Large dollar surplus spells hope for weak peso

MANILA, Philippines — Fresh foreign borrowings from the Marcos administration’s first trip to the global debt market this year gave the Philippines its largest dollar surplus in over a year, the Bangko Sentral ng Pilipinas (BSP) reported.

BSP data showed the country’s balance of payments (BoP) position tilted to a surplus of $2 billion in May, a turnaround from the $639-million deficit posted in April.

The BoP summarizes an economy’s transactions with the rest of the world during a certain period.

A BoP surplus arises when more foreign funds enter the economy against those that leave, which may increase the country’s dollar resources that can be used to pay foreign debts and meet import requirements. A deficit means the reverse happened.

Figures showed the May surplus was the largest since January 2023, when the country recorded a dollar windfall of $3.1 billion.

Explaining the latest results, the BSP said the excess dollars mainly came from fresh deposits of the national government, including the $2 billion that the Marcos administration raised via the sale of US dollar bonds back in May.

READ: PH seen to generate $700-M BOP windfall this year

Those inflows were large enough to give the Philippines a year-to-date dollar surplus of $1.6 billion. The cumulative figure already matched the upwardly revised BoP projection of the BSP for the entire year amid smaller outflows from a narrower trade deficit and continued inflows from traditional sources like remittances and foreign investments.

GIR hit $105B in May

As a result, the country’s gross international reserves (GIR) rose to $105 billion in May, from $102.6 billion in April.

The BSP’s reserve assets consist of foreign investments, gold, foreign exchange, reserve position in the International Monetary Fund, and special drawing rights. As the term connotes, the GIR serves as the country’s buffer fund in extreme economic conditions when there are no export earnings or foreign loans.

READ: Philippine dollar reserves hit new two-year high

By convention, GIR is 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. The BSP said the amount of buffer funds as of May can cover 7.7 months’ worth of imports of goods.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said a healthy BoP position would give the BSP enough ammunition to defend the peso from speculative attacks.

“Going forward, any improvement in BoP data and in GIR data for the coming months could still help provide a greater cushion for the peso exchange rate,” Ricafort said.