BSP flags structural risks to current account

MANILA, Philippines — The Philippines may find it more difficult to manage its current account as weak manufacturing, underdeveloped agriculture, import dependence and emerging global risks continue to weigh on the country’s external position, according to the Bangko Sentral ng Pilipinas.

In a book published by the central bank, the BSP said managing the country’s current account is becoming more challenging as the Philippines has diverged from the traditional industrialization path followed by other successful East Asian economies.

“Against an evolving landscape, managing the current account is becoming increasingly challenging for the Philippines, particularly due to the pattern of its economic development diverging sharply from the traditional industrialization route followed by many successful East Asian economies, which evolved from agriculture to industry on the way to a services-dominated economy,” the BSP said.

It said the country’s “premature de-industrialization,” marked by a weak industrial base, underdeveloped agriculture and “excessive dependence on low-productivity services,” presents challenges to managing the current account.

“Despite resilient remittance inflows and the booming IT-BPM industry, long-standing trade deficits in goods suggest that its structural weaknesses persist,” the BSP said.

The current account measures a country’s transactions with the rest of the world, including trade in goods and services, income and transfers such as remittances. A deficit means the country spends more on foreign goods, services and income payments than it earns from abroad.

Based on BSP data, the current account deficit narrowed by 12.3 percent to $16.3 billion in 2025, equivalent to 3.3 percent of gross domestic product, from $18.6 billion or four percent of GDP in 2024.

The BSP said the Philippines has long relied on services exports and remittances to cushion the impact of a persistent goods trade deficit.

However, these buffers may not be enough to fully offset structural weaknesses in the country’s productive sectors.

Based on the BSP study, the central bank said the Philippines’ goods trade deficit reflects the country’s heavy reliance on imported raw materials, intermediate goods, capital goods and consumer products.

More than 70 percent of total imports from 2020 to 2022 consisted of raw materials, intermediate goods and capital goods, while consumer goods accounted for 28.7 percent, higher than 24.6 percent in the 2010s. The goods trade gap was also worsened by the country’s food trade deficit, including rice imports.

From 1996 to 2022, machinery and electronic equipment, including integrated circuits, office machine parts, semiconductor devices and insulated wire, accounted for an average of 62.1 percent of Philippine exports.

The BSP said this lack of diversification exposes the economy to risks from fluctuations in global electronics demand, competition from other producers and the performance of major trading partners.

The study also flagged new risks from global trade tensions, automation and changes in the structure of global production.

“The global landscape is rapidly changing,” the BSP said. “Increased uncertainty in international trade policy, particularly from major economies such as the US through the announced tariffs as well as global trade volatility, may result in a larger current account deficit.”

It said new US tariffs imposed on Philippine exports could become a hurdle for exporters worried about weaker American demand, higher prices, stronger competition from other countries and possible market share losses.

The central bank’s empirical analysis found that foreign direct investments, fiscal balance and exports have a positive effect on the current account, while faster economic growth and currency appreciation may worsen the external position if growth remains import-heavy and exports become less competitive.

“GDP expansion, particularly if it is import-biased, could lead to an expansion of deficits if not managed; the same case applies to currency appreciation being able to reduce export competitiveness,” the BSP said.

To strengthen the current account, the BSP said the government should pursue fiscal discipline, attract quality foreign investments, diversify exports, improve domestic production and maintain a competitive exchange rate.

It also called for stronger goods-producing sectors, higher-value services exports, better linkages between manufacturing and services, greater innovation and human capital development.