Good fundamentals key to recovery: DOF

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    The Department of Finance (DOF) said maintaining good fundamentals will allow the country to recover promptly, as lockdown measures set up to battle the coronavirus disease 2019 (COVID-19) pandemic are eased.

    The DOF said in its economic bulletin over the weekend this can be done by keeping both the budget deficit and balance-of-payments manageable, maintaining 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.

    The DOF said the current account 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 end-2019 level of P50.8/$1 to P48.3/$1 as of mid-September 2020,” the DOF said.

    The current account in the balance-of-payments posted a surplus of $4.4 billion during the first half of 2020 (equivalent to 2.6 percent of gross domestic product or GDP) from a deficit of $2.5 billion (1.4 percent of GDP) during the same period in 2019.

    This is due to the lower deficit in trade in goods, the DOF said.

    “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 DOF said.

    “This indicates that the economy is back to a net lender status despite increased borrowing by the government,” it added.

    Specifically, the deficit in the trade in goods balance dropped from 13.24 percent of GDP in the first half of 2020 to 9.29 percent of GDP as imports slowed down.

    The surplus in the trade in services and income balances dipped slightly from $21.8 billion to $20.1 billion.

    “Earnings from business process outsourcing (companies), remittances inflows and earnings from investments abroad by Filipino citizens accounted for these receipts,” the DOF said.

    Primary income balance which is accounted for by the country’s earnings from placements abroad less earnings by other countries from local placements dropped from $2.5 billion to $2.1 billion, the DOF said, as global businesses suffered a slump from the COVID-19 pandemic.

    Secondary income balance which is accounted for by remittances accruing to overseas Filipino workers less incomes of expatriates remitted abroad dropped from $13.3 billion to $12.8 billion.

    Net unclassified items which account for flows not classified under four categories dropped from $24.2 billion to $15.7 billion. (A. Celis)