Lower dollar reserves expected this year

Economic managers may scale back the outlook for the country’s level of dollar reserves by the end of this year, given recent uncertainties that have resulted in volatile investment flows in the country.

Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said a new forecast for gross international reserves (GIR) was being drawn up, with recent developments forcing officials to be more “conservative.”

“We’re still looking at the numbers given the new developments,” he told reporters Friday night.

Late last year, the BSP said it expected the country to end the year with about $85 billion to $88 billion in foreign exchange reserves, up from the end-2013 level of $83.7 billion.

Reserves are built up when the central bank buys excess dollars from the local market. These dollars enter the country in the form of foreign investments, migrant remittances, and revenues from industries such as tourism and outsourcing.

The country’s reserves, which are held by the central bank, serve as a line of defense for economic shocks that lead to shortages in dollars that the government and businesses need to do business with the rest of the world.

A shortage of foreign exchange would force local businesses and the government to buy dollars from outside at higher prices, which would bring the value of the peso down. A weaker peso makes imported goods more expensive. For the government, it increases the cost of servicing foreign obligations, straining the state’s resources.

In the first quarter of the year, however, the country posted a balance-of-payments deficit of $4.47 billion, a reversal from the $1.54-billion surplus posted in the same three-month period of 2013. This means more money went out of the country than came in.

At the end of May, the country’s reserves were down to $79.957 billion from $82 billion in the same month last year. At this rate, the original forecast for reserves that assumed that investments would continue to flow in to the country—the opposite happened in January and February—is now likely out of reach.

“Given the uncertainty in the market, we have to be conservative,” Guinigundo said.