The International Monetary Fund (IMF) expects the Philippines’ “current account deficit to hit 1.5 percent of gross domestic product (GDP), or five times wider than the previous projection of 0.3 percent of GDP”, says one broadsheet last July 30, 2018.
This means that there are more foreign exchange (dollar) flows out of the Philippines to pay for the importation of goods, services and capital than what flows in from exports of products made in the Philippines.
Weak peso
The need for more dollars to pay for imports tends to increase the rate at which we exchange our pesos for dollars. The 1.5 percent deficit envisioned by IMF is more than the revised projection of the Bangko Sentral ng Pilipinas (BSP) of 0.9 percent of GDP or $3.1 billion. The same broadsheet said that last year’s current account deficit was $2.52 billion, more than the $1.2 billion recorded in 2016. The highest level of deficit was recorded in 1997 during the Asian financial crisis at $5 billion or 5.1 percent of GDP.
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Luis Breuer, IMF mission chief to the Philippines, points out why our peso is weak, “Downside risks stem mainly from rising inflation, continued rapid credit growth, higher US interest rates and US dollar, volatile capital flows and trade tensions.”
The Philippine peso has “slumped to its weakest level in 12 years.” Trading closed at P53.325 to $1 on July 27, 2018, and the peso could further weaken as the “US Federal Reserve jacked up interest rates for the second time this year, and sees two more rate hikes for the rest of the year.”
