THE Philippines’ external position may be in peril if its balance of payments (BoP) deficit persists and dollar reserves continue to shrink, GlobalSource Partners said.
GlobalSource Partners Country Analyst Diwa C. Guinigundo said the Philippines needs to diversify the country’s foreign currency revenue streams to ensure it can weather global shocks.
“The bigger issue is direction: if BoP deficits persist and reserves continue to fall, external vulnerability could increase and put greater pressure on the Philippine peso,” he said in an Aug. 21 commentary.
Mr. Guinigundo said the peso’s recent movement is testing confidence in the Philippines’ external position, particularly whether the BoP deficit is temporary and manageable and whether the country’s foreign exchange reserves remain sufficient to cushion external shocks.
“The immediate reaction should therefore not be alarm, but rather, the strengthening of sustainable foreign exchange earnings through exports, services, tourism, remittances and FDI (foreign direct investment),” he added.
The latest Bangko Sentral ng Pilipinas (BSP) data showed the country’s seven-month BoP gap stood at $5.347 billion, narrowing from the $5.756-billion gap a year ago, largely driven by its continued trade-in-goods deficit and net hot money outflows.
BoP refers to the country’s economic transactions with other nations. A deficit shows that the country spent more than it received, while a surplus indicates more funds entered into the country.
The country’s trade-in-goods balance, or the difference between the values of exports and imports, stood at a $30.81-billion gap as of end-June, widening from $24.48 billion last year.
Meanwhile, net outflows of foreign portfolio investments, also known as hot money, reached $4.005 billion in the first half of 2026, a reversal from the $1.542-billion hot money inflows seen in the previous year.
Gross international reserves (GIR) declined annually for a fifth straight month to an 18-month low of $103.317 billion as of July.
Still, the BSP noted that this level of GIR still translates to 6.7 months’ worth of imports of goods and payments of services and primary income and could cover about 3.7 times the country’s short-term external debt based on residual maturity.
“So, neither the BoP deficit nor the GIR decline, taken separately, suggests an immediate crisis. The concern lies in the interaction between the two,” Mr. Guinigundo said.
“If the BoP remains persistently in deficit, reserves will eventually have to absorb part of the pressure unless the gap is financed by sustained capital and financial inflows. A continuing drawdown in reserves would gradually reduce the country’s external buffer and could make markets more sensitive to global risk aversion, higher US interest rates, energy-price shocks, geopolitical tensions and sudden capital outflows,” he added.
While the latest figures do not reflect an economic crisis, the narrowing financial buffers require heightened vigilance, said Mr. Guinigundo.
“The current numbers therefore call for vigilance, not alarm,” he said. “The Philippines is not facing an external-payments crisis. But the widening BoP deficit and declining GIR are early warnings that should not be ignored.”
The BSP projects the BoP deficit to widen to $10.7 billion or -2.1% of gross domestic product (GDP) by yearend as its foreign reserves could fall to $104 billion this year.
Meanwhile, Mr. Guinigundo noted that the peso’s recent depreciation near the P62-a-dollar mark may be normal as global conditions remain volatile.
This came after the peso touched an intraday low of P61.995 to close at P61.815 against the dollar on Aug. 19, marking the local unit’s weakest finish since July 24, or when it plunged to a record low of P61.847 versus the greenback.
“But this was not simply a story of a stronger US dollar,” Mr. Guinigundo said in a separate commentary on Friday. “The immediate trigger was a combination of higher oil prices, renewed Middle East tensions and global risk aversion, amplified by the Philippines’ own external vulnerabilities.”
While the currency’s weakness signals a lack of market confidence, Mr. Guinigundo noted that the country’s substantial reserves and steady remittance inflows still provide a buffer against temporary shocks.
However, he also said the country remains vulnerable to external threats due to its heavy reliance on energy imports, financing needs, and weak FDI environment.
The central bank likewise faces a monetary policy challenge, as interest rate hikes intended to support the currency could eventually dampen domestic demand.
“This underscores an important point: interest rate differentials cannot by themselves solve an exchange rate problem driven largely by an external oil shock and strong structural demand for dollars,” Mr. Guinigundo said.
“Indeed, using monetary policy too aggressively to defend the peso could come at the cost of weaker domestic demand. But allowing the depreciation to feed too strongly into fuel, transport and electricity prices could reignite inflation and eventually require tighter monetary policy anyway,” he added.
Since it began tightening in April, the Monetary Board has lifted key borrowing costs by a total of 50 basis points (bps) to 4.75%.
A BusinessWorld poll conducted last week showed 19 of the 24 analysts surveyed expect the BSP to deliver a third straight 25-bp hike at its Aug. 27 meeting, while the remaining five analysts priced in a pause. — Katherine K. Chan
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