PH’s foreign reserves fell to $98.8 billion in July

The Philippines’ gross international reserves (GIR) fell for the fifth consecutive month and fell below $100 billion to $98.8 billion at the end of July, but seasonally high inflows of Filipino workers to Overseas (OFW) as well as the continued reopening of the domestic economy could increase the stock later this year.

Despite the drop, the Bangko Sentral ng Pilipinas (BSP) said that based on preliminary data, the latest GIR level represents a more than adequate external liquidity buffer.

BSP’s reserve assets consist of foreign investment, gold, foreign currency, IMF reserve position, and special drawing rights. These are considered adequate if they can finance at least three months of imports of goods and payments for services and primary income.

At end-July, reserves were equivalent to 8.3 months of imports of goods and payments for services and primary income.

In addition, they represent about 6.9 times the country’s short-term external debt on the basis of the original maturity and 4.5 times on the basis of the residual maturity.

Debt securities

The BSP said that the further decline 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 debts and pay its various expenses.

There has also been the decrease in the value of BSP’s gold holdings due to the decline in the price of gold in the international market.

The GIR crossed the $100 billion mark for the first time to $100.4 billion in September 2020, as the global fallout from the COVID-19 pandemic reduced the Philippines’ import bill.

This measure peaked at $110.12 billion in December 2020, when it was enough to cover 11.7 months of imports of goods and payments for services and primary income.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said in a comment in late July that the GIR was the lowest since July 2020.

“The decline in the GIR was somewhat correlated with the weakness in the peso in recent months, but the peso has already corrected to its strongest in about a month lately,” Ricafort said.

Low weight

On August 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 the weakest intraday levels.

“For the coming months, the country’s GIR could increase further, amid continued growth in the country’s structural flows from OFW remittances, BPO revenue, foreign tourism revenue as well as foreign direct investment.” , said Ricafort.

He said most of these inflows had recently reached their record or pre-pandemic highs and were seen as bright spots for the Philippine economy.

“The GIR is still relatively high at $98.8 billion and could further strengthen the country’s external position, which is a key pillar for the country’s favorable credit ratings for the second year in a row, mostly at one to three notches at above the minimum investment grade,” says Ricafort. INQ

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