Philippines bracing for wider BOP deficit amid Middle East war

MANILA, Philippines — The Philippines is expected to face a much bigger gap between the money it earns from abroad and what it spends this year as rising energy costs tied to the Middle East conflict push more dollars out of the country for imports and spur risk-off sentiment.

The Bangko Sentral ng Pilipinas (BSP) now projects the country will run a balance of payments (BOP) deficit of $7.8 billion, or about 1.5 percent of the economy. That is larger than its earlier forecast of a $5.9-billion shortfall, roughly 1.2 percent of gross domestic product (GDP).

The strain is expected to continue into next year, with the BSP forecasting that the gap could widen to $8.5 billion, or 1.6 percent of GDP.

“Global growth remains below pre‑pandemic trends, while world trade momentum is expected to weaken as tariff‑related front‑loading unwinds,” the central bank said.

READ: Philippines to incur BOP deficit in 2025, 2026 – BSP

“At the same time, elevated geopolitical tensions, particularly in the Middle East, adds downside risks mainly through higher energy prices and episodic risk‑off sentiment,” it added.

Import outlook

After growing 5 percent last year, goods imports are now projected to rise 6 percent in 2026, up from a previous forecast of 2 percent, as turmoil in the Gulf region drives up global oil prices. 

The Philippines, heavily dependent on imported fuel, became the first country in the region to declare a state of national energy emergency.

Meanwhile, merchandise export earnings are seen growing 3 percent this year, slightly higher than the earlier forecast of 2 percent, as global demand for artificial intelligence development lifts the country’s electronics exports.

Even so, this marks a sharp slowdown from the 15.2-percent export growth seen in 2025, as the rush of early orders from markets that sought to avoid higher US tariffs begins to fade.

Services

Services exports, a key source of dollars for the economy, are projected to grow 4 percent this year, down from an earlier estimate of 5 percent. 

Broken down, tourism receipts are expected to rise by just 1 percent, down from a prior forecast of 3 percent. Meanwhile, business process outsourcing revenues are projected to increase 4 percent, below the earlier estimate of 5 percent.

Notably, cash remittances are still forecast to grow 3 percent despite labor concerns linked to the Middle East conflict. “There remain no signs of mass repatriation or widespread deployment bans,” the BSP said.

Foreign direct investments are expected to post a net inflow of $7.5 billion this year, while more volatile “hot money” flows are seen bringing a smaller net gain of $3.7 billion, down from the earlier estimate of $5.6 billion.

READ: Philippines starts 2026 with balance of payments deficit

Despite expectations of a wider BOP deficit, the BSP said the country’s gross international reserves are still projected to rise to $111 billion this year, giving the economy a comfortable buffer against external shocks.

“The BSP notes that these baseline projections reflect rapidly evolving external developments, particularly related to the Middle East conflict,” the BSP said. “The forecasts will be continuously reassessed as new and relevant information becomes available.” INQ