The Philippines recorded a $2.28 billion balance of payments (BOP) deficit in February 2026, marking a sharp reversal from a surplus a year earlier and highlighting growing external pressures on the economy.

Data released by the Bangko Sentral ng Pilipinas (BSP) on March 19 showed the deficit widened significantly from $373 million in January, bringing the cumulative shortfall for the first two months of the year to $2.7 billion. The latest figure also represents the widest monthly deficit in 10 months, and contrasts with a $3.09 billion surplus in February 2025.

Capital Outflows Drive External Gap

The BSP attributed the deficit primarily to net capital outflows, including foreign-currency withdrawals by the national government and payments for external debt. Continued demand for dollars to finance imports also weighed on the country’s external position.

Broader global factors, including trade uncertainties and shifting interest rate differentials, have added to the pressure, reflecting the Philippines’ sensitivity to international financial conditions.

Strong Reserves Provide Buffer

Despite the deficit, the country’s external liquidity position remains robust. Gross international reserves rose to a record $113.3 billion at end-February, up from $112.6 billion in January.

The reserve level is sufficient to cover 7.5 months of imports and related payments, and is more than four times the country’s short-term external debt, providing a significant buffer against external shocks.

Implications for Currency and Inflation

A sustained BOP deficit can contribute to peso depreciation, as higher demand for foreign currency puts downward pressure on the local unit. The peso has already shown weakness in recent weeks, briefly nearing the ₱60-per-dollar level.

A weaker currency raises the cost of imported goods such as fuel, food, and raw materials, which can feed into inflation and affect household purchasing power.

Mixed Effects Across the Economy

While the deficit reflects external strain, it also has offsetting effects. Exporters and service sectors such as business process outsourcing may benefit from a weaker peso, while remittances from overseas Filipino workers gain value when converted into local currency.

At the same time, the data underscores the importance of maintaining stable capital inflows and improving the trade balance to support long-term external stability.

The BSP projects a $5.9 billion BOP deficit for full-year 2026, slightly wider than the $5.66 billion shortfall recorded in 2025. Policymakers are expected to continue managing exchange rate volatility while relying on strong reserves to cushion the economy.

While the February deficit signals ongoing external challenges, the country’s elevated reserve levels suggest that risks remain manageable, with no immediate threat to overall financial stability.

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