The Philippines is the only country in Southeast Asia facing a sustained deterioration in its current account, setting it apart from regional peers whose external balances remain broadly stable, according to Bank of America (BofA).
In a report, BofA said it assessed the state of external balances across the Association of Southeast Asian Nations (ASEAN), focusing on trade and its subsequent impact on growth.
‘We find that despite the growing headwinds from external trade, current account balances across the region have remained in a manageable state, with only Philippines showing a steady trend of wider deficits, while other economies in the region remain rangebound,’ it said.
According to the report, the Philippines has consistently posted current account deficits over the past year, while Indonesia, Vietnam and Singapore have strengthened their external positions.
‘On a long-term basis, current account trends in the region appear to show mild but consistent shifts, with Malaysia and Philippines showing a persistent trend of steady deterioration,’ BofA noted.
The Philippines’ current account deficit eased to $5 billion (four percent of gross domestic product) in the second quarter, down by 15.8 percent from $5.9 billion (5.2 percent of GDP) a year ago, as stronger exports helped trim the trade gap.
Meanwhile, Indonesia has recorded improvements due to stronger processing of mineral and resource exports, while Vietnam has swung from a persistent deficit to a sizable surplus.
Thailand remains volatile, shifting between deficits and surpluses depending on tourism inflows. Singapore continues to post large and stable surpluses.
BofA identified weak trade in goods as the key drag on the Philippine current account. While most of ASEAN saw frontloaded export gains in the first half, the Philippines underperformed, keeping its trade deficit wide.
The country’s reliance on remittances and information technology-business process management (IT-BPM) services has partially cushioned the gap, but these inflows are not growing fast enough to close it.
‘Remittances growth, especially in the Philippines, has consistently run behind nominal GDP growth,’ the bank observed, adding that their importance to the external account has gradually diminished.
Tourism receipts, which are helping neighbors like Vietnam and Malaysia recover their services surpluses, have also been slower to rebound in the Philippines.
The Philippines is also grappling with fiscal and monetary pressures. BofA highlighted that the fiscal deficit in August ballooned to P84 billion, up by 56 percent year-on-year, bringing the shortfall to P869 billion from January to August, or 25 percent higher than the same period last year.
On the monetary front, the peso weakened by nearly two percent in September as the Bangko Sentral ng Pilipinas (BSP) signaled it was nearing the end of its policy easing cycle.
The BSP has already lowered interest rates by 150 basis points since August 2024, bringing the key rate down to five percent.
BofA said it expects the central bank to reiterate that ‘the terminal rate is within sight’ at its Oct. 9 policy meeting.
The widening current account gap underscores a structural weakness that could weigh on investor sentiment and external stability.
‘Medium-term challenges remain,’ BofA cautioned, stressing that the Philippines’ heavy dependence on remittances and IT services, coupled with persistent goods trade deficits, makes it more vulnerable than its ASEAN peers.
Despite the challenging external picture, BofA said ongoing government support and a focus on improving fiscal spending quality could prevent a sharper slowdown in economic activity.