Fitch Ratings sees Philippines as least vulnerable to liquidity problems

MANILA, Philippines—Fitch Ratings has cited the Philippines for being one of the countries in Asia that are least vulnerable to liquidity problems.

The country has been maintaining sufficient foreign exchange reserves that would enable it to weather any scenario, the worst of which might be the sudden absence of financing from markets abroad, Fitch said in its latest report.

“The capacity of foreign exchange reserves to handle potential capital outflows in a period of risk aversion … appear strongest in China, Mongolia, and the Philippines,” Fitch said in a report titled “Emerging Asian Sovereign Pressure Points.”

Foreign exchange reserves, or the gross international reserves (GIR), of the Philippines stood at $75.8 billion by the end of October—a record high. The amount would be enough to cover 11.2 months worth of the country’s usual imports and 6.4 times its debt maturing within the short term.

Experts say a GIR figure that can cover at least four months’ worth of imports may be considered comfortable. GIR serves as an indicator of a country’s ability to pay for its imports, settle its debts and engage in other commercial transactions with the rest of the world.

One of the drivers of the country’s GIR is remittances from overseas-based Filipinos that have risen continually despite weak economic performance of big labor markets led by the United States and eurozone economies.

Remittances are estimated to grow by 7 percent this year to $20.1 billion from last year’s $18.8 billion. The forecast is on account of sustained growth in demand for Filipino workers in alternative labor markets offshore.

The lingering crisis in the eurozone has led to expectations that risk aversion may worsen. Should this happen, foreign creditors and portfolio investors might suddenly opt to hold on to their cash instead of lending.

According to Fitch, countries that do not enjoy steady flow of foreign exchange and those that have huge liabilities to foreigners are expected to be the most affected should financing suddenly become unavailable.

The credit-rating firm stressed, however, that the scenario of a sudden stop in external financing currently would be unlikely for now. Such a scenario building has just been used for purposes of measuring ability of countries to weather external shocks.

Nonetheless, signs of rising risk aversion have manifested over the past two months.

The BSP earlier reported that in October, net inflow of foreign “hot money” into the Philippines amounted to $237.44 million in October, falling by 78 percent from $1.089 billion in the same month last year.

In the first 10 months of the year, however, net inflow of foreign portfolio investments was still up by 37 percent to $3.45 billion from $2.51 billion.

Analysts credited the drop in foreign portfolio investments in October to the crisis in the eurozone that has dampened the outlook of investors on the global economy.