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The United States’ remittance tax could trim the Philippines’ remittance growth by 0.5 percentage point (ppt), the Bangko Sentral ng Pilipinas (BSP) said.

“The impact under the worst-case scenario could be about 0.5 (ppt) or even lower,” BSP Deputy Governor Zeno R. Abenoja told BusinessWorld on the sidelines of an event on Friday.

“But again, behavior could change. For example, it’s possible that the sender will absorb the rate, the additional tax on it, such that in the end, what is received is still the same as what is sent,” he added.

The central bank expects cash remittances from overseas Filipino workers to grow by 2.8% this year and by 3% in 2026.

The 0.5 ppt estimated impact is still “very preliminary,” Mr. Abenoja said, as they are still studying the effects of the remittance tax.

“We still have some time to assess since it’s going to be January next year that it will be implemented. We are trying to confirm and clarify how it will be implemented, so we look at some worst-case scenarios,” he said.

US President Donald J. Trump’s recently passed “One Big Beautiful Bill” imposes a 1% excise tax on cash remittance transfers from the United States to other countries, starting Jan. 1, 2026. This was lower than earlier proposals of a 3.5% levy.

The tax was also initially aimed at non-US citizens but now applies to any remittance sender.

“As you know, the remittances from the US compose the bulk of our overseas Filipino remittances. If you look at the behavior of remittances, they’re used to finance education, health expenditures, and housing. These are necessary expenditures,” Mr. Abenoja said.

In the first five months of the year, cash remittances grew by 3% to USD 13.77 billion from USD 13.37 billion a year prior.

Around two-fifths of the Philippines’ remittance flows come from the United States. Latest BSP data showed that the US was the top source of remittances in the five-month period, accounting for 40.2% of the total.

“We’re looking at these characteristics of flows before we can finalize the impact. Because the behavior may also change such that in the end, the impact could be minimal,” Mr. Abenoja said.

“So, we’re looking at both how it will be implemented and how the senders will adjust to these new rules.”

The Department of Finance  earlier said the tax could impact 12.8% of the Philippines’ annual remittances. This would impact around USD 1.9 billion of the expected USD 36.5-billion remittances from the US in 2026.

In a separate e-mail to BusinessWorld, the BSP said that remittances often remain resilient despite shocks.

“During periods of crisis and uncertainties, overseas Filipino (OF) remittances have generally continued to increase, reflecting the strong altruistic motives of OF migrants and workers to support their dependents regardless of prevailing economic conditions,” it said.

The number of documented temporary Filipino migrants in the US are at an estimated 500,000, the BSP said, though noted that these figures vary.

“These are non-US citizens from the Philippines who hold either green cards (immigrant) or long-term nonresident visas. As a share of total documented migrants reported by the Department of Foreign Affairs, documented temporary migrants comprise 12%,” it added. — Luisa Maria Jacinta C. Jocson, Senior Reporter

The Philippines’ external debt service burden rose to nearly USD 5 billion at end-April due to higher amortization payments, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

Preliminary data from the central bank showed debt servicing on external borrowings went up by 1.3% to USD 4.91 billion in the January-April period from USD 4.85 billion a year ago.

Broken down, amortization payments increased by 6.2% to USD 2.42 billion in the first four months from USD 2.28 billion in the same period in 2024.

On the other hand, interest payments declined by 3% year on year to USD 2.49 billion from USD 2.57 billion.

The debt service burden represents principal and interest payments after rescheduling, according to the BSP.

This includes principal and interest payments on fixed medium- and long-term credits, including International Monetary Fund credits, loans covered by the Paris Club and commercial banks’ rescheduling, and New Money Facilities.

It also covers interest payments on fixed and revolving short-term liabilities of banks and nonbanks.

However, the debt service burden data exclude prepayments on future years’ maturities of foreign loans and principal payments on fixed and revolving short-term liabilities of banks and nonbanks.

“The slight year-on-year increase in external debt service may partly reflect the wider budget deficits that needed more NG (National Government) borrowings,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The NG’s budget deficit widened by 29.41% to P523.9 billion in the January-May period from the P404.8-billion gap last year.

Mr. Ricafort also cited “still relatively higher Fed interest rates since 2022 that contributed to higher debt servicing costs.”

The Fed is expected to keep its benchmark rate steady in the 4.25%-4.5% range at its July 29-30 meeting, a level policymakers regard as at least moderately restrictive, Reuters reported.

The Fed last cut rates in December, when policymakers started assessing the possible impact on prices from the import tariffs that Mr. Trump quickly began imposing after returning to the White House in January.

“For the coming months, the share of foreign borrowings in the total borrowing mix has been reduced in view of forex (foreign exchange) risks entailed, with a greater share of domestic borrowings. Nevertheless, future borrowings would be a function of the trend on budget deficits,” Mr. Ricafort said.

From this year until 2027, the National Government plans to source at least 80% of its borrowing program from domestic sources, and 20% from foreign lenders. The government previously adopted a 75:25 borrowing mix.

Earlier BSP data showed outstanding external debt jumped by 14% to USD 146.74 billion at the end of March. This brought the external debt as a percentage of gross domestic product (GDP) to 31.5% from 29.8% in the fourth quarter.

The BSP’s external debt data cover borrowings of Philippine residents from nonresident creditors, regardless of sector, maturity, creditor type, debt instruments or currency denomination.

Meanwhile, the debt burden as a share of GDP stood at 2.8% in the first quarter, lower than the 3.1% in the year-ago period. — Luisa Maria Jacinta C. Jocson with Reuters

The Philippines has room to negotiate with the US to bring down its reciprocal tariff to as low as 10% using defense concessions as a key bargaining chip, according to Fitch Solutions’ research unit BMI.

“While [former US President Donald J.] Trump has raised the rate from 17% to 20% for no explicit reason, the Philippines still faces some of the lowest tariffs in Asia,” Darren Tay, head of Asia country risk at BMI, told a webinar on Thursday.

“Overall, we still think the Philippines stands a good chance of bargaining the reciprocal rate down to the baseline 10%,” he added.

The Philippine government earlier said it is working to secure better terms with the US after Mr. Trump announced a 20% tariff on Philippine goods last week, effective Aug. 1.

“While few details have emerged from bilateral trade talks, we believe defense spending will emerge as a point of contention in the proceedings,” Mr. Tay said.

“Making concessions on defense is one good way of securing a trade deal, given that pushing allies to do more is one of Trump’s priorities,” he added.

He said increasing defense spending to 5% of economic output, similar to North Atlantic Treaty Organization benchmarks, would “impress” Mr. Trump, but noted that the Philippines is likely to propose a lower percentage.

Data from the Stockholm International Peace Research Institute  showed the Philippines’ military expenditure rose nearly 20% to USD 6.12 billion in 2024 from a year earlier. This brought the country’s military burden — military spending as a percentage of gross domestic product (GDP) — to 1.3%.

“But that should still be sufficient to secure a deal. Our base case, therefore, envisions reciprocal tariffs at 10%,” Mr. Tay said.

He noted that even in a worst-case scenario where tariffs rise to 20% across all sectors — including a 200% duty on pharmaceuticals — the overall impact would be limited due to the Philippines’ minimal export volume of such products to the US.

BMI maintained its economic growth outlook for the Philippines, noting that the country is less vulnerable to tariff shocks than its regional peers.

“In terms of GDP at risk, the Philippines is relatively insulated,” Mr. Tay said. “Besides the fact that export exposure to the US is slightly below average, we know that roughly half of exports to the US actually come in the form of services that are largely provided by the business process outsourcing sector — and those are untouched by tariffs.”

BMI projects Philippine GDP to grow 5.4% this year, slightly below the government’s 5.5% to 6.5% target.

Increased costs

Meanwhile, Moody’s Analytics said the US tariff could drive up costs and force businesses to rethink their supply chain strategies.

“The introduction of a 20% blanket tariff on Philippine exports to the United States adds complexity to global supply chains,” Moody’s Senior Director Choon Hong Chua said in a commentary released this week.

He added that the tariff could increase operational uncertainty for Philippine exporters accessing the US market.

“Philippine exporters may face increased costs and heightened uncertainty in accessing the US market, which could lead to reduced demand and intensified competitive pressures — particularly if higher costs are passed on to consumers,” Mr. Chua said.

Mr. Trump announced the tariff, which takes effect on Aug. 1, last week. The 20% rate is higher than the 17% initially announced in April and brings the Philippines in line with tariffs imposed on Vietnam, which recently secured a trade deal with the US, and now also faces a 40% duty on transshipped goods.

Other Southeast Asian nations also hit with increased tariffs include Laos and Myanmar (40%), Cambodia and Thailand (36%), Indonesia (32%), and Malaysia and Brunei (25%).

Moody’s noted that the Philippines could be affected since the US is the top destination for Philippine-made goods. More than 15% of the country’s exports in May were bound for the US, according to the Philippine Statistics Authority.

Mr. Chua advised companies with exposure to Philippine-based sourcing to reconsider their supplier strategies amid rising geopolitical and tariff-related risks.

“For companies with exposure to Philippine sourcing, it may be prudent to reassess supplier strategies in light of evolving geopolitical and tariff-related risks,” he said.

While firms may look to shift their sourcing to other Southeast Asian markets, Mr. Chua warned that such a move could involve short-term operational challenges.

“While some organizations may consider alternative sourcing options within Southeast Asia, any transition could involve short-term operational adjustments,” he said.

Despite these potential disruptions, Mr. Chua cited the importance of keeping a flexible and well-monitored supply chain to weather trade uncertainties.

“Maintaining supply chain visibility and agility remains essential for resilience,” he said. “Businesses that proactively adapt to shifting trade conditions and mitigate emerging risks will be better positioned to navigate ongoing uncertainty.”

Moody’s commentary underscores growing global concerns about how escalating trade measures could reverberate through supply chains, particularly in export-dependent economies like the Philippines. — Luisa Maria Jacinta C. Jocson, Senior Reporter

Philippine economic growth may have picked up in the second quarter, but full-year expansion is likely to be below 6% amid uncertainty over US tariffs, Finance Secretary Ralph G. Recto said.

“I think the second quarter, for sure, will be better than the first,” Mr. Recto told reporters in an informal press chat on Wednesday.

Mr. Recto said this second-quarter forecast depends on government spending and household consumption, which accounts for over 70% of the economy.

In the first quarter, gross domestic product (GDP) grew by 5.4%, weaker than expected and slower than the 5.9% expansion in the same quarter last year.

For the full year, Mr. Recto said GDP may grow by around 5.7% to 5.8%.

“Realistically, probably 5.7%, 5.8% for the year. But there’s still a possibility, (but) it depends because there’s a lot of uncertainty — uncertainty with trade policy. There’s no final [tariff rate] yet,” Mr. Recto said.

Economic managers last month lowered the full-year growth target to 5.5%-6.5% from 6%-8% previously, “reflecting a more measured and resilient outlook amid global headwinds.”

Last week, US President Donald J. Trump announced a 20% tariff on most Philippine goods sent to the US, higher than the 17% previously announced in April.

Philippine trade negotiators are in Washington this week to secure a deal with the US.

President Ferdinand R. Marcos, Jr. will meet with Mr. Trump during his official visit to Washington from July 20 to 22.

In a Viber message to BusinessWorld, Budget Secretary Amenah F. Pangandaman said she remains confident in meeting the GDP growth target this year on the back of strong domestic demand.

“Our growth momentum is expected to be driven primarily by strong domestic demand, specifically, robust household spending and accelerated government investments in social services and critical infrastructure,” said Ms. Pangandaman, who also serves as the Development Budget Coordination Committee chairperson.

She also noted the resilient labor market and easing inflation will support growth momentum.

Inflation averaged 1.8% in the first six months of the year.

“In addition, lower inflation creates room for the Bangko Sentral ng Pilipinas (BSP) to ease monetary policy, which would help sustain consumption and domestic activity, reinforcing our growth trajectory,” Ms. Pangandaman said.

The BSP delivered a second straight 25-basis-point (bp) cut at its June 19 meeting, bringing its policy rate to 5.25%.

BSP Governor Eli M. Remolona, Jr. also signaled they could deliver two more cuts this year.

At the same time, Finance Undersecretary and Chief Economist Domini S. Velasquez said it may be difficult for GDP to grow more than 6% this year amid an expected global slowdown due to US tariffs.

She said the US tariffs have slowed international trade and “dragged down all the growth prospects of all the countries, including the Philippines.”

“We do think that the potential of the Philippines is at the minimum 6% growth. But of course, it’s quite difficult, especially now with some of the challenges that we’re seeing,” she told reporters late Tuesday.

Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said it is becoming increasingly challenging for the government to reach 6% growth this year.

“Hitting the 6% midpoint will depend on how strongly domestic demand can offset external risks,” he said in a Viber message.

“Domestic demand is expected to remain resilient but cautious in the near term… Growth will be driven by everyday retail channels, but broader consumption recovery may hinge on stronger job creation and improved purchasing power,” he added.

Remittances

Meanwhile, Ms. Velasquez said the US tax on remittances would likely impact 12.8% of the Philippines’ total annual remittances.

“In our estimate, when we used the survey of overseas Filipinos, 12.8% say they’re receiving remittances from North and South America,” she told reporters on Tuesday.

US President Donald J. Trump on July 4 signed into law the “One Big Beautiful Bill,” which overhauls tax rates and spending. It imposes a 1% excise tax on cash-based remittances from the US to recipients abroad. The tax will be implemented starting Jan. 1, 2026.

Ms. Velasquez said the tax would impact around USD 1.9 billion in remittances from the US in 2026.

“For example, we estimate USD 36.5 billion in remittances by 2026, and USD 1.9 billion will be affected and will be taxed 1%,” she said.

In the first five months of the year, cash remittances grew by 3% to USD 13.77 billion from USD 13.37 billion in the comparable year-ago period.

The United States was the top source of remittances in the five-month period, accounting for 40.2% of the total. — Aubrey Rose A. Inosante, Reporter with Aaron Michael C. Sy