By Francis Allan L. Angelo

The Bangko Sentral ng Pilipinas has released a sweeping 402-page study warning that the country’s two most celebrated economic lifelines — overseas remittances and the business process outsourcing industry — are effectively financing a structural trade problem the Philippines has never solved, not solving it.

The book, Current Account Dynamics and the Philippine Economy: Developments and Prospects, was formally launched at BSP headquarters in Manila on March 2 and made publicly available in digital form on June 9. Edited by economist Mario B. Lamberte and written by a team of BSP researchers, the book is the central bank’s most comprehensive analysis yet of why the Philippines consistently spends more on imports than it earns from exports — and what that gap means for long-term growth.

The verdict is not flattering. For most of the period from 1980 to 2023, the Philippines ran a deficit on trade in goods, meaning it imported far more than it exported. The gap has been partially bridged by two sources: the remittances of overseas Filipino workers, and revenues from the IT-BPM — information technology and business process management — sector that includes the country’s sprawling network of call centers and shared-services offices.

But the book’s authors are explicit: those buffers are not a fix. “Although the Philippines has made notable progress in services exports and benefits significantly from remittances, a more balanced approach to economic development is necessary,” the book states.

The safety net that became a crutch

The numbers behind OFW remittances are staggering. Personal remittances averaged 11.2 percent of GDP throughout the 2000s and 9.7 percent in the 2010s, peaking at 12.5 percent in 2005, according to World Bank data cited in the book. The Philippines ranks among the largest remittance-receiving countries in the world.

The problem, the book says, is how that money is largely used. Because the Philippines is one of the largest recipients of remittances globally, “a significant portion is used for consumption, fueling domestic demand.” In the 2010s, the share of consumer goods in total imports rose to 24.6 percent — up 10 percentage points from 14.9 percent in the previous decade. Filipino households with overseas relatives were, in effect, importing more.

The BPO and IT-BPM sector runs parallel. In 2023, it accounted for 8.1 percent of GDP and 66 percent of the country’s services exports, according to the Board of Investments. From a standing start in the 1980s, it has grown into a US$38-billion-a-year industry employing 1.7 million people as of 2024. The book describes the sector and OFW remittances together as the two “legs” of the Philippine economy.

Yet even that outsized contribution has not been enough. When global commodity prices surged in 2022 following the Ukraine-Russia conflict and domestic activity rebounded sharply after COVID-19 restrictions lifted, the current account deficit reached a record US$18.3 billion — equivalent to 4.5 percent of GDP. Services revenues and remittances helped, but could not close the gap.

The factory floor that never grew

To understand why remittances and BPO revenues can only do so much, the book traces the deeper structural failure: manufacturing.

The Philippines now has the lowest manufacturing sector gross value added-to-GDP ratio among its major ASEAN peers — below Malaysia, Indonesia, Singapore, and Thailand. That ratio declined from an average of 23.6 percent in the 1990s to 19.1 percent between 2010 and 2023. Manufacturing’s share of total employment fell in parallel, from 10.1 percent in the 1990s to 8.3 percent today.

The country’s trade structure tells the same story. More than 70 percent of total imports are raw materials, intermediate goods, and capital goods — meaning the Philippines is importing the inputs it cannot yet make domestically. At the same time, its export portfolio is dangerously narrow: machinery and electronic equipment, including integrated circuits, accounted for an average of 62.1 percent of total exports from 1996 to 2022. The country’s Export Diversification Index is the highest — least diversified — among the five ASEAN economies studied.

What happened was a detour, not a development path. Labor leaving agriculture in the Philippines moved into services rather than factories — the reverse of what happened in South Korea, Taiwan, Malaysia, and Vietnam, where manufacturing absorbed the transition. The book attributes this partly to agricultural policy failures (an overreliance on rice production that crowded out high-value crops) and partly to decades of fiscal incentives that did not generate the backward-and-forward industrial linkages needed to build a domestic supply chain.

BSP Governor Eli M. Remolona, Jr., in his foreword to the book, framed the stakes plainly: “Chronic deficits or surpluses are not self-correcting. Left unchecked, they risk undermining economic stability.”

Both lifelines under pressure

The book lands a harder punch when it turns to the future of those two safety nets. Neither OFW remittances nor BPO revenues are as safe as they once appeared.

On the BPO sector, the data is unsettling. Approximately 300,000 jobs in the sector are projected to be lost to artificial intelligence between 2024 and 2029, according to Bloomberg data cited in the book. The Philippines dropped out of the top ten in the Global Services Location Index in 2023, sliding to 12th from 7th place in 2017. The book identifies a specific weak point: the country scored particularly low on the GSLI’s “digital resonance” component, which measures a nation’s capacity for digital transformation and innovation — the very skills that would allow the sector to move up the value chain and resist automation.

India provides the cautionary contrast. It transitioned from low-end BPO work to high-value knowledge process outsourcing — data analytics, medical services, software engineering — in the early 2000s. The Philippines, the book notes, has fewer prospects for recapturing jobs lost to automation because it lacks the home-grown technology companies that could absorb newly automated workers into new roles.

The services sector’s share of the country’s GDP has risen from 49.9 percent in 1990 to 62.3 percent in 2023. That sounds like success, but the book argues it reflects failure: services grew not because the economy diversified upward, but because manufacturing and agriculture stagnated.

A six-point reform agenda

The book’s concluding chapter, written by Lamberte, groups its policy prescriptions under six themes: macroeconomic stability and investment climate reform; revival of manufacturing and agricultural diversification; developing higher-value services exports; human capital and research-and-development investment; deepening the integration of services into manufacturing (a process the book calls “servicification”); and strengthening governance and inter-agency coordination.

Several recommendations carry pointed implications for current policy. The book calls for revisiting the Ease of Doing Business law and enhancing the Anti-Red Tape Authority’s effectiveness — a signal that regulatory reform has stalled. It advocates agricultural reform that would transition from rice monoculture toward high-value export crops like fruits, vegetables, coffee, and cacao. And it calls for “significantly” raising national research-and-development spending as a percentage of GDP to meet UNESCO’s benchmark of at least 1 percent — a level the Philippines has yet to reach.

On industrial policy, the critique is historical and pointed. The book reviews 70-plus years of development plans, from the post-war import-substitution industrialization era to the present, and concludes that “formulating fragmented economic policies will no longer be sufficient.” It notes that fiscal incentives for foreign investors cost the government PHP 441 billion in foregone revenue in 2017 alone — and describes earlier incentives as having been “redundant,” failing to generate the industrial linkages they were meant to build.

The CREATE MORE Act, passed in 2024, is acknowledged as a step toward rationalization. But the book’s underlying argument is that the Philippines needs more than incentive reform — it needs a structural overhaul of an economy that has outsourced its growth engine to overseas workers and foreign clients for too long.