‘Persistent BOP deficit, dwindling forex reserves add pressure to peso’

MANILA, Philippines — The Philippines needs to strengthen its sustainable sources of foreign exchange as persistent balance of payments (BOP) deficits and further declines in reserves could increase the economy’s vulnerability to external shocks and put more pressure on the peso, according to GlobalSource Partners.

In a report, GlobalSource country analyst Diwa Guinigundo said the Philippines is not yet facing an external payments crisis, with its reserve buffer still substantial. However, he warned that the direction of the BOP and gross international reserves (GIR) warrants closer monitoring.

“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,” he said.

A prolonged drawdown in reserves could make the Philippines more sensitive to global risk aversion, elevated US interest rates, energy price shocks, geopolitical tensions and sudden capital outflows.

The bigger policy challenge, according to Guinigundo, is to strengthen forex earnings from exports, tourism, services, remittances and particularly foreign direct investment instead of relying on reserves to cushion an underlying imbalance.

“GIR is insurance; it is not a solution to a persistent BOP problem,” he said.

Data from the Bangko Sentral ng Pilipinas (BSP) showed the country posted a $1.47-billion BOP deficit in July, reversing the $3.4-billion surplus recorded in June. This brought the cumulative shortfall to $5.3 billion in the first seven months, already close to the $5.7-billion deficit recorded for the whole of 2025.

Guinigundo cautioned against reading too much into a single month’s BOP figure since movements can reflect the timing of government forex transactions, debt payments and portfolio flows.

Instead, he said the cumulative trend was more important. The country continues to record a large merchandise trade deficit while weaker investment inflows and tighter global financial conditions make external financing less predictable.

Meanwhile, GIR declined to $103.3 billion as of end-July from $104.7 billion in June. Still, the reserve level remained equivalent to 6.7 months of imports and 3.7 times the country’s short-term external debt, providing a significant buffer against external shocks.

Guinigundo said neither the BOP deficit nor the drop in GIR, when viewed separately, signals an immediate crisis. Rather, the concern is whether both trends persist at the same time.

He also pointed to the peso, which has recently hovered at around 61.70 to 61.80 against the dollar after approaching the 62 level, as a gauge of market confidence in the country’s external position.

Some depreciation is a normal adjustment to changing external conditions, he said, but pressure could intensify if persistent BOP deficits are accompanied by declining reserves, weaker capital inflows and growing doubts over the country’s ability to generate forex.

A weaker peso could then raise the cost of imported fuel and other inputs, adding to inflation pressures.

“The BSP does not need to defend any particular peso level,” he said. “What it needs to preserve is confidence that the forex market can adjust smoothly and that the country has sufficient reserves and financing capacity to withstand temporary shocks.”

For now, Guinigundo said the Philippines still has a comfortable external buffer, but warned that “comfortable is not the same as complacent.”