Gov’t loans push PH dollar reserves to historic high in May

The Philippines’ dollar reserves hit a historic high in May —at the peak of the COVID-19 lockdown—thanks to inflows from the government’s foreign borrowings, as well as foreign exchange earnings of the central bank.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said the country’s gross international reserves level, based on preliminary data, rose by $2.35 billion to $93.29 billion as of end-May 2020 from the end-April 2020 level of $90.94 billion.

The BSP said the month-on-month increase in dollar reserves “reflected inflows mainly from the national government’s foreign currency deposits with the BSP of proceeds” from sale of global bond and the BSP’s foreign exchange operations.

It added, though, that “these inflows were partly offset by the foreign currency withdrawals made by the government to pay its foreign currency debt obligations.”

In addition, BSP Governor Benjamin Diokno earlier said that the central bank’s reserves have historically benefitted from a surge in foreign currency remittances from expatriate Filipino workers who tend to send home more dollars during crises, like the ongoing pandemic.

The hefty level of dollar reserves represents an external liquidity buffer which can cushion the domestic economy against external shocks.

It ensures availability of foreign exchange to meet balance of payments financing needs, such as for payment of imports and debt service, in extreme conditions when there are no export earnings or foreign loans.

As of end-May 2020, the current gross international reserve level is equivalent to 8.4 months’ worth of imports of goods and payments of services and primary income.

Moreover, it can cover seven times the country’s short-term external debt based on original maturity and 4.6 times based on residual maturity.

Net international reserves — which refers to the difference between the BSP’s gross dollar reserves and total short-term liabilities — likewise increased by $2.34 billion to $93.27 billion as of end-May 2020 from the end-April 2020 level of $90.93 billion.

Dollar reserves are deemed 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 central bank said.

At the same time, the level of dollar reserves, in a particular period, is 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 twelve-month period.

TSB