MANILA – The decline in oil prices in the international market is expected to help lessen the country’s trade deficit and boost the balance of payment (BOP) position, which posted a USD1.8 billion deficit last July.
In a report Friday, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort traced the BOP deficit in the seventh month this year partly to trade deficits, which was due to higher importation because of increased domestic demand as well as the jumps in the prices of oil and other commodities.
He said continued Russian invasion with Ukraine since Feb. 24, 2022 could still lead to relatively higher imports of oil and other commodities that could still result in near record high trade deficits/net imports, thereby partly leading to weaker peso exchange rate against the US dollar as seen in recent months.
“However, an important bright spot is the fact that global crude oil and wheat prices (have) already erased all their increase since the Russia-Ukraine war started, amid risk of recession in the US, which is the world’s largest economy, and some lockdowns continuing in China,” he added.
BOP refers to the sum of a country’s total transactions with the rest of the world in a certain period.
Ricafort said these factors “could lead to some easing in the country’s trade deficit/net imports for the coming months, which, in turn, could also lead to some improvement in the country’s BOP data, as well as some easing of inflationary pressures and headline inflation, going forward.”
Oil prices and oil futures have gone below USD100 per barrel in recent weeks due in part to demand worries because of recession fears in the US and the lockdowns in China.
Ricafort said these concerns, along with expectations for further hikes in the Federal Reserve’s key rates, are expected to further increase volatility in both the local and global financial markets “that could lead to slower growth in the country’s structural inflows such as OFW (overseas Filipino workers) remittances, thereby could be a potential drag on both BOP and gross international reserves (GIR) data.”
He, however, said that continued inflows of foreign direct investments (FDIs) into the Philippines, along with reform measures such as the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law, the amendments to the Public Service Act (PSA), and the Foreign Investment Act, help boost the country’s BOP position. (PNA)