Good fundamentals crucial to recovery in the Philippines

The Department of Finance (DoF) said maintaining good fundamentals will be key to the recovery from the pandemic.
By: | December 24, 2020

These “good fundamentals” include “keeping both the budget deficit and balance-of-payments (BoP) manageable, keeping interest rates at the level that sustains investments, keeping inflation at the lower end of the inflation target, and allowing the exchange rate to maintain its competitive level will allow the country to recover promptly as the lockdowns set up to battle the pandemic are eased,” DoF said. 

Philippines’ current account balance hit a surplus of US$8.7 billion, or 92.4% of GDP from January to September this year, a reversal from the deficit of US$3.0 billion during the same period in 2019 on the back of the lower deficit in trade in goods, said a DoF economic bulletin. 

The current account is the balance of exports and imports of goods, services and income balances. This is the equivalent of the investment-saving gap, an indicator closely monitored by credit rating agencies. 

The surplus in current account balance means the Philippine economy is back to a net lender position (as opposed to being a net borrower in the previous year) despite increased borrowing by the government. 

The deficit in the trade in goods balance fell from 9.6% of GDP in the first three quarters of 2019 to 6.4% of GDP as imports slowed down due to negative economic growth. 

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“The current account balance reverted to a surplus from a deficit last year as the economy slowed down, bringing down import demand with it. As a result, the peso strengthened from the end-2019 level of P50.8 per US$1 to P48.1 per US$1 as of mid-December 2020. Likewise, the economy’s savings exceeded investments despite the rise in government borrowing,” said the DoF.