A wider external imbalance threatens to add further depreciation pressure on the already record-weak Philippine peso, as escalating geopolitical tensions—particularly the United States (US)-backed Israel-Iran conflict—are expected to drive up import costs and weigh on export growth, widening the country’s current account deficit.

Based on the Bangko Sentral ng Pilipinas’ (BSP) updated 2026-2027 balance of payments (BOP) forecasts released on Tuesday night, March 31, the current account deficit is projected to widen to four percent of gross domestic product (GDP) in 2026 and likely remain at that level in the following year.

This marks a notable deterioration from the previous forecast of three percent and from the actual 3.3 percent in 2025. The current account deficit refers to the gap in the country’s net dollar earnings from trade in goods and services and income from overseas Filipino workers (OFWs).

A wider current account deficit puts depreciation pressure on currencies like the Philippine peso because it reflects a greater demand for foreign exchange (forex) to pay for imports than the supply generated by exports and remittances. The peso has fallen to record lows in recent days amid rising oil prices and supply risks stemming from the ongoing Middle East conflict.

According to the BSP, the widening deficit reflects pressures from trade activities and a challenging global environment driven by ongoing hostilities in the Middle East.

“These external conditions shape the overall BOP outlook primarily through cost and confidence channels rather than abrupt volume contractions,” the BSP said.

Goods export growth is projected to slow to just three percent, a sharp deceleration from the 15.2-percent expansion expected in 2025, reflecting “inventory normalization, weaker global trade momentum, and higher trade costs.”

“The sector will nevertheless benefit from growth in some segments. Electronics exports will continue to be supported by demand for AI [artificial intelligence]-related peripherals, electric vehicle (EV) inputs, and data center equipment,” the BSP stressed.

The central bank also noted that supply growth remains constrained by structural issues, including “high electricity costs, regulatory frictions, and logistics bottlenecks.”

On the import side, rising prices—particularly from elevated oil costs—are expected to drive growth. Goods imports are projected to expand by six percent in 2026, up from the previous forecast of two percent and faster than the actual five-percent growth recorded last year.

This reversal to the 2024 deficit level suggests that the improvement seen in 2025 may not be sustained.

The broader BOP position is also expected to weaken, with the deficit projected to widen to 1.5 percent of GDP ($7.8 billion) in 2026 and 1.6 percent in 2027 ($8.5 billion), from 1.2 percent ($5.7 billion) in 2025.

Services imports are seen growing by five percent in 2026, easing from the earlier six-percent projection.

“Services imports, particularly outbound travel, are projected to continue to expand faster than services exports, adding further pressure to the external balance,” the BSP said.

Meanwhile, services export growth is expected to slow to four percent in 2026 from the previous five-percent forecast and remain at that pace in 2027.

The information technology and business process management (IT-BPM) sector is expected to remain the main driver, with growth of about four percent over the two-year period. However, this growth is “constrained by skills shortages and the uneven transition toward greater AI exposure.”

Travel receipts are also projected to grow more modestly, at one percent in 2026—down from three percent previously—and two percent in 2027, due to “higher airfares, safety concerns, and increased regional competition.”

Cash remittances from overseas Filipinos (OFs) are expected to remain a stabilizing factor, growing by three percent in both 2026 and 2027, although slightly slower than the 3.3-percent expansion in 2025.

“Cash remittances remain a key source of external stability... despite geopolitical tensions, as there remain no signs of mass repatriation or widespread deployment bans,” the BSP said.

The financial account is projected to post wider net inflows, with deficits of $12.9 billion in 2026 and $13.8 billion in 2027.

Net foreign direct investments (FDIs) are forecast at $7.5 billion in 2026 and $8 billion in 2027.

“Portfolio flows benefit from easing financial conditions but will remain sensitive to shifts in global risk sentiment,” the BSP said, noting that these are expected to ease to $3.7 billion this year from $5.6 billion, before inching up to $4.1 billion in 2027.