Category : Press Release
Date : October 14, 2020
Agency : Bangko Sentral ng Pilipinas
Title : BSP Expects Larger BOP Surplus, Higher GIR for 2020-2021
Article : The Monetary Board approved the revised balance of payments (BOP) projections for 2020 and the release of the outlook for 2021 at its 8 October 2020 meeting. The new set of forecasts takes into account the latest available BOP data for the first half of 2020 as well as recent global and domestic economic developments, including the macroeconomic impact of the COVID-19 pandemic.

Against a backdrop of a global economy showing signs of recovery but remaining susceptible to setbacks and a domestic economy slowly lifting its way out of containment measures, the BSP sees the overall BOP position to post a surplus of US$8.1 billion (2.2 percent of GDP) in 2020. This represents an upward adjustment relative to the earlier projected US$0.6 billion (0.2 percent of GDP) BOP surplus for the year. The higher projected surplus in the BOP stems from the reversal in the projected current account balance from a deficit of US$1.9 billion (-0.5 percent of GDP) to a surplus of US$6.0 billion (1.6 percent of GDP). The significant upward revision in the current account is attributed mainly to the expected narrower trade-in-goods deficit driven by the foreseen broad-based contraction in both goods exports (-16.0 percent) and goods imports (-20.0 percent), with the latter declining at a faster rate due to weaker domestic demand.

The current account surplus is also supported by the lower expected contraction in overseas Filipinos (OF) remittances of 2.0 percent from 5.0 percent following the strong rebound in June and July 2020 as host economies started to reopen. Meanwhile, export revenues from the business process outsourcing (BPO) industry are seen to grow by 2.0 percent (unchanged from previous forecast) as the sector managed to overcome logistical bottlenecks and operational adjustments.

In the financial account, both foreign direct investments (FDIs) and foreign portfolio investments (FPIs) are seen to post net inflows in 2020, amounting to US$5.6 billion (revised upward from US$4.1 billion) and US$2.4 billion (unchanged from previous forecast), respectively. While uncertainty continues to weigh down on business and investor confidence, factors such as expectations of a better-than-initially-anticipated global economic performance for the year; the reopening of advanced economies with investment interest in the Philippines; the country’s investment-grade credit standing; and its expected gradual economic recovery are also seen to support foreign investment inflows for the rest of the year.

The end-2020 GIR level is expected to reach US$100.0 billion, taking into account the increased foreign borrowings by the National Government (NG) as well as the revaluation adjustments arising from the accounting treatment of the BSP’s gold holdings.

For 2021, the BOP position is projected to remain in surplus but at a lower level of US$3.4 billion (0.9 percent of GDP). This reflects the lower forecasted current account surplus for 2021 of US$3.1 billion (0.8 percent of GDP) amid an anticipated widening of the trade-in-goods deficit as merchandise imports recover (with an 8.0 percent increase) supported by the NG’s catch-up efforts in the implementation of its infrastructure programs. Merchandise exports (5.0 percent), BPO receipts (4.0 percent) and OF cash remittances (4.0 percent) are likewise expected to post expansions alongside higher net inflows of both FDIs (US$7.0 billion) and FPIs (US$3.5 billion).

The external sector outlook for 2021 reflects more favorable growth prospects as the global economy proceeds from an earlier restart of economic activity in the second half of 2020. Nonetheless, the balance of risks surrounding the outlook continues to lean toward the downside owing to possible resurgence in virus infections across countries as well as pandemic-induced structural changes in labor conditions (contact-intensive job losses) and trade patterns (heightened protectionism).

The 2021 GIR level is seen to reach US$102 billion in anticipation of continued NG foreign currency deposits as well as positive revaluation adjustments in gold holdings as gold prices could remain elevated in 2021 due to safe-haven investor demand.

Overall, while the new set of emerging BOP forecasts is grounded on a narrative of gradual recovery in the near term, uncertainty over the duration, direction and extent of the impact of the COVID-19 pandemic continue to cast a shadow over future economic prospects both at home and abroad. Moving forward, the BSP will continue to strengthen its surveillance of emerging external sector developments and closely monitor their possible impact in the effective discharge of the BSP’s core mandates of promoting price and financial stability.

See table of 2020-2021 Balance of Payments (BOP) Outlook here: