The country’s dollar reserves rose to their highest level since December as financial markets continued to stabilize, giving the economy a more comfortable cushion from external shocks.
Data released by the Bangko Sentral ng Pilipinas (BSP) showed the country’s gross international reserves (GIR) increased as monetary authorities bought dollars from the market. The nation’s dollar stock also rose due to income from the central bank’s investments abroad and foreign exchange deposits by the national government. These were partly offset by foreign debt payments by the state.
The GIR at the end of August rose to $80.78 billion, higher by $141 million month-on-month. The country’s reserves were at their highest since December last year when it stood at $83.19 billion.
The country’s reserves were enough to cover 11 months’ worth of imports, better than the international benchmark of three months. It was also enough to cover nearly eight months’ worth of short-term external debt based on original maturity.
Dollar reserves serve as a line of defense to allow the economy to withstand external financial crises that may lead to a shortage in foreign currencies entering the country. The economy needs dollars to allow businesses and the government to do business with the rest of the world.
These reserves are built up when more dollars enter the country than needed, allowing the BSP to buy up the excess. Inversely, reserves are reduced when not enough dollars enter the economy, forcing the BSP to release part of its holdings to keep businesses from buy dollars from overseas.
Remittances from overseas Filipino workers (OFW) are the country’s main source of foreign exchange. Last year, remittances totaled $24 billion, the equivalent of about 8 percent of gross domestic product. This year, remittances are expected to rise by 5 percent.