Virus response loans push reserves to fresh all-time high

MANILA, Philippines — Dollars from hefty borrowings by the government for its coronavirus response found their way to the country's foreign reserves that peaked to a new all-time high in April, the Bangko Sentral ng Pilipinas (BSP) reported on Thursday.

Gross international reserves stood at $90.94 billion as of April, the highest on record and four months into the year is already running above the BSP's $90 billion forecast for the whole year.

Foreign reserves are assets held mostly as investments in foreign-issued securities, gold as well as foreign currencies like dollar and euro. Being the lender of last resort, the BSP manages reserves as a stand-by fund to help the economy stay afloat in times of external shocks.

According to the central bank, year-to-date reserves are sufficient to pay for eight months' worth of imports, sitting comfortably above the global standard of at least six months cover.

The buffer funds were also equivalent to 5.5 times the country's short-term external debt, due within 12 months or less, based on original maturity and 4 times based on residual maturity.

BOP sustains rise in April

The surge in reserves bodes well for the country's external position that gauges the capacity of the government to meet foreign obligations like imports and foreign debts. This is measured through the balance of payments, which from January to April sustained a surplus of $1.6 billion despite the pandemic's distraction.

While the latest BOP figure was lower than the $4.27 billion recorded a year ago, the mere fact that it remained in surplus indicates that dollar inflows from the likes of remittances continued to outperform outflows from imports and debt payments. That said, BSP expects the surplus to narrow in the coming months to cap the year at $600 million.

Much more, both a BOP surplus and high reserves provide support for the peso. The local unit has so far traded within or stronger than P50-P54 average band assumed by the economic managers for the year. On Thursday, the currency weakened back to P50.2 against the US dollar after trading at P49 for the past three days.

"The peso is safe," Alvin Ang, an economics professor at the Ateneo de Manila University, said. "It means we are able to borrow and pay obligations abroad without risks of the peso unnecesarily weakening."

Broken down, reserves increased as a result of the government's deposit with the BSP of its foreign loans secured to beef up the state's war chest against the pandemic. Dollar loans came from multilateral agencies like the World Bank and Asian Development Bank and were exchanged for pesos.

Central bank earnings from its investments abroad and foreign exchange operations likewise boosted the country's GIR. However, the inflows were partially offset by foreign currency withdrawals made by the government to pay for its maturing external debt.