Philippines’ balance of payments seen turning to deficits

The Philippines’ overall balance of payments (BOP) is expected to shift from a modest surplus in 2024 to deficits in 2025 and 2026, reflecting persistent external headwinds and a widening current account shortfall, according to a new assessment by the Bangko Sentral ng Pilipinas (BSP).

The BOP is a key economic indicator that shows how much money flows into and out of the country through trade, investments, remittances, and financial transactions.

A surplus means the Philippines is receiving more foreign currency than it is paying out, helping support the peso and build foreign exchange reserves, while a deficit indicates higher outflows than inflows.

For ordinary Filipinos, movements in the BOP matter because they can influence exchange rates, inflation, and borrowing costs.

Persistent deficits may put pressure on the peso, potentially raising the cost of imported goods such as fuel, food, and raw materials, while a healthy BOP position helps cushion the economy against global shocks and supports overall financial stability.

The BSP attributes the BOP’s weakening to a sustained trade-in-goods deficit and softer services receipts.

Foreign direct investments and external borrowings have also moderated amid lingering global policy uncertainty.

Goods trade is expected to remain subdued, shaped by weaker global demand, easing commodity prices, and slower domestic growth momentum.

Frontloading of shipments ahead of anticipated U.S. tariffs in the first half of the year is expected to provide a temporary boost to merchandise exports in 2025.

Despite this short-term support, structural constraints continue to weigh on export competitiveness.

These include logistical bottlenecks, skills mismatches, and persistently high input costs, which limit the economy’s ability to capitalize on external demand.

Services exports are also projected to grow more slowly, reflecting higher operating costs relative to regional competitors.

In the business process outsourcing sector, firms face rising rental fees, utilities, and wages, while the tourism industry is contending with higher prices for meals and accommodation.

Overseas Filipino remittances, however, are expected to remain resilient.

The central bank said inflows are supported by strong global labor demand and the continued use of formal transfer channels, with the impending U.S. tax on remittances seen to have only a minimal impact.

Foreign direct investments are projected to ease from 2024 levels, reflecting cautious investor sentiment and heightened global financial market volatility.

Over the medium term, modest gains could materialize with the passage of key reform measures, including Republic Act Nos. 12066 (CREATE MORE law), 12214 (Capital Markets Efficiency Promotion Act), 12252 (Investors’ Lease Act), and 12253 (Enhanced Fiscal Regime for Large-Scale Metallic Mining Act), as well as initiatives to strengthen digital connectivity, such as Rep. Act No. 12234 (Konektadong Pinoy Act).

The outlook underscores the importance of the timely and effective implementation of these laws by the national government to help bolster investment inflows.

At the same time, gross international reserves are expected to remain at adequate levels, providing a strong buffer against external liquidity risks.

Based on the latest results from early warning systems on currency crises and debt sustainability, the Philippines remains resilient to external shocks as of the fourth quarter of 2025.

Manageable external financing requirements and ample reserves continue to support the country’s external sector stability.

The BSP said it will continue to engage proactively with external stakeholders and promote macroeconomic stability, while closely monitoring emerging risks that could affect the external sector.