The amount of dollars that the Philippine economy has retained almost doubled in the first 10 months of 2020 compared to the same period last year as the coronavirus pandemic forced individuals and companies to cut down on their spending for imported goods and services.
At the same time, data from the Bangko Sentral ng Pilipinas (BSP) also showed that the surplus of hard currency currently being experienced by the financial system was also due to the foreign borrowings of the national government for its response to the COVID-19 crisis.
According to the central bank, the cumulative balance-of-payments (BOP) surplus of $10.31 billion for the January-to-October 2020 period was higher than the $5.73-billion surplus recorded for the same period a year ago, representing a 79.9-percent increase.
The BOP is the net tally of dollars flowing into or out of the country, thanks to the local economy’s transactions with foreign parties, whether buying or selling good and services, or receiving or making investments and other financial transfers.
More than adequate
“Based on preliminary data, the current surplus was supported mainly by higher net foreign borrowings by the national government and lower merchandise trade deficit along with sustained net inflows from foreign direct investments, personal remittances and trade in services,” the central bank said.
The BOP position reflected an increase in the final gross international reserves level to $103.8 billion as of end-October 2020 compared with $100.44 billion at the end of the previous month.
The latest dollar reserve level represented a more than adequate external liquidity buffer, which serves as a cushion for the domestic economy against external shocks. Specifically, it ensures the availability of foreign exchange to meet BOP financing needs such as for payment of imports and debt service, in extreme conditions when there are no export earnings or foreign loans.
This was equivalent to 10.3 months’ worth of imports of goods and payments of services and primary income. Moreover, it was also about 9.2 times the country’s short-term external debt based on original maturity and 5.4 times based on residual maturity.
For the month of October alone, the country’s overall BOP position posted a surplus of $3.44 billion, reflecting mainly the central bank’s income from its investments abroad, the national government’s foreign currency deposits from its borrowings and inflows from the BSP’s foreign exchange operations.
These inflows were partly offset, however, by the government’s payments of its foreign currency debt obligations.