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BSP Revises its Balance of Payments Projections for 2015 and 2016

12.18.2015

The BSP releases its reassessment of the 2015 and 2016 balance of payments (BOP) projections. This incorporates the latest available data to-date, and reflects recent and prospective economic developments, both domestic and global, that could have a bearing on the outlook for the country’s external payments position.

Outlook for 2015

The outlook for the 2015 BOP surplus is maintained at US$2.0 billion, a reversal from the shortfall recorded in 2014 of US$2.9 billion. The current account balance is projected to remain in surplus, albeit at lower levels. At the same time, the outflow in the financial account is seen to be lower. As a result, year-end gross international reserves (GIR) are anticipated to be around $80.7 billion, an improvement from the $79.5 billion posted in 2014. At this level, the GIR remain ample, covering nearly 10 months’ worth of imports of goods and payments of services and income.

The current account is projected to remain in surplus albeit at a lower amount of $8.9 billion, equivalent to 3.0 percent of GDP.  The downward revision is due to the expected widening of the trade deficit as exports growth is seen to be slower than previously projected. The year-on-year change in goods exports is revised to a drop of 4.0 percent on account of the continued softening of global growth prospects dragged by the slowdown in China, impact of a possibly strong and protracted El Niño, decline in metals prices, and less optimistic outlook by export industry groups.  Meanwhile, growth in goods imports is expected to be flat year-on-year, a slight deceleration from the earlier projection. This is due mainly to the continued decline in energy and metal prices as well as weaker prospects for import-intensive manufactures exports such as electronics. The sustained surplus in the current account is expected to be supported by overseas Filipino (OF) remittances and robust receipts from business process outsourcing (BPO) and tourism. 

The growth of OF remittances in 2015 is seen to decline slightly from 5.0 percent to 4.0 percent with the continued dollar appreciation relative to the currencies of major host countries.  However, continued remittances from OFs are still expected on account of the steady deployment of OF workers, greater diversification of country destinations and shift to higher-skilled types of work.

The balance of the financial account is expected to post a lower outflow of $3.1 billion from the previous forecast to reflect lower residents’ acquisition of financial assets abroad with the possible tightening in external financing. While the global financial environment is expected to remain volatile, the bullish business confidence is expected to support continued entry of foreign direct investments (FDI).

Outlook for 2016

The overall BOP position in 2016 is expected to increase to US$2.2 billion, even with the anticipated lower current account surplus compared to the 2015 forecast as this is expected to be partially offset by a reversal in the financial account from a projected net outflow in 2015 to a small net inflow in 2016. The projected surplus in the overall BOP balance is seen to result in an increase in the 2016 GIR level to US$82.7 billion (equivalent to 9.0 months import cover) from US$80.7 billion (nearly 10 months import cover) projected in 2015.

The 2016 current account will continue to be in surplus at US$5.7 billion, lower than the   US$8.9 billion in 2015 due mainly to the expected large increase in the imports of goods, notwithstanding improvements in the services and secondary income accounts.  The projected net outflow in the financial account in 2015 could likely reverse to a small net inflow in 2016 as foreign direct investments continue to flow in.

Overall, the BSP forecasts the external position of the Philippines improving in 2015 and 2016 from a deficit in 2014. The BOP outlook for 2015 is supported by a resilient current account surplus supported by robust receipts from OF remittances, tourism earnings and BPO revenues. The moderate improvement of the outlook in the financial account considers the impact of more aggressive easing by the European Central Bank (ECB) and the Bank of Japan (BOJ) which may offset partially the spillover effect arising from the expectations of US Fed’s interest rate shift in the last quarter of 2015.
 
The BOP surplus in 2016 will be supported by sustained yields from the exports of goods and services (i.e., tourism and BPOs) and OF remittances, as well as increase in the inflow of FDIs in the country. While the global economic outlook in 2016 is expected to improve slightly, uncertainty and caution still remain.  Nevertheless, the Philippine economy is expected to exhibit continued resilience on the back of strong domestic economic activities.

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