Investment activity in the Philippines declines most sharply when the US dollar strengthens and market volatility rises simultaneously, according to a Bangko Sentral ng Pilipinas (BSP) study that highlights the need for robust foreign-exchange risk management—even among dollar-earning firms.
The discussion paper, published in April 2026 by BSP researchers Hazel Parcon-Santos, Cristeta Bagsic, Carl Francis Maliwat, Jose Adlai Tancangco, and Alyssa Cyrielle Villanueva, reveals wide disparities in how companies respond to global shocks. The biggest pullbacks occur in firms heavily exposed to foreign-currency debt and import dependence.
Drawing on multiple data sources, the study provides a comprehensive view of how external disturbances affect investment behavior, both in the short and long term. Manufacturing firms and exporters are particularly vulnerable to dollar volatility due to significant foreign currency debt exposures. Importers and domestically oriented firms with high FX liabilities also see sharper investment declines, especially when dollar appreciation coincides with heightened volatility.
"The results highlight that FX revenues alone do not fully insulate firms from global shocks," the researchers said. "Exchange rates serve as a key channel for transmitting global shocks because they adjust quickly, reflecting changes in relative returns and liquidity and affecting the incentives and constraints of every economic agent."
The BSP paper comes amid sustained pressure on the Philippine peso from a stronger US dollar, which has gained ground due to a global oil shock following conflict involving the United States, Israel, and Iran. The peso has weakened to record lows, trading past the 61-per-dollar level.
When a stronger dollar is accompanied by elevated volatility, the study notes, financial channels tend to outweigh trade channels, as borrowing costs rise and uncertainty increases. The authors emphasize the importance of managing FX debt even for US dollar earners.
"The results call for enhanced FX risk monitoring and management frameworks, even for firms that earn in US dollars; robust macrofinancial buffers to prevent global shocks from translating into broad-based investment contractions; and targeted liquidity support mechanisms for import-dependent firms during periods of acute dollar stress," they added.