The Philippines registered a twin deficit – fiscal and current account deficits – in 2016 and 2017 which was last recorded in 2002. A country incurs a fiscal deficit when the government spends more than its revenues, in which case the government borrows to augment the shortage. On the other hand, a current account deficit occurs when the value of the imported goods and services exceeds the value of the exported goods and services. The Bangko Sentral ng Pilipinas (BSP) explains that a current account deficit means that a country becomes a net borrower from abroad or it invested more than what the national saving can finance.
Running deficits in both the fiscal balance and the current account balance (CAB) implies more borrowing for the country. Borrowing to finance the development needs of the country is by itself not bad. Investing these borrowed funds in infrastructure, education and health can improve the productive capacity of the country and facilitate generation of higher income. The issue regarding the twin deficit is about the sustainability of the borrowings and its consequences, and whether these are actually invested into further improving the productive capacity of the country. >>read complete document