Dollar reserves near record $100 billion level

MANILA, Philippines — The buildup of the country’s foreign exchange buffer continues and is seen breaching $100 billion after hitting record levels as the price of gold soars, while the national government and companies turn to the offshore debt market for much needed funds to combat the global coronavirus pandemic.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said the country’s gross international reserves (GIR) level would still post record highs in the coming months after hitting a record $98 billion in July from $93.47 billion in June.

“For the coming months, GIR could still post new record highs, with the $100 billion-mark within striking distance, or $2 billion away amid increased foreign borrowings by the government and the biggest conglomerates amid record low borrowing costs,” Ricafort said.

The GIR is the sum of all foreign exchange flowing into the country and serves as buffer to ensure  it will not run out of foreign exchange it could use in case of external shocks.

Data released by the Bangko Sentral ng Pilipinas (BSP) showed the $4.53 billion month-on-month increase reflected inflows mainly from the revaluation gains from the BSP’s gold holdings, national government’s foreign currency deposits with the BSP as well as central bank’s income from its investments abroad.

For one, BSP’s gold holdings surged 57 percent to $12.59 billion in July  as the price of gold soared to $1,950 per troy ounce.

According to the central bank, strong inflows were partly offset by the foreign currency withdrawals made by the national government to pay its foreign currency debt obligations.

Ricafort said the latest increase in GIR could also be attributed to higher foreign borrowings by the country’s largest businesses and also by the government to finance various programs to soften the impact of the coronavirus disease 2019 or COVID-19 pandemic amid record low interest rates.

Among the companies that tapped the offshore debt market in July include BDO Unibank with $600 million, diversified conglomerate San Miguel Corp. with $500 million, Manila Water Co. with  $500 million and  Metropolitan Bank & Trust Co. with $500 million.

As of early August, the Department of Finance (DOF) raised a total of $8.13 billion in concessional budgetary support from the Philippines’ development partners including the World Bank, Asian Development Bank, Asian Infrastructure Investment Bank, among others.  The money will  help  cover the yawning deficit resulting from the need to spend big on measures to provide relief to pandemic-affected sectors, beef up the country’s healthcare capacity and keep the economy afloat.

Ricafort said the continued inflows, albeit lower, via remittances from overseas Filipino workers, foreign direct investments as well as revenues from the business process outsourcing  sector and Philippine offshore gaming operators could still bring the GIR into uncharted highs and boost the balance of payments position.

The end-July GIR level represents an ample external liquidity buffer that may shield  the domestic economy against external shocks as it is equivalent to 8.9 months’ worth of imports of goods and payments of services and primary income, the BSP said.

The buffer is also about 7.5 times the country’s short-term external debt based on original maturity and 4.9 times based on residual maturity.