Philippine forex buffer projected at $90 billion

MANILA, Philippines — The country’s foreign exchange buffer is expected to hit a record high of $90 billion this year as the Bangko Sentral ng Pilipinas (BSP) continues to beef up its reserves to protect the economy from external headwinds.

BSP Governor Benjamin Diokno said the country’s gross international reserves (GIR) level is expected to hit a new all-time high by the end of the year and lead to a stable peso against the dollar.

The latest projection is higher than the earlier target of $86 billion.

The country’s GIR level reached an all-time high of $87.84 billion in December last year due to strong inflows from overseas Filipino workers, tourism receipts, earnings of the business process outsourcing sector, among others.

Despite the coronavirus diseases 2019 or COVID-19 crisis, Diokno said the peso has remained steady and emerged as the second strongest currency next to the Japanese yen.

“The strength of the peso might be attributed to the Philippines’ hefty GIR and its strong macroeconomic fundamentals,” he said.

Despite the coronavirus outbreak, the BSP reported the local currency appreciated by 3.02 percent to average 50.83 to $1 in the first quarter compared to 52.37 to $1 in the same quarter last year. The peso also gained by 0.39 percent from the 51.03 to $1 average in the fourth quarter.

“The country’s firm macroeconomic fundamentals supported the financial system. The peso even appreciated from the previous quarter, as investors welcomed the country’s credit rating outlook upgrade by Fitch Ratings in February,” Diokno said.

The GIR is the sum of all foreign exchange flowing into the country. It serves as buffer to ensure that the Philippines would not run out of foreign exchange that it could use to pay for imported goods and services, or maturing obligations in case of external shocks.

The central bank has been building up the country’s foreign exchange buffer to help the country survive external shocks. It uses the buffer to buy or sell dollars if it deems necessary to prevent sharp depreciation or appreciation of the peso.

Latest data from the central bank showed the GIR stood at $87.61 billion in February, enough to cover 7.7 months’ worth of imports of goods and payments of services and primary income. It is also equivalent to 5.4 times the country’s short-term external debt based on original maturity and 3.8 times based on residual maturity.