Dollar reserves decline to $99 billion as of end-August

THE PHILIPPINES’ dollar reserves slipped to its lowest level in two years as of end-August, amid the National Government’s debt repayments and the lower valuation of the central bank’s gold holdings.

The gross international reserves (GIR) stood at $98.98 billion as of end-August, slipping by 0.85% from the $99.83 billion as of end-July, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

The foreign exchange buffer as of end-August was 8.3% lower from the $107.96-billion level a year ago, and marked the sixth consecutive month of decline.

It was also the lowest since the $98.95 billion in gross reserves seen in August 2020.

“The month-on-month decrease in the GIR level reflected mainly 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,” the central bank said.

The end-August GIR, which serves as a buffer for liquidity shocks, is enough to cover about 7.1 times the country’s short-term external debt based on original maturity and 4.6 times based on residual maturity.

It is also equivalent to 8.3 months’ worth of imports of goods and payments of services and primary income.

The central bank also attributed the decline in the dollar reserves to the downward adjustment in the value of the BSP’s gold holdings amid a slump in global gold prices.

As of end-August, the BSP’s gold holdings were valued at $8.53 billion, down by 2.6% from the $8.76 billion as of end-July. This was also 6.8% lower than the $9.16-billion level a year earlier. 

Ample foreign exchange buffers protect the country from market volatility and ensure that it is capable of paying its debts in the event of an economic downturn.

The BSP’s foreign investments stood at $84.12 billion as of end-August, up by 0.73% from $83.51 billion in the prior month. However, it is 7.1% lower than the $90.55 billion as of end-August 2021.

Meanwhile, the level of foreign currency deposits plunged by 39% to $1.86 billion as of end-August from $3.08 billion in July. It also declined by 46% from the $3.45 billion as of end-August 2021.

Special drawing rights (SDRs) — which refers to the amount that the country can tap from the International Monetary Fund (IMF), fell by 11% to $3.73 billion as of end-August, from $4.01 billion last year.

In August 2021, the Philippines received $2.8-billion worth of SDRs from the IMF, as part of the latter’s efforts to help countries recover from the coronavirus pandemic.

“The decline in the GIR somewhat correlated with the weaker peso in recent months,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in an e-mail note.

Many central banks have deployed the tandem of rate hikes and foreign exchange spot intervention as the US Federal Reserve continued its aggressive monetary policy tightening.

Year to date, the peso has weakened by 12.02% or P6.135 from its P51-per-dollar close on Dec. 31, 2021.

“Nevertheless, GIR is still equivalent to 8.3 months of imports or still way above the minimum international threshold of 3-4 months, thereby could still provide greater buffer/support/cushion on the peso exchange rate vs. any speculative attacks,” Mr. Ricafort said.

Mr. Ricafort said the country’s dollar reserves may still increase in the coming months amid expected rise in inflows from overseas Filipino workers remittances, business process outsourcing revenues, foreign tourism revenues, and foreign investment. 

However, the GIR can be offset by the widening trade deficit and some net foreign debt payments, he added.   

The BSP expects to end the year with $105 billion in dollar reserves and $106 billion in 2023.

As of end-2021, the GIR stood at $108.891 billion, 1.11% lower than the record $110.117-billion level in 2020. – Keisha B. Ta-asan