A dip in gold prices resulted in a slight decline in the country’s stock of foreign reserves, but the economy’s buffer from external shocks remained more than adequate vis-à-vis international benchmarks.
In a statement, the Bangko Sentral ng Pilipinas (BSP) said gross international reserves (GIR) at the end of November stood at $80.57 billion.
This was about half a billion dollars less than October’s level of $81.10 billion. “Nonetheless, the end-November GIR level remains ample,” the BSP statement read.
The country’s gross international reserves (GIR), comprised of a variety of assets from gold to different financial instruments, serve as the economy’s foreign currency buffer stock that can be tapped in times of crisis.
Last month’s GIR level was enough to cover 10.3 months worth of imports of goods and services, much higher than the international benchmark of three months. The reserves were also enough to cover six times the country’s short term foreign debt based on original maturity.
This ensures that local businesses and the government have a steady supply of foreign currency needed to pay for imports or foreign obligations. Bulk of the country’s current reserves are denominated in US dollar.
November’s decline in foreign currency reserves was a result mainly of the lower price of gold. The value of the BSP’s gold holdings declined to $6.7 billion at the end of November from $7.18 billion the month before.
Another cause for the decline were government withdrawals to be used for foreign debt payments.
Dollar reserves are built up when more foreign exchange enters the country than the economy needs to spend. Inflows come in the form of remittances from migrant workers, earnings from trade, and revenue from industries such as outsourcing and tourism.
The country spends dollars on debt payments and imports. Dollars also exit when fund managers divest from Philippine assets.
If the country’s supply of dollars falls short, the BSP can opt to release more of reserves to ensure the economy has what it needs. This keeps businesses and the government from buying dollars from overseas, which will erode the peso’s value.
The BSP expects to end the year with about $81.6 billion in reserves, although this forecast, along with other balance-of-payments (BOP) assumptions, is set for review later this week.
BSP Deputy Governor Diwa C. Guinigundo said revised BOP assumptions would be presented to the Monetary Board this week, before forwarding the estimates to the inter-agency Development Budget Coordination Committee.
Migrant workers’ remittances are the country’s main source of dollar earnings. Last year, overseas Filipino workers’ (OFW) remittances reached $24.3 billion, a record high.
Net international reserves (NIR), which refer to the difference between the BSP’s GIR and total short-term liabilities, also decreased by $520 million to $80.56 billion as of end-November 2015, compared to the end-October 2015 NIR of $81.08 billion.