Dollar reserves slightly down in April

MANILA, Philippines — The country’s foreign exchange buffer inched down in April, the lowest level in two months, as the government paid some of its foreign debt, according to the Bangko Sentral ng Pilipinas (BSP).

Preliminary data released by the central bank showed gross international reserves (GIR) slipped by 0.7 percent to $103.4 billion last month from $104.1 billion at end-March.

This was the lowest in two months or since the $101.9 billion recorded in February. Still, GIR rose by 1.6 percent from $101.8 billion in April 2023.

“The month-on-month decrease in the GIR level reflected mainly the national government’s net foreign currency withdrawals from its deposits with the BSP to settle its foreign currency debt obligations and pay for its various expenditures,” the central bank said in a statement.

Data showed foreign currency deposits dropped by 26.9 percent to $791.7 million from $1.08 billion, while the value of the central bank’s gold holdings slipped by 2.6 percent to $10.26 billion from $10.53 billion.

Likewise, the BSP’s foreign investments decreased to $87.89 billion from $87.94 billion, while the reserve position in the fund inched down to $736.1 million from $741.3 million.

The GIR is the sum of all foreign exchange flowing into the country and serves as a buffer to ensure that it will not run out of foreign exchange that it can use in the event of an economic downturn.

According to the central bank, the April GIR level represents a more than adequate external liquidity buffer.

As of end-April, the level of dollar reserves was equivalent to 7.7 months’ worth of imports of goods and payments of services and primary income.

It was also enough to cover about 5.9 times the country’s short-term external debt based on original maturity and 3.6 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.

The buffer 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.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the decline in foreign exchange holdings was largely due to the $365 million matured Japanese yen bonds scheduled for payment by the national government on April 12.

The decrease in the BSP’s foreign investments could also be attributed to heightened geopolitical tensions between Israel and Iran.

“For the coming months, the country’s GIR could still be supported by the continued growth in the country’s structural inflows from OFW (overseas Filipino workers) remittances, BPO (business process outsourcing) revenues, exports, relatively fast recovery in foreign tourism revenues as well as continued foreign direct investment and hot money inflows,” Ricafort said.

Likewise, the economist said the proceeds of the global dollar-denominated bonds launched in May could also boost the GIR level moving forward.

After hitting an all-time high of $110.12 billion in 2020, the buffer declined to $108.79 billion in 2021 and $96.15 billion in 2022, before picking up to $103.75 in 2023.

The BSP now expects the GIR level to settle at $103 billion this year and $102 billion next year.