Wider current account seen
Credit to Author: Mayvelin U. Caraballo, TMT| Date: Sun, 03 Nov 2019 16:23:36 +0000
Accelerated public spending and accomodative monetary policy in the Philippines are likely to widen the country’s current account deficit (CAD) this year, an economist said.
In a report released over the weekend, Nomura Securities Ltd. economist Euben Paracuelles said the current account deficit is set to widen for the rest of the year to 2.7 percent of gross domestic product (GDP) after narrowing to just 2 percent in the first half.
Nomura’s 2019 forecast compares to the $7.9-billion record high current account deficit in 2018, which is equivalent to 2.4 percent of GDP.
Latest data, meanwhile, show that current account deficit in the first six months of 2019 tallied $1.74 billion, smaller than the $3.75-billion gap in the same period last year and lower than the central bank’s $10.1-billion forecast for the year.
The current account — a major component of the balance of payments — consists of transactions in goods, services, primary income and secondary income, and measures the net transfer of real resources between the domestic economy and the rest of the world.
“An expansionary fiscal stance, combined with front-loaded monetary easing, suggests the macro policy mix is most impactful in boosting total investment spending, adding to CAD widening pressure,” Paracuelles said.
He noted that the 39.01 percent growth in September government spending “reflects progress on the government’s catch-up spending plans on infrastructure projects.”
The government’s catch-up plan set an infrastructure spending target of P792.97 billion for the second to fourth quarters after actual infrastructure spending reached P207.2 billion in the first three months of 2019.
Furthermore, Paracuelles pointed out that the sharp rise in overall fiscal spending, which drove the fiscal deficit to a record level P178.6 billion in September, was led by growth in public sector capital spending.
The Department of Budget and Management earlier reported infrastructure and capital spending rose to P100.3 billion in September, 53.9-percent higher than the P65.2 billion in the same month last year.
With this, Paracuelles said ‘’the government has a strong incentive to close any remaining under-spending gap to meet its 2019 GDP growth target of 6 percent and indeed, public sector capex (capital expenditure) has been a key driver of import growth in the last few years.’’
Monetary authorities, on the other hand, already implemented a combined 75-basis points reduction in benchmark interest rates in May, August and September, which brought overnight borrowing, lending and deposit rates to 4 percent, 4.5 percent and 3.5 percent, respectively.