Foreign reserves jump, inch closer to $100 billion in July

MANILA, Philippines — The country’s foreign buffers jumped in July to a new historic high, nearing the $100-billion milestone and giving the economy critical economic support on the prolonged battle against coronavirus disease-2019 (COVID-19).

Gross international reserves hit a record of $98 billion as of end last month, up 4.8% from previous month, the Bangko Sentral ng Pilipinas (BSP) reported on Friday.

The tally is already running above BSP’s $95-billion forecast by year-end, which was already revised upwards from just $90 billion seen last May and $86 billion projected November last year. Balance of payments forecasts, including that of reserves, are due to be revisited anew later this year.

Rising reserves are key support to the Philippines’ investment-grade rating, which in turn, allows government and corporates to borrow below market costs. In an economy, reserves serve as standby funds used to settle external obligations like imports and foreign debt during external shocks.

As of July, existing reserves can finance 8.9 months worth of imports, way above the global standard of six months. Funds are also equivalent to 4.9 times of short-term debt due within one year or less based on residual maturity. 

Since March, foreign reserves got a boost from the Duterte administration’s foreign borrowings to build up the state’s COVID-19 war-chest. Dollar borrowings were exchanged in pesos, with foreign currencies piling up in the country’s reserves.

Last month, BSP said in a statement buffer funds increased mainly as a result of a change on how the value of gold holdings is calculated. Instead of using gold’s amortized cost, the central bank now computes the metal based on fair value.

Changes on gold accounting, in turn, resulted in a cumulative increase in gold holdings by 57.1% from previous month to $12.6 billion, BSP data showed, almost nearly pushing up the entire reserve pile on its own.

Other reserve components also posted some increases. Foreign exchange, composed of most traded currencies such as US dollar, yen, euro and Chinese yuan, rose 3.8% month-on-month to $2.76 billion. 

Deposits with the International Monetary Fund, meanwhile, inched up 2.6% from last month to $750 million. Those in the form of special drawing rights, IMF’s reserve currency, was stable at $1.18 billion.

The bulk of reserves were still in the form of foreign investments to $80.72 billion, slightly down from last month.