Foreign debt payments, cheaper gold temper Philippines' reserves in May

MANILA, Philippines — The Philippines' buffer funds slid down in May, due in part to the national government's foreign currency withdrawals to pay back debts and declining value of gold. 

What’s new

The Philippines’ gross international reserves amounted to $103.53 billion in May, down from $105.4 billion in April, the BSP reported Wednesday.

The central bank credited the decline to the Duterte administration's withdrawals with the BSP, mainly to pay its foreign currency debts and bankroll various expenditures.

Likewise, the GIR retreated since the value of gold declined in the international market, directly impacting the BSP's gold holdings.

Why this matters

Foreign reserves are assets held mostly as investments in foreign-issued securities, gold as well as foreign currencies like dollar and euro. Being the lender of last resort, the BSP manages reserves as a stand-by fund to help the economy stay afloat in times of external shocks.

The BSP forecasts the country’s GIR to hit $108.0 billion by the end of 2022, which would be lower than $108.8 billion recorded in 2021 as economic reopening stoke imports, which could drive dollar outflows.

What an analyst says

For Domini Velasquez, chief economist at China Banking Corp., the country's buffer funds would further weaken as import bill rises due to inflation.

"Moving forward, we expect a slight weakening of reserves towards end of the year as the current account balance is expected to widen. Imports are bound to increase due to high price of oil and food and exports will likely weaken due to a more subdued global economy," she said in a Viber message.

"We think GIR will settle nearer the $100 billion at year end, still sufficient as an external buffer," Velasquez added

Other figures

• The GIR level as of May were enough to pay for the country's import needs for 9.1 months — more than adequate as the global standard wants at least six months cover.
• Moreover, it is also about 6.6 times the country’s short-term external debt based on original maturity and 4.5 times based on residual maturity.