The Philippines’ gross international reserves (GIR) decreased for the fifth month in a row and sank below the $100-billion mark to settle at $98.8 billion at the end of July, but seasonally high inflows from overseas Filipino workers (OFW) as well as the continued reopening of the domestic economy could raise the stock later this year.
Despite the decline, the Bangko Sentral ng Pilipinas (BSP) said that based on preliminary data, the latest GIR level represented a more than adequate external liquidity buffer.
The BSP’s reserve assets consist of foreign investments, gold, foreign currencies, reserve position in the IMF and special drawing rights. These are considered adequate if they can finance at least three-months’ worth of the country’s imports of goods and payments of services and primary income.
As of end-July, reserves are equivalent to 8.3 months’ worth of imports of goods and payments of services and primary income.
Also, they are about 6.9 times the country’s short-term external debt based on original maturity and 4.5 times based on residual maturity.
Debt obligations
The BSP said the further decrease in the GIR was mainly due to the national government’s foreign currency withdrawals from its deposits with the BSP to settle its foreign currency debt obligations and pay for its various expenditures.
There was also the decrease in the value of the BSP’s gold holdings due to the decrease in the price of gold in the international market.
The GIR first breached the $100-billion mark at $100.4 billion in September 2020 as the global fallout of the COVID-19 pandemic slashed the Philippines’ import bill.
This metric peaked at $110.12 billion in December 2020, when it was enough to cover 11.7 months’ worth of imports of goods and payments of services and primary income.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said in a commentary end-July GIR was the lowest since July 2020.
“The decline in the GIR somewhat correlated with the weaker peso in recent months, but the peso already corrected to the strongest in about a month lately,” Ricafort said.
Weak peso
On Aug. 5, the peso closed spot trading at 55.20:$1. The local currency touched its weakest position against the US dollar—56.45:$1, recorded in 2004 —at intraday weakest levels.
“For the coming months, the country’s GIR could still increase, amid the continued growth in the country’s structural inflows from OFW remittances, BPO revenues, foreign tourism revenues as well as foreign direct investment,” Ricafort said.
He said most of these inflows reached their record highs or prepandemic highs recently, and were considered bright spots for the Philippine economy.
“The GIR is still relatively high at $98.8 billion and could still strengthen the country’s external position, which is a key pillar for the country’s continued favorable credit ratings for the second straight year, mostly at one to three notches above the minimum investment grade,” Ricafort said. INQ