounting for 3.2% of GDP.
The Bangko Sentral ng Pilipinas (BSP) estimates the current account to be theFThis year the economy is likely to reach $6.8 billion, equivalent to 1.5% of economic output. She expects the deficit next year to reach $5.5 billion or 1.1% of GDP.
“From a savings and investment perspective, the swing to the current account deficit reflects an increase in investment rates, while savings rates have fallen, especially after the pandemic,” Nomura said.
It was also noted that the current account deficit is a result of the widening trade deficit in goods.
The Philippine trade theFAccording to data from the local statistics office, the ICIT increased by 18.05% to $4.87 billion in July.
In July, the value of imports rose 7.2% year-on-year to $11.12 billion, the fastest increase since April’s 13%. It was also the highest since March 2023.
The country’s trade balance in goods has been in the red for nine years.
“Unlike regional peers, goods exports have remained relatively flat in recent years, likely reflecting the lack of industrial policies to move up the value chain, especially in the electronics sector (60% of goods exports),” Nomura said.
“In contrast, imports have more than doubled, reflecting rising domestic demand and an increasingly supply-constrained economy.”
It pointed to the continued increase in food imports, especially rice, due to “low productivity in the agricultural sector and vulnerability to weather-related shocks and external risks.”
In June, President Ferdinand R. Marcos Jr. issued Executive Order No. 62, cutting tariffsFfs on rice imports to 15%, from 35% until 2028.
“The country remains one of the largest oil importers in the region and is therefore sensitive to international crude oil price increases,” it added.
Nomura also said that trading theFicit is “no longer completely oFdetermined by the sum of remittances from employees (secondary income) and receipts from the outsourcing and tourism sectors (service balance).”
Nomura data shows that in nominal dollar terms, growth in worker remittances has slowed to 3.1% per year since 2018, compared to the average of 6% between 2011 and 2017.
“Adapted for inFAnd in local currencies, real growth in remittances is even lower, averaging just 0.7%,” the report said.
Meanwhile, Nomura said the Philippines’ balance of payments has undergone “structural changes” over the past decade.
“First, the current account balance has shifted to a deFThe result has been a surplus since 2016 (except during the pandemic),” the report said. “Net unclassiFied items have also been added to the deFIT.”
The capital and FThe financial account surplus has also “increased significantlyFicant” after the pandemic, the central bank said, and it has remained high thanks to external government borrowing.
Financial account outFThe low point in the US was $10.5 billion Ffirst half, according to central bank data.
“Given these new BoP dynamics, we are looking at a ‘broad base balance’, which shows incremental development.FThis implies a greater sensitivity of the BoP to fluctuations in the portfolio Flows and therefore to risk-on/risk-oFf episodes,” Nomura said.
The country’s balance of payments stood at a surplus of $1.6 billion in August.
“The composition of capital and FThe financial surplus has changed, with external borrowing now exceeding net foreign direct investment (FDI), indicating a new mode of current account developmentFIT Ffinancing,” Nomura said.
“A closer look at these loans shows a healthy pipeline until 2025, but drawdowns are irregular and only partially converted into local currency, contributing to BoP volatility,” the report said.
The central bank expects the BoP to post a surplus of $2.3 billion this year, equivalent to 0.5% of GDP.