Philippines' Current Account Deficit Widens Significantly on Import Surge

MANILA, Philippines — The Philippines’ current account deficit widened by 51.7 percent to $15.44 billion in the first half of the year, as higher import bills outpaced growth in export earnings, the Bangko Sentral ng Pilipinas (BSP) reported. The shortfall increased from $10.18 billion a year earlier, representing 6.4 percent of gross domestic product (GDP) compared to 4.3 percent previously. In the second quarter alone, the deficit expanded by 60.7 percent to $8.97 billion from $5.58 billion in the same period last year, and was larger than the $6.47 billion gap recorded in the first quarter. The current account measures a country’s trade in goods and services, income flows, and transfers like remittances. A deficit indicates that payments made abroad for these transactions exceeded receipts. The primary driver of this deterioration was the goods trade deficit, an excess of merchandise imports over exports, which grew by 15.5 percent to $37.7 billion in January to June from $32.63 billion a year ago. Goods imports rose by 12.4 percent to $72.44 billion, while exports increased by 9.2 percent to $34.73 billion. The BSP attributed the import growth largely to higher prices, with purchases concentrated in telecommunications equipment, electrical machinery, manufacturing inputs, and fuel products. "Elevated global energy prices during the period, driven by supply concerns linked to geopolitical developments in the Middle East, contributed to higher import payments," the central bank stated. Imports of telecommunications equipment and electrical machinery reflect continued investment in digital infrastructure, while purchases of manufacturing materials supported production. Export growth, conversely, was largely driven by higher shipment volumes. The BSP cited sustained overseas demand for electronics linked to artificial intelligence and data centers, alongside machinery and transport equipment. The depreciation of the peso also provided support to exports. Earnings from services and remittances helped cushion the impact of the larger goods trade gap. The services surplus rose by 1.6 percent to $5.22 billion. Services exports increased by 4.8 percent to $25.32 billion, while imports rose by 5.7 percent to $20.1 billion. Business process outsourcing (BPO) revenues reached $15.4 billion and travel receipts amounted to $5.3 billion in the first half. Cash remittances coursed through banks saw a 2.4 percent increase to $17.15 billion from $16.75 billion. However, the primary income surplus, which covers cross-border earnings from work and investments, fell by 28.7 percent to $1.36 billion, offering a smaller offset to the trade deficit. Despite the wider current account shortfall, the overall balance of payments (BOP), which summarizes the country’s economic transactions with the rest of the world, improved. This was due to stronger financial inflows that helped meet external funding needs. The BOP deficit narrowed by 30.6 percent to $3.88 billion in the first half from $5.59 billion a year earlier. Net inflows in the financial account, which records cross-border investments, loans, and other financing transactions, rose by 39 percent to $12.28 billion. The BSP attributed this increase mainly to a reduction in domestic banks’ outstanding loans to foreign borrowers and higher foreign borrowing by local banks and other sectors.