MANILA -- The depreciation of the peso against the US dollar can reduce the country’s trade deficit over the medium term, the First Metro Investment Corporation (FMIC) and University of Asia & the Pacific (UA&P) said on Tuesday.
It was noted that the peso’s weakness has positive effects for the country in both the short and medium terms.
“The most obvious effect of this would be to discourage imports and produce more exports, thus, reducing the trade deficits over the medium term. And because of the increase in production locally, it will boost employment generation,” UA&P-FMIC economist Victor Abola said.
This will thus give a boost to the peso income of exporters, those who supply raw material to exporters, and families of overseas Filipino workers (OFW), he added.
The Philippine trade deficit reached a record USD 3.6 billion in April this year, bringing first four months deficit figure to USD 12.2 billion.
A trade deficit occurs when a country’s imports exceeds its exports.
“However, this should not be viewed too badly as imports of capital goods (additions to productive capacity) have shown robust growth,” Abola stressed.
They estimated that 46 million Filipinos will benefit from peso depreciation, including about 10 million OFW with an average family size of 4.6.
“Add to that, the number of families dependent on exports, which account for 30 percent of GDP (gross domestic product), plus those that supply raw materials to exporters, we can easily conclude that a vast majority of Filipino families benefit from the higher peso-dollar exchange rate,” according to the economist.
They attributed the peso depreciation to the projected acceleration of the US economic growth for this year, the effects of US’ tax cuts, and Fed’s move to raise policy rates.
FMIC and UA&P also cited the foreign stock and bond market sell-off and the country’s trade deficit.
“Foreign stock and bond investors are selling off their peso-denominated financial assets as they stand to lose with the peso depreciation. Foreigners have been net sellers in the local stock market by a total of PHP52 billion from February to May this year,” Abola added.
The peso-dollar exchange rate crossed the PHP53 to a dollar on June 11. Days after, the peso slid further to some 5.8 percent, higher than the PHP50.40 average in 2017. (PNA)
