BSP sees gradual external sector adjustment

The Bangko Sentral ng Pilipinas expects the Philippines’ external sector to stay under pressure through 2026 and 2027, with the balance of payments projected to remain in deficit as softer global trade, higher oil prices and geopolitical tensions weigh on the country’s current account, even as remittances, business process outsourcing revenues and foreign investment continue to provide support.

In a March 2026 outlook, the BSP said the adjustment should be orderly rather than abrupt. That distinction matters. The central bank is not describing a sudden external shock, but a slower squeeze driven mainly by prices and sentiment. Global growth is still running below prepandemic trends, it said, while world trade momentum is expected to weaken as tariff-related frontloading fades. Elevated tensions in the Middle East add downside risks through higher energy prices and episodic risk-off sentiment.

Exports, after expanding by about 15 percent in 2025, are expected to cool. Goods exports are forecast to grow by 3.0 percent in 2026 and 4.0 percent in 2027, reflecting inventory normalization, weaker trade momentum and higher trade costs. Even so, the BSP said electronics exports should still draw support from demand for AI-related peripherals, electric vehicle inputs and data center equipment, while agrifood exports should benefit from sustained demand for coconut products. What keeps the sector from moving faster, the bank said, are familiar domestic constraints: high electricity costs, regulatory frictions and logistics bottlenecks.

Imports tell the other half of the story. The BSP expects goods imports to grow by 5.0 percent to 6.0 percent, largely because of significantly higher oil prices. Capital goods imports should remain supported by private investment, although softer public infrastructure spending is expected to temper growth in the near term. Services imports, especially outbound travel, are also seen expanding faster than services exports, adding another layer of pressure to the external balance.

There are buffers, but the BSP signaled that even these are facing headwinds. IT-BPM revenues are projected to grow by about 4.0 percent in 2026 and 2027, restrained by skills shortages and an uneven shift toward greater AI exposure. Some firms are seeing productivity gains from AI adoption, while others are absorbing transition costs. Travel receipts are expected to rise only at a moderate pace because of higher airfares, safety concerns and tougher regional competition. Cash remittances, still one of the country’s most reliable external anchors, are projected to grow by about 3.0 percent over the next two years, with the BSP saying there are no signs of mass repatriation or widespread deployment bans despite geopolitical tensions.

Taken together, those trade, services and income flows are expected to widen the country’s external imbalance. The current account deficit is projected at around 4.0 percent of gross domestic product in both 2026 and 2027, while the balance of payments deficit is seen at about 1.5 percent to 1.6 percent of GDP. Financing inflows will help, but not erase the gap. Net foreign direct investment is projected at USD 7.5–8.0 billion, while portfolio flows may benefit from easier financial conditions but will remain sensitive to shifts in global risk sentiment.

The BSP said those reserve levels remain sufficient to cushion the economy against external shocks over the forecast horizon. It also stressed that the baseline projections reflect rapidly evolving external developments, particularly those tied to the Middle East conflict, and will be continuously reassessed as new information comes in. That may be the clearest takeaway in the release: the central bank sees pressure ahead, but not panic. The risks are real, the buffers are still there, and the adjustment, for now, looks manageable.