Time to Fortify Our Trade and Tourism Sectors
The global boundaries of international trade and tourism have long been broken with the signing of several commerce agreements among nations and the increased pace of travel nowadays. These two sectors have become the linchpin for many economies, especially those in Asia and other developing regions.
It is, thus, vital to enhance our trade and tourism sectors, as the economy fully reopens. A bigger trade and tourism base will help stabilize our balance of payments (BOP) and support the value of the peso in the face of global headwinds.
Joining global trade agreements, for one, is one way of expanding the economy. It allows our exports to catch up with imports and reduce our BOP deficit. Tourism revenues, which plummeted in 2020 and 2021 at the height of the pandemic before staging a moderate recovery in 2022, will also infuse additional dollar inflows.
Our BOP of late has been under pressure. Economic activities picked up in 2022 and we had to import more to meet rising domestic demand. The sudden surge in global fuel and commodity prices last year complicated the supply chain scenario, which led to elevated inflation in most countries.
As a result, our trade deficit hit an all-time high of $58.32 billion in 2022. Our imports surged 17.3 percent to $137.16 billion, faster than the 5.6-percent rise in exports to $78.84 billion from $74.65 billion.
The BOP deficit, fueled by the widening trade gap, pulled down the value of the peso to a record-low of 59 against the dollar in October, but thanks to the seasonal increase in remittance inflows and business outsourcing revenues, the local currency recovered in the succeeding months to trade within a range of 54 to 55 against the greenback.
But we could not fully rely on remittances and BOP revenues all the time to cover our widening trade and BOP deficits. We need to pull up our merchandise exports, tourism receipts and investments to shield our economy from external challenges.
Recent indicators have underscored the heavy dependence of the Philippine economy on global developments. Aware of the situation, the Senate ratified the Regional Comprehensive Economic Partnership—a regional trade treaty dubbed the largest in the world. The Senate had little choice but to approve the agreement, as failure to do so would alienate the Philippines from the rest of the global economy.
Joining the world’s largest free trade area is the obvious course of action for the country. Our Senate agreed the Philippines could not afford not to be part of it. The Department of Trade and Industry chimed in, saying if the Philippines had decided against joining RCEP, businesses and investors might relocate to other countries that are already participating in the trade treaty. This is one way of saying the Philippines is now very much part and parcel of the Asia-Pacific region, if not the global economy.
We hope that becoming a part of RCEP would indeed bring more investments to the Philippines and allow our exports to gain wider market access to the Association of Southeast Asian Nations and its Asia-Pacific partners—China, South Korea, Japan, Australia and New Zealand.
The RCEP unifies Asean regional free trade agreements among members and covers trade in goods, services, investments, economic and technical cooperation and dispute settlement.
A trade treaty, however, is a double-edged sword. It could lead to a deluge of cheap imports to the Philippines, or it opens up export market opportunities for our farmers, producers and manufacturers.
I hope that we will be able to take advantage of this trade agreement to lift our exports and catch up with our imports. Specifically, I hope the RCEP will help our farmers and MSMEs gain wider market access to other Asian countries and attract more foreign investments.
This way, we will have a more stable balance of payments, gross international reserves and foreign exchange that are the hallmarks of a strong economy.
Our participation in RCEP will also strengthen the Philippines’ position as an ideal investment hub in the region as we expand market access, facilitate trade and align our rules and procedures with participating economies.
I am also optimistic in the prospects of the tourism sector this year, which could add at least $10 billion in annual inflows once international travel is back to pre-pandemic levels. The Department of Transportation is pushing big-ticket infrastructure projects to help cement the country’s position as a prime tourism destination and unlock economic potentials in the provinces.
Local and international airplanes expect to fully restore their international flights this year. Hotel occupancy rate is anticipated to match, if not surpass pre-pandemic occupancy rates, on strong demand from both foreign and local travelers. Tourism revenues will eventually trickle down to the retail sector, transportation and community services.
Enhancing our trade and tourism potential will benefit not only the general economy, but also local communities, especially those in the countryside.