A WEAK industrial base and underdeveloped agriculture, combined with excessive dependence on low-productivity services, have made it difficult for the Philippines to manage its current account (CA), a ‘crucial’ measure of an economy’s health and its relationship with the global economy.
The Bangko Sentral ng Pilipinas (BSP) highlighted this in a book titled, ‘Current Account Dynamics and the Philippine Economy: Developments and Prospects,’ which it launched recently.
The central bank said managing the current account is ‘becoming increasingly challenging’ for the Philippines, particularly due to the pattern of its economic development diverging sharply from the traditional industrialization route followed by many successful East Asian economies, which evolved from agriculture to industry on the way to a services-dominated economy.
‘This ‘premature de-industrialization’ of the economy, characterized by a weak industrial base and underdeveloped agriculture, combined with excessive dependence on low-productivity services, presents various challenges for CA management in the country,’ the BSP book noted.
Despite the resilient remittance inflows and the ‘booming’ information technology and business process management (IT-BPM) industry, the book noted that long-standing trade deficits in goods suggest that its structural weaknesses persist.
With the global landscape rapidly changing, the BSP underscored the increased uncertainty in international trade policy, particularly from major economies such as the United States through the announced tariffs as well as global trade volatility which it said may result in a larger current account deficit.
Moreover, the BSP said the new US tariffs imposed on Philippine exports could prove to be ‘hurdles’ for exporters, as they worry about a drop in American demand due to higher prices, being ‘outcompeted’ by other countries, and losing market share if costs are added to the prices of their products.
The book noted that the global landscape is marked by so-called ‘megatrends.’
These include the digitalization and automation (Industry 4.0) that put the employability of overseas Filipino (OF) workers as well as of those doing routine BPO operations in question, power shifts in the global economy towards Asia, and the ‘imperative’ to green industrial production, the BSP added.
‘These forces pose both challenges and opportunities for the Philippines, requiring a proactive and flexible policy response to achieve a sustainable CA balance,’ the central bank underscored.
Recommendations
Given these challenges, the book outlined recommendations to manage the country’s current account.
On renewing manufacturing for higher value-added, the central bank said there is a need for the government to make a ‘conscious effort’ to build technological capacity, attract and retain skilled workers, and raise research and development (RandD) resources to develop a high-value-added manufacturing industry.
As for agricultural modernization, the BSP said there is a need to transition from low-value staples to high-value, export-oriented commodities such as fruits, vegetables, coffee, cacao and fish.
‘Revitalize irrigation systems to support crop diversification and enhance agricultural productivity,’ the central bank said.
The BSP also proposed to develop agriculture business incubation centers and encourage ‘value-adding’ activities such as processing and packaging to add significant value and profitability to agricultural exports.
On ‘intensification of servicification,’ the central bank stressed the need to provide well-targeted incentives (fiscal and non-fiscal) to manufacturing firms for ‘progressively’ using or providing services, particularly for exports.
The BSP said the government should establish policies favoring smaller companies at the ‘fringe’ of the corporate network of the economy, especially regarding access to capital and competition.
It noted that the country’s corporate network is ‘quite fragmented and exhibits uneven connectedness,’ with financial investments concentrated in a few large, highly central business groups that effectively limit the small firms’ access to capital.
The central bank explained that current account records a country’s inflows and outflows of foreign currency from trade in goods and services, remittances, offshore investment profits, grants, and donations to and from abroad
‘These flows matter for policymakers, as they influence the country’s external position, foreign exchange movements, inflation pressures, and broader economic conditions,’ the BSP said.
The latest balance of payments (BOP) data from the BSP showed that the current account deficit narrowed to $16.3 billion in 2025 from $18.6 billion in 2024.
‘This was supported by an improved trade-in-goods balance on the back of robust export growth as well as higher income receipts from overseas Filipinos, consistent with record full-year cash remittances in 2025,’ the BSP said.