Last October, the Philippines posted its largest monthly trade deficit on record, at $4.2 billion — meaning that our total import bill exceeded our export earnings by that much. For the first 10 months of the year, the gap has accumulated to $33.9 billion, already well beyond last year’s full year trade deficit of $27.4 billion — and a whopping 68.5 percent higher than the same 10-month figure last year.
What this all means is that our trade transactions have led to a net foreign exchange outflow that will exceed $40 billion by year-end. To put this into perspective, this is already about half of our country’s gross international reserves ($81 billion) at the start of the year. It is also well beyond the total combined inflows of overseas workers’ remittances and net foreign direct investments ($28 and $10.1 billion, respectively) we had last year. With the yawning trade gap not being offset by these inflows, we can only look to foreign tourists’ expenditures, portfolio foreign investments (aka “hot money” that can flow in or out on a whim), and foreign loans, if we are to avoid depleting our gross international reserves, already down to $75 billion as of the third quarter.
The problem with our trade is that growth in our exports has not only failed to keep pace with the surging growth in our imports, but exports actually fell significantly — and we can’t blame declining export markets abroad for that. Our comparable Asean neighbors actually saw their exports grow by an average of 8 to 16 percent, as ours dropped by an average of 2 percent in the first nine months of the year. Meanwhile, only Indonesia outpaced the growth in our imports (17 percent) in the same period. Even the surging Vietnam economy saw imports growing by less than half (7 percent). The sad reality is that it’s clearly something we’re doing domestically that is leading us to perform so differently, and so badly, compared to our neighbors, and we only have ourselves to blame for our unique (and alarming) performance.
We’ve been consoling ourselves by saying it’s the demands of our ambitious “Build, build, build” infrastructure push that is making our imports grow so fast; hence it’s okay inasmuch as we’re investing in faster future economic growth. But is it, really? I wrote recently about how our main infrastructure departments, on whose shoulders lie the implementation of the BBB program, were reported by the Commission on Audit to have spent only one-fourth (Department of Transportation) to one-third (Department of Public Works and Highways) of their annual budgets last year. Could they have suddenly and dramatically raised their absorptive capacity this year?
A closer examination of our import data should help shed further light on the situation. After doing some calculations with our latest foreign trade data, I found that the single largest contributor to growth in our imports has been electronic products (30 percent), 22 percent of which is semiconductors (with telecommunication electronics making up the next largest part). These feed into our electronics exports, hence, couldn’t have anything to do with BBB. The next biggest contributor to our import surge has been mineral fuels (17 percent), largely in support of the needs of our fast-growing motor vehicle fleet, and partly of our coal and oil-fired power plants. Indeed, transport equipment was the third largest contributor to our import growth (11.2 percent). Iron and steel came in fourth, accounting for 10.6 percent, and the only other double-digit contributor to import growth. Fifth was industrial machinery and equipment (with a 6.7 percent contribution), and along with iron and steel, are the only major import categories one might directly link to BBB, and not even entirely. In short, it may be false comfort for us to look to BBB as the reason for our import surge. It is not.
Our real problem, and one can’t hammer on this enough, is that we are miserably failing to grow our exports, or even keep them from falling, as has happened of late. This demands an aggressive and broad-based national export expansion agenda, and the time to begin working on this was yesterday.
cielito.habito@gmail.com