‘Blow-away’ current account deficit unlikely


No intention to see it go higher than 1% of GDP – Espenilla
The Philippines’ current account deficit remains manageable as it is still below 1 percent of gross domestic product (GDP), the country’s central bank chief said.

“[W]e are not talking about a blow- away current account deficit. The current account deficit today is much lower than 1 percent of GDP and we have no intention to see it go higher than that,” Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla Jr. told reporters during the weekend.

He said observers had to realize that a ramping up of investments was driving the current account deficit.

Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla Jr. PHOTO BY MICAH SEBASTIAN

Properly executed, these investments should enlarge the economy’s productive capacity and its ability to export and produce goods and services, Espenilla added.

The Bangko Sentral chief noted that by definition, a developing country is short of savings and needs a lot of investment, which is where the Philippines right now.

“That’s what we are doing now. We are trying to use the savings of the world to accelerate our investment ambitions. So what is important is the quality of investments that we are doing,” he said.

So long as these investments are good investments we should not be in trouble. And the situation should remain very manageable.”

Observers also shouldn’t look at the current account deficit as a linear progressive widening, Espenilla said, as this should correct over time because of the development process.

“For us the current account deficit should remain manageable. Actually having a current account deficit at this stage of our economic development is not bad but it should not be too large,” he said.

“So to us what is a concept of a manageable current account deficit is its should be no more than 1 percent of GDP over the next few years,” he added.

A major component of the country’s balance of payments, the current account measures the net transfer of real resources between the domestic economy and the rest of the world.

The Philippines’ current account has been consistently posting annual surpluses since 2005, at $1.99 billion that year, to $600 million in 2016.

In the first quarter of this year, however, the Philippines’ current account reverted to a deficit of $318 million, equivalent to 0.4 percent of GDP and a reversal from the $730-million surplus recorded in the same period in 2016.

The Bangko Sentral has forecast a $600-million current account deficit for 2017, reflecting for the most part the continuation of a widening trade deficit.

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