Slight slip in BSP dollar reserve in January linked to foreign debt payments

MANILA, Philippines—The amount of dollars held in reserve by the central bank declined slightly in the first month of 2021, as the national government withdrew foreign currency to pay for its maturing debts, the Bangko Sentral ng Pilipinas (BSP) said.

In a statement, the BSP said the country’s gross international reserves level, based on initial data, settled at $108.8 billion as of end-January 2021 from the historic high of $110.12 billion at the end of December 2020.

The figures, according to the BSP, “reflected outflows mainly from the foreign currency withdrawals of the national government from its deposits in the BSP to pay its foreign currency debt obligations.”

It added that the decline was also partly due to revaluation of the BSP’s gold holdings as a result of a decrease in gold prices in the international market.

“These outflows were partly offset, however, by the inflows from the BSP’s foreign exchange operations and income from its investments abroad,” the central bank said.

Despite the decline, the BSP said the latest dollar reserve level represents an “adequate” external liquidity buffer, which can help cushion the domestic economy against external shocks.

This level is equivalent to around 11.6 months’ worth of imports of goods and payments of services and primary income. It is also about 9.4 times the country’s short-term external debt based on original maturity and 5.1 times based on residual maturity.

By convention, dollar reserves are viewed to be adequate if it can finance at least three months’ worth of the country’s imports of goods and payments of services and primary income.

Short-term debt based on residual maturity refers to outstanding external debt with original maturity of one year or less, plus principal payments on medium- and long-term loans of the public and private sectors falling due within the next 12 months.

The level of GIR, as of 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.

Net international reserves — which refers to the difference between the BSP’s gross reserves and total short-term liabilities — decreased by $1.33 billion to $108.79 billion as of end-January 2021 from the end-December 2020 level of $110.12 billion.

TSB