BOP position to remain in deficit amid challenges

THE Philippines’ balance of payments (BOP) is expected to register deficits of about one percent of GDP in 2025 and 2026. This outlook reflects a continued current account shortfall and moderating financial flows. While the domestic economy benefits from steady growth, low inflation, and ongoing structural reforms, these are offset by global trade uncertainty, heightened geopolitical risks, and weakened investor confidence.

The current account is expected to remain in deficit at around 3 percent of GDP, indicating a gap in savings over investment amid global uncertainties. As a result, external financing remains necessary to support the country’s infrastructure-led, investment-driven growth strategy.

Goods exports continue to face headwinds from global trade uncertainty, lagging competitiveness, and constraints in the semiconductor industry. While trade diversion offers opportunities, logistical inefficiencies and workforce limitations continue to raise barriers. Meanwhile, stable domestic demand and infrastructure spending support the growth in imports, but import value is tempered by declining global commodity prices, particularly for oil.

The services trade remains broadly resilient, although downside risks persist. Outsourcing revenues are supported by stable demand for contact center services, yet they confront uncertainties due to U.S. job reshoring initiatives and local talent shortages. Meanwhile, tourism receipts are bolstered by improvements in airport infrastructure and greater availability of accommodation, though growing competition from other destinations and rising transport costs may temper the pace of recovery.

Steady remittance flows continue to provide a buffer against the trade deficit, supported by strong labor demand for Filipino workers in key sectors as well as by the aging populations in host countries. Innovations in digital payments and the Philippines’ recent removal from the Financial Action Task Force grey list have helped reduce transfer costs. However, the rise of protectionist policies in some host countries presents emerging risks.

Foreign investment inflows remain positive but subdued, as policy uncertainty and the global slowdown weigh on investor sentiment. Nevertheless, the government’s push for accelerated infrastructure development expanded fiscal incentives, and investment-enhancing reforms – including the Create More Act and the Capital Markets Efficiency Promotion Act – are expected to help attract long-term investment.

The moderation in trade and investment flows limits the country’s scope to build up foreign exchange reserves. Nonetheless, reserves are expected to remain ample, providing sufficient liquidity to cushion the economy against external headwinds.

The BSP emphasizes the limitations of the forecasts, given the evolving external landscape. The BSP will continue to closely monitor external developments and risks, and their potential impact on the fulfillment of its objectives for price and financial stability. PR