The Philippines’ current account for 2020 has reached a surplus of $13 billion, 3.6 percent of gross domestic product (GDP), the Department of Finance (DOF) said.
This is the highest surplus the country has had in seven years.
“This trend was a reversal from a deficit of $3 billion (0.8 percent of GDP) in 2019. This is due to a lower goods trade deficit, a higher services trade surplus, and resilient OFW (overseas Filipino worker) and investment incomes,” the DOF said in a statement.
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 closely monitored by credit rating agencies.
“This indicates that the economy is back to a net lender status (as opposed to being a net borrower) despite increased borrowing by the government to combat the COVID-19 virus,” the DOF said.
The DOF said the deficit in the trade in goods balance dropped to 8.8 percent of GDP, from 13.1 percent of GDP in 2019, as both exports and imports slowed down due to the pandemic.
“However, imports dropped faster than exports, resulting in a huge gain in foreign exchange net inflows,” the DOF said.
The surplus in the trade in services rose to $13.1 billion from $13.0 billion. As a percent of GDP, it improved to 3.6 percent from 3.5 percent.
Primary income balance, which represents the country’s earnings from placements abroad less earnings by other countries from local placements, dropped to $4.4 billion from $5.3 billion as global businesses suffered a slump from the pandemic.
On the other hand, secondary income balance, which represents remittances accruing to OFWs less incomes of expatriates remitted abroad, slipped from $27.9 billion to $27.4 billion.
Net unclassified items, which account for flows not classified under four categories, dropped from $2.7 billion to negative $1.6 billion.
“The current account balance reverted to a surplus in 2020 from a deficit in 2019 as the economy slowed due to the global health crisis, bringing down import demand more than export demand. As a result, the peso strengthened from end-2019 level of P50.8/$1 to P48.1/$1 as of end-2020,” the DOF said.
“Likewise, the economy’s savings exceeded investments despite a growth slump and higher government borrowing. Savings dropped more slowly than investments. 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,” it added. – Ruelle Castro
