PH forex reserves drop as dollar strengthens

MANILA, Philippines–The Philippines’ foreign exchange reserves slipped in September as the dollar strengthened, bringing down the value of foreign currency-denominated assets, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Despite the decline last month, the country’s gross international reserves (GIR) level remains well above international average and enough to cover several months’ worth of imports—giving the country substantial buffer from external shocks.

“The decrease in reserves was due mainly to revaluation adjustments on the BSP’s gold holdings and other foreign currency-denominated reserves,” the central bank said in a statement.

Preliminary data showed that the country’s GIR, held by the BSP, stood at $80.43 billion as of end-September. The BSP said this was lower than the $80.87 billion recorded the month before.

The GIR level remains ample as it can cover 10.9 months’ worth of imports of goods and payments of services and income. It is also equivalent to 8.4 times the country’s short-term external debt based on original maturity.

Apart from the effects of foreign exchange valuation adjustments, the country’s reserves also declined as a result of payments of maturing foreign exchange obligations of the government.

These outflows were partially offset by the foreign exchange operations of the BSP, net foreign currency deposits by the National Treasury and income from the BSP’s investments abroad.

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 buying dollars from overseas.

Remittances from overseas Filipino workers (OFWs) 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.