MANILA, Philippines — The country’s dollar reserves slipped slightly to $107 billion in end-May from a three-month high of $108 billion in end-April as the national government spent more to bankroll its COVID-19 response measures and paid more foreign loans, the Bangko Sentral ng Pilipinas (BSP) said yesterday.
Despite the decline, BSP Governor Benjamin Diokno said the latest gross international reserves (GIR) level represents more than adequate external liquidity buffer.
The latest foreign exchange buffer is equivalent to around 12.2 months’ worth of imports of goods and payments of services and primary income. It is also about 7.2 times the country’s short-term external debt based on original maturity and 5.1 times based on residual maturity.
The GIR – the sum of all foreign exchange flowing into the country and which serves as buffer to ensure that it will not run out of foreign exchange it could use in case of external shocks – hit a record $110.12 billion in December last year.
Diokno said the month-on-month decrease in the GIR level reflected outflows mainly from the foreign currency withdrawals of the national government from its deposits with the BSP to pay its foreign currency debt obligations and various expenditures.
The outflows, Diokno said, were partly offset by the inflows from the central bank’s foreign exchange operations and income from its investments abroad.
Data showed earnings from the BSP’s investments abroad inched up by 1.6 percent to $92.64 billion in end-May from $91.19 billion in end-April.
According to the BSP, the increase in the price of gold in the international market also resulted in an upward adjustment in the value of its gold holdings, thereby boosting the country’s foreign exchange buffer.
Likewise, the value of the BSP’s gold holdings increased by 6.4 percent to $9.91 billion in end-May from $9.31 billion in end-April. The figure was also 23.7 percent higher than the $8.01 billion recorded in end-May last year.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said the near record-high GIR could still fundamentally provide some support and cushion for the peso-dollar exchange rate especially versus any speculative attacks amid proceeds of foreign borrowings by the government and large companies and relatively narrower trade deficits.
Ricafort said the tighter quarantine standards in the National Capital Region and nearby provinces (NCR Plus) since March 29 could have led to slower recovery in imports and the demand for dollars to pay for imports, resulting in relatively narrower trade deficits, thereby boosting the country’s GIR.
Ricafort also said the continued inflows of the country’s structural sources of dollars such as remittances from overseas Filipino workers, revenues from the business process outsourcing industry as well as Philippine offshore gaming operators or POGOs, and foreign direct investments are expected to further boost the country’s foreign exchange buffer.
“Thus, new record-high GIR is possible in the coming months,” Ricafort said.