Balance of Payments (BOP) Outlook Continues to Reflect Challenging External Conditions

The Monetary Board approved the new set of 2023 and 2024 balance of payments (BOP) projections during its 14 September 2023 meeting. The new set of BOP projections incorporates latest available data and recent emerging developments.

The 2023-2024 forecasts for overall BOP position have been revised to reflect the estimated narrower current account shortfall over the forecast horizon.

This development is hinged mainly to the expected contraction in goods exports and goods imports. Partly offsetting such outcome is the upward revision in services exports, bolstered by the higher growth forecast for travel receipts alongside expectations of sustained growth momentum of business process outsourcing (BPO) revenues.

Meanwhile, forecasts for foreign direct investments (FDIs) and foreign portfolio investments (FPIs) have been adjusted downwards from the June projection exercise, after taking into account the actual data for the first half of the year as well as the latest global and domestic growth prospects.

For 2023, the overall BOP position is projected to register a smaller deficit owing mainly to the foreseen narrower current account gap for the year. Consistent with the emerging trend observed in most economies, both goods exports and imports are predicted to contract this year.

Like in most emerging markets, Philippine merchandise trade performance for the first half of the year has been on a declining trend as the recovery path of external demand has stalled amid elevated inflation, lingering geopolitical tensions, and rising trade barriers, among others.

The latest forecast on goods trade also incorporated the latest pronouncement by the country’s semiconductor industry that electronics exports, which account for bulk of the country’s exports, will fall flat this year. Goods imports are expected to drop as international commodity prices have decelerated since the last projection round.

Meanwhile, services trade is anticipated to retain its strong growth momentum supported by the upbeat demand for BPO services and stronger-than-expected rebound in international tourist arrivals. The country’s hosting of the FIBA Basketball World Cup 2023 provided additional boost to the tourism industry.

Overseas Filipino (OF) remittances are seen to remain stable and provide reliable support for the current account.

On the other hand, prospects for the financial account turned softer during this projection round, following less notable performance of both FDIs and FPIs during the first half of the year. The lingering high interest rate environment have further impeded trade and investment decisions, thus, adding another layer of uncertainty to the BOP outlook for the year.

For 2024, the overall BOP is seen to pivot into a surplus position propped up by expectations of sustained improvements in the current account as well as the financial account.

While the narrative surrounding the prospects for next year remain broadly unchanged, exercising vigilance is warranted as some risks may intensify. Among these include possible tightening in financial conditions and worsening global trade imbalance which may complicate the already tight monetary and fiscal policy space of many economies.

Nonetheless, with the IMF’s growth forecast for world trade in 2024 at 3.7 percent, a 0.2 percentage point improvement from the previous report, and global economic activity sustained at 3.0 percent, pick up in global trade activity is likely to ensue by next year sans any surprises.

On the domestic front, prospects for goods imports are backed in part by the national government’s plan to catch-up on its spending and accelerate infrastructure development in the country.

With the GDP growth target maintained at 6.5 to 8.0 percent in 2024 and operationalization of the implementing rules and regulations of recently enacted investment-friendly legislations, investment opportunities could widen.

Meanwhile, travel exports receipts are anticipated to already breach its pre-pandemic level by 2024 propelled by the aggressive promotion of tourism sites and activities as well as marketing the country as a strong growth center for medical tourism industry. These factors lend support to a more buoyant BOP outlook for next year.

The BSP continues to emphasize limitations to the forecasts, particularly given continued buildup of external challenges. The BSP will continue to monitor closely emerging external sector developments and risks and how these may impact the BSP’s fulfillment of its price and financial stability objectives.