Debt payments slightly reduce Philippines' dollar reserves in May

MANILA, Philippines — The Philippines’ dollar reserves slightly went down in May after the government withdrew cash from the country’s dollar stock to settle its maturing debts.

What’s new

The country’s gross international reserves amounted to $106.98 billion in May, down 0.68% month-on-month, the Bangko Sentral ng Pilipinas reported Friday.

Why this matters

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.

BSP Governor Benjamin Diokno often cited the hefty buffers as one of the economy’s convincing defenses against the pandemic’s wrath. However, its continued rise has also been used to magnify tepid demand at home amid a recession that leaves importers with no incentive to ship in more goods and services.

Theoretically, it also helps explain a strong peso. With more foreign funds entering the economy and exchanged for pesos, demand for local currency is stoked, pushing up its value. In the process, a firmed-up peso helps temper inflation.

On BSP’s part, monetary officials already jacked up its GIR yearend forecast to $114 billion, a new high if realized, from just $106 billion seen last December.

What the BSP says

In a statement, the central bank attributed the slight drop in dollar stock to “foreign currency withdrawals of the National Government (NG) from its deposits with the BSP to pay its foreign currency debt obligations and various expenditures.”

“These outflows were partly offset, however, by the inflows from the BSP’s foreign exchange operations and income from its investments abroad, and an upward adjustment in the value of the BSP’s gold holdings due to the increase in the price of gold in the international market,” it added.

Other figures

• The dollar reserves as of May are enough to pay for 12.2 months’ worth of imports of goods and payments.