GIR up slightly to $99.7 billion in July

MANILA, Philippines — The country’s foreign exchange buffer increased slightly amid the rising valuations of the central bank’s gold holdings, but stayed below the $100-billion level for the second straight month in July, according to the Bangko Sentral ng Pilipinas (BSP).

Preliminary data released by the central bank showed that the gross international reserves (GIR) inched up to $99.7 billion in July from the revised $99.39 billion in June.

“The month-on-month increase in the GIR level reflected mainly the upward valuation adjustments in the value of the BSP’s gold holdings due to the increase in the price of gold in the international market, the BSP’s net foreign exchange operations, net income from the BSP’s investments abroad, and the national government’s net foreign currency deposits with the BSP,” the central bank said in a statement.

The value of the central bank’s gold holdings rose by 2.9 percent to $10.3 billion in July from $10.01 billion in June as world gold prices increased by 2.4 percent, while its net foreign exchange operations yielded a 15.3-percent increase to $1.34 billion from $1.16 billion.

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

Despite staying below $100 billion in July, the BSP said that the latest GIR level represents more than adequate external liquidity buffer.

According to the central bank, the buffer is equivalent to 7.4 months’ worth of imports of goods and payments of services and primary income. It is also about 5.9 times the country’s short-term external debt based on original maturity and 4.1 times based on residual maturity.

By convention, GIR is viewed to be adequate if it can finance at least three months’ worth of the country’s imports of goods and payments of services and primary income.

It is also considered adequate if it provides at least 100 percent cover for the payment of the country’s foreign liabilities, public and private, falling due within the immediate 12-month period.

For the coming months, Rizal Commercial Banking Corp. chief economist Michael Ricafort said the country’s GIR could still be supported by the continued growth in the structural inflows from overseas Filipino workers’ remittances, revenues from the business process outsourcing (BPO) sector, exports, relatively fast recovery in foreign tourism revenues as well as continued foreign direct investment (FDI) inflow.

Ricafort also cited the proceeds of fund-raising activities, especially those from abroad as well as the proposed dollar-denominated Retail Treasury Bond (RTB) issuance by the national government in the third quarter and the proposed debut of Islamic bond issuance latter this year.

“Thus, still relatively high GIR at $99.7 billion could still 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,” he said.

The BSP dipped into the buffer to actively intervene in the foreign exchange market to help the peso strengthen to as high as 53.68 to $1 in Feb. 3 from an all-time low of 59 to $1 in October last year.

The peso pierced the 56 to $1 level on Monday.

After hitting an all-time high of $110.12 billion in 2020, the buffer has steadily declined to $108.79 billion in 2021 and $96.15 billion in 2022.

After exceeding the $93 billion target last year, the BSP now expects the GIR level to settle at $100 billion this year and at $102 billion next year.