Good fundamentals to support recovery

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    Maintaining good fundamentals will allow the country to recover promptly as the lockdowns set up to battle the pandemic are eased, the Department of Finance (DOF) said.

    In its latest economic bulletin over the weekend, the DOF said the current account in the balance-of-payments rose to a surplus of $8.7 billion or 2.4 percent of gross domestic product (GDP) during the first three quarters of 2020.

    “Keeping both the budget deficit and balance-of-payments 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,” it said.

    “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 end-2019 level of P50.8/$1 to P48.1/$1 as of mid-December 2020. Likewise, the economy’s savings exceeded investments despite the rise in government borrowing,” it added.

    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.

    “This indicates that the economy is back to a net lender status (as opposed to being a net borrower in the previous year) despite increased borrowing by the government,” the DOF said.

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

    The surplus in the trade in services and income balances dipped slightly from $33.8 billion to $32.2 billion but as a percent of GDP, it remains at 8.8.

    Earnings from business processes outsourcing, 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 $3.8 billion to $3.2 billion, the agency said, as global businesses suffered a slump from the coronavirus pandemic.

    On the other hand, secondary income balance which is represented by remittances accruing to overseas Filipino workers less incomes of expatriates remitted abroad slipped from $20.3 billion to $20 billion.