Philippines BOP deficit narrows as financial inflows strengthen

MANILA — The Philippines’ balance of payments deficit narrowed to USD 3.9 billion, equivalent to 1.6% of gross domestic product, in January–June 2026 from USD 5.6 billion, or 2.4% of GDP, a year earlier as stronger financial-account inflows partly offset a widening current-account gap, the Bangko Sentral ng Pilipinas said.

The improvement reduced the country’s overall external financing shortfall from a year earlier, but the composition of the balance of payments points to a continuing vulnerability: the Philippines is relying on stronger cross-border financial inflows to cushion a larger deficit in trade and other current transactions.

That matters for consumers and businesses because sustained import demand, particularly for fuel and production inputs, can increase exposure to global energy-price shocks and exchange-rate pressures, while services exports, tourism receipts, and remittances remain important sources of foreign exchange.

The BSP, in a Sept. 11 report, said net financial-account inflows strengthened to USD 12.276 billion in the first half from USD 8.833 billion a year earlier.

The increase was driven mainly by the other investment account, which recorded net inflows of USD 9.315 billion compared with USD 4.802 billion in January–June 2025.

The BSP attributed the stronger other-investment inflows to a net reduction in resident banks’ loan claims on nonresidents and increased foreign-loan availments by domestic banks and other sectors.

Direct investments remained in net inflow at USD 3.671 billion, slightly lower than the USD 3.771 billion recorded a year earlier.

The central bank said stronger equity-capital investments and higher intercompany loan repayments by foreign affiliates partly tempered the moderation in foreign direct investment.

Net FDI eased as nonresidents reduced investments in debt instruments amid persistent global uncertainty, according to the BSP.

Portfolio investment, meanwhile, shifted to a net outflow of USD 615 million in the first half from a net inflow of USD 337 million a year earlier.

Financial derivatives generated net outflows of USD 96 million, up from USD 77 million.

The current-account deficit widened to USD 15.436 billion, equivalent to 6.4% of GDP, in January–June from USD 10.178 billion, or 4.3% of GDP, in the same period of 2025.

The deterioration largely reflected a wider trade-in-goods deficit as imports continued to grow faster than exports.

The goods deficit increased to USD 37.703 billion from USD 32.633 billion, a 15.5% widening.

Goods exports rose 9.2% to USD 34.732 billion from USD 31.809 billion, supported by higher shipments of electronic products, gold, and machinery and transport equipment amid sustained external demand.

Goods imports climbed faster, rising 12.4% to USD 72.435 billion from USD 64.442 billion.

The BSP said import growth was concentrated in telecommunications equipment, electrical machinery, manufacturing inputs, and fuel products used to support domestic investment, production, and energy requirements.

Elevated global energy prices during the period, driven by supply concerns linked to geopolitical developments in the Middle East, also pushed import payments higher, the central bank said.

The wider goods deficit was partly offset by surpluses in services, primary income, and secondary income.

The services surplus reached USD 5.220 billion in January–June, up 1.6% from USD 5.140 billion.

Services exports benefited from continued growth in business process outsourcing-related revenue and travel receipts as tourist arrivals increased.

Primary-income net receipts fell 28.7% to USD 1.355 billion from USD 1.901 billion.

Secondary-income net receipts rose 1.8% to USD 15.693 billion from USD 15.413 billion, supported in part by resilient remittances from overseas Filipinos.

Personal remittances increased 2.4% to USD 19.123 billion in the first half from USD 18.672 billion a year earlier.

Cash remittances from overseas Filipinos coursed through the banking system likewise rose 2.4% to USD 17.149 billion from USD 16.753 billion.

In the second quarter alone, the country posted an overall BOP surplus of USD 1.411 billion, equivalent to 1.1% of GDP, reversing the USD 2.630 billion deficit, or 2.1% of GDP, recorded in the second quarter of 2025.

The second-quarter current-account deficit widened to USD 8.968 billion from USD 5.581 billion, while net financial-account inflows rose sharply to USD 9.599 billion from USD 1.260 billion.

The BSP’s infographic showed gross international reserves at USD 104.7 billion at end-June 2026, down USD 1.9 billion, or 1.8%, from USD 106.6 billion at end-March 2026.

Compared with end-June 2025, reserves declined USD 1.3 billion, or 1.2%, from USD 106.0 billion.

The average exchange rate weakened to PHP 60.99 per USD 1 in the second quarter from PHP 58.95 per USD 1 in the first quarter, a PHP 2.04 change equivalent to a 3.4% depreciation.

For January–June, the average exchange rate stood at PHP 59.97 per USD 1 in 2026 compared with PHP 57.12 per USD 1 in 2025, a PHP 2.85 difference equivalent to a 4.7% depreciation.

The BOP summarizes the Philippines’ economic transactions with the rest of the world. The current account covers trade in goods and services, cross-border income receipts and payments, and transfers such as remittances and grants, while the financial account tracks transactions in financial assets and liabilities between residents and nonresidents.

Other investment covers cross-border financial transactions and positions that are not classified as direct investment, portfolio investment, financial derivatives and employee stock options, or reserve assets.