Rescuing the sinking peso
The Philippine peso plunged to its weakest level of 59.355 against the United States dollar last Jan. 7, no thanks to the perfect storm of weak consumer and investor sentiment locally as a direct result of the widening corruption scandal and rising geopolitical risks abroad that have frozen investors on the sidelines.
Analysts and economists believe that given these factors that will cast a pall of lingering gloom on the country, the peso is on track to further depreciate to the 60-levels.
This further clouds the economic growth outlook for this make-or-break year for the Marcos administration, which is running against time to establish a positive legacy before the Philippines gets caught up in the frenzy ahead of the 2028 national elections.
A weak peso impacts the Philippines in different ways, although mostly negative in the current context.
On one hand, the peso depreciation means that Philippine exports will be more affordable for buyers overseas and also more pesos in the pockets of households receiving remittances from the millions of Filipinos working and living abroad.
This boost in income should consequently shore up consumer spending that powers up to 70 percent of the country’s economic activity.
Dollar obligations
But on the other hand, this also means that the country will need to generate more pesos to meet its dollar obligations, be it to pay for imports such as crude oil, rice, and capital equipment or service dollar-denominated debt of both the government and the private sector.
This could then lead to a spike in the prices of basic goods and thus reignite inflation, a scenario that the Bangko Sentral ng Pilipinas (BSP) does not want to come to pass as it will hamper its ability to possibly further reduce its rate that banks use to price loans and give the sluggish economy a shot in the arm.
But based on the latest BSP data, the Philippines continues to spend more dollars than it earns, with the dollar deficit pegged at $4.83 billion at the end of November last year and estimated to end 2025 at $6.2 billion, bolstering the growing consensus that the peso will remain weak and vulnerable to local and foreign headwinds in the near term.
Jonathan Ravelas, adviser at Reyes Tacandong & Co., said the peso continued to face “depreciation pressures” amid a strong US dollar and widening trade deficits.
Ravelas projected that the peso would further weaken to 61.00 against the greenback in 2026 and further to 62.55 in 2027, “underscoring the need for robust foreign exchange management.”
Crushing pressure
Providing much needed support to the currency, however, are the country’s more than adequate reserves of foreign exchange that at the end of 2025 reached $110.9 billion, 4.3 percent higher than the 2024 level and surpassing the BSP’s estimate of $109 billion.
At this level, the country has enough reserves to pay for 7.4 months’ worth of imports of goods and payments of services, way beyond the accepted convention that reserves should be enough to pay for at least three months’ worth of goods imports.
The Philippines, however, will need to attract more dollars if it hopes to ease the crushing pressure on the peso. That means for the government pulling out all the stops to attract foreign investments, increase tourism revenues and generate more dollars from exports to augment the ever-reliable foreign exchange from remittances, which were expected to have grown by some 3 percent to $35.5 billion by the end of 2025.
However, even the BSP is projecting that the dollar deficit in 2026 will be wider than initially estimated at $5.9 billion–although smaller than the 2025 level–primarily due to the still soft inflows from tourism and foreign direct investments and exacerbated by outflows for imports, including rice as the moratorium on imports is expected to eventually be lifted.
Strong signals
And that picture of more dollars going out than coming in will not be vastly improved unless the Marcos administration solves the worsening crisis of confidence that has capped investments and weakened economic growth.
As John Paolo Rivera, senior research fellow at state-run Philippine Institute for Development Studies said, any sustained appreciation in the Philippine peso would depend less on the further lowering of the BSP policy rate “and more on stronger investment inflows, export performance, and confidence.”
That confidence in public governance has certainly taken a beating as the scale of corruption continues to widen, and restoring it will mean throwing the guilty behind bars and the Marcos administration demonstrating its steely resolve to demand and press accountability.
Without that and given headwinds abroad, chances are that Filipinos will have to prepare for the peso to further sink to 60 the dollar amid “worsening sentiment,” unless the government sends strong signals that it is prepared to do what it takes to help steer the currency in the opposite direction, sooner rather than much later.
