THE Department of Finance (DOF) remained confident that the country’s macroeconomic fundamentals are strong enough to support the economy’s recovery from the pandemic.
In its latest economic bulletin, DOF Chief Economist Gil Beltran said the current account in the balance of payments moved to a deficit of $1.2 billion or 0.7 percent of GDP in the first six months of 2021.
This was due to imports and exports posting double-digit growth of 23 and 10.3 percent, respectively. This level of growth, Beltran said, indicates strong economic recovery.
“Maintaining good fundamentals by keeping both the budget deficit and balance-of-payments manageable, keeping interest rates at the level that sustains investments, keeping inflation within the target range and allowing the exchange rate to maintain its competitive level, will allow the country to recover promptly as it eases the lockdowns set up to battle the pandemic,” Beltran said.
The DOF said imports increased as capital formation and manufacturing surged ahead by 20.2 percent and 10.4 percent in the first semester.
It added that the deficit in the trade in goods balance widened to 12 percent of GDP in 2021 from 8.9 percent of GDP in 2020.
With imports rising faster than exports, DOF noted this resulted in foreign exchange net outflows that led to a 2.4-percent depreciation of the peso as of end-September.
DOF also said the surplus in the trade in services increased to $5.6 billion in 2021 from $5.4 billion in 2020. This, however, caused the trade surplus to slightly drop to 3 percent from 3.2 percent as a percentage of GDP.
“Earnings from BPOs [Business Process Outsourcing firms] and badly affected travel and tourism accounted for the rise,” DOF said in a statement.
The DOF also said the primary income balance which represents the country’s earnings from placements abroad—less earnings by other countries from local placements—dropped to $1.7 billion from $2 billion.
The reason for this, DOF explained, is that global businesses continued to feel last year’s economic slump.
The DOF said the current account is the balance between exports and imports of goods and services, and overseas incomes and payments.
This is the equivalent of the investment-saving gap, an indicator that is closely monitored by credit-rating agencies.