Forex reserves dip slightly, stay above $108 billion

MANILA, Philippines — The country’s foreign exchange buffer went down slightly to $108.45 billion in January from $108.79 billion in December, according to the Bangko Sentral ng Pilipinas (BSP).

The central bank attributed the $340-million decline in the gross international reserves (GIR) last month to the national government’s net withdrawals to pay off maturing foreign obligations as well as the decline in the value of the BSP’s gold holdings.

“The month-on-month decrease in the GIR level reflected mainly the national government’s payments of its foreign currency debt obligations and downward adjustment in the value of the BSP’s gold holdings due to the decrease in the price of gold in the international market,” it said.

Data showed the value of the central bank’s gold holdings slipped by 1.6 percent to $9.18 billion in January from $9.33 billion in December last year.

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

According to the BSP, the latest GIR level is equivalent to 10.3 months’ worth of imports of goods and payments of services and primary income. It is also about 8.6 times the country’s short-term external debt based on original maturity and 5.9 times based on residual maturity.   “The latest GIR level represents a more than adequate external liquidity buffer,” it said.

Despite the slight drop, the country’s latest forex buffer is still more than three times the minimum international threshold of three to four months.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said the near record high GIR provides greater cushion and support on the peso exchange rate versus any speculative attacks.

The Monetary Board has lowered the GIR target for 2022 to $112 billion from the original target of $115 billion.

The country managed to build up the buffer to an all-time high of $110.12 billion in December 2020.

For the coming months, Ricafort said the country’s GIR could still reach new record highs amid the continued growth in the country’s structural inflows via remittances from overseas Filipino workers (OFWs), business process outsourcing (BPO) revenues, foreign tourism revenues as well as foreign direct investment inflows.

“Thus, near record high GIR and prospects of reaching new record highs in the coming months could further strengthen the country’s external position, which is a key pillar for the country’s continued favorable credit ratings for the second straight year, mostly at one to three notches above the minimum investment grade, a sign of resilience despite the COVID-19 pandemic that caused downgrades in other countries around the world,” Ricafort said.

Furthermore, he   said that the continued increased in fund-raising and other investment banking activities by the country’s biggest conglomerates in early 2022 could entail some increase in foreign investment inflows that could add to the country’s balance of payments   and GIR.

The Philippines’ external debt-to-gross domestic product (GDP) ratio increased to 27.3 percent as of the third quarter of 2021 from the end- 2020 level of 27.2 percent, still relatively better compared to other ASEAN countries and similarly-rated countries.