Philippine dollar reserves climb to $108.05 billion in August

MANILA, Philippines — The reserve asset fund created by the International Monetary Fund (IMF) to provide additional global liquidity amid the pandemic boosted the Philippines’ foreign exchange buffer, according to the Bangko Sentral ng Pilipinas.

BSP Governor Benjamin Diokno said the country’s gross international reserves (GIR) level went up to $108.05 billion in end- August from the revised $107.15 billion in end-July.

“In August 2021, the increase in the reserves was due mainly to the additional allocation of special drawing right to the Philippines given the IMF’s efforts to increase global liquidity amid the pandemic,” Diokno said.

The BSP chief earlier announced that the Philippines received 1.96 billion special drawing rights (SDR) allocation worth $2.78 billion from the IMF on Aug. 23.

The multilateral lender launched the unprecedented $650 billion SDR allocation to provide additional liquidity to member countries, particularly during this time as efforts are exerted to address the COVID crisis.

IMF member countries can exchange their SDRs for hard currencies with other IMF members. These currencies are the dollar, euro, Chinese yuan, Japanese yen and the British pound.

“The IMF advises member country authorities that the SDR allocation can be used to boost foreign exchange reserves and reduce reliance on debt, create space for countries to step up effort against the crisis and support reforms to the economy,” Diokno earlier said.

Data from the BSP showed the value of the Philippines’ SDRs more than tripled to almost $4 billion in end-August from $1.22 billion in end-July.

The GIR is  the sum of all foreign exchange flowing into the country and serves as buffer to ensure that it will not run out of foreign exchange that it could use in case of external shocks.

According to the BSP, the inflow was partly offset by the foreign currency withdrawals made by the national government from its deposits with the central bank to settle the country’s foreign currency debt obligations and to bankroll various expenditures.

The strong inflow was also offset by the BSP’s net foreign exchange operations, while the value of the gold stash of the BSP was steady at $9.15 billion in August.

Diokno said the buffer is equivalent to around 12.3 months’ worth of imports of goods and payments of services and primary income. It is also about 7.8 times the country’s short-term external debt based on original maturity and 5.4 times based on residual maturity.

The country has been building up its foreign exchange buffer through more foreign borrowings to finance the government’s COVID-19 response measures as well as higher prices of gold in the world market.

The BSP usually acts to smoothen the volatility or sharp fluctuations in the foreign exchange market using the buffer. After appreciating by more than five percent to close at 48.04 to $1 in 2020 from 50.635 to $1 in 2019, the peso has emerged as one of the weakest currencies in the region as it continues to range between 49 to $1 and 50 to $1.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the country’s reserves level is nearing its record high of $110.1 billion posted in December last year.

Ricafort said the continued inflows from overseas Filipino workers’ remittances, revenues of the business process outsourcing sector, foreign direct investments inflows, and export earnings could lead to a new record high for the country’s foreign exchange buffer in the coming months.

Furthermore, Ricafort also said proceeds from foreign borrowings by the national government as well as the private sector could also add to the GIR in the next few months.

“Thus, the near record high GIR could provide cushion for the peso exchange rate versus speculative attacks and would also help support the country’s relatively favorable credit ratings in terms of much stronger external position of the country,” Ricafort said.

Based on its official target, the BSP sees a record GIR of $115 billion this year and another all-time high of $117 billion next year.