Forex buffer drops to $106.76 billion in April

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MANILA, Philippines – The country’s foreign exchange buffer fell slightly to $106.76 billion at the end of April from a revised $107.31 billion at the end of March, as the government spent more to pay its foreign obligations and finance its expenses, according to the Bangko Sentral ng Pilipinas (BSP).

This is the country’s lowest level of gross international reserves (GIR) in seven months or since the $106.59 billion recorded in September last year.

The $552.1 million drop in the cushion was also attributed to the lower price of gold in the global market.

“The month-on-month decline in the GIR level mainly reflects the national government’s foreign currency withdrawals from its deposits with the BSP as it settles its foreign currency debts and pays various expenses, as well as the adjustment decline in the value of BSP’s gold holdings due to the fall in the price of gold in the international market,” the central bank said.

Data showed the value of central bank gold holdings fell 1.3% to $9.28 billion at the end of April, from $9.4 billion a month ago.

The GIR is the sum of all currencies entering the country and acts as a buffer to ensure that it will not run out of currencies that it could use in the event of external shocks.

Despite the decline, the BSP said the latest level of GIR represents a more than adequate external liquidity buffer equivalent to 9.4 months of imports of goods and payments for services and primary income.

He said the buffer is also about seven times the country’s short-term external debt based on original maturity and 5.5 times based on residual maturity.

BSP expects a smaller GIR of $108 billion instead of $112 billion for this year and $109 billion for next year.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the price of gold in the global market fell 2% in April as the national government paid off more debt and spent more on imports. .

These factors, Ricafort said, offset the additional deposits from the proceeds of the national government’s 30 billion yen Samurai bond issue.

Ricafort said the country’s GIR could further increase and potentially post new records in the coming months amid continued growth in structural flows from remittances from Filipino workers abroad, outsourcing income from business processes and tourism receipts.

The economist also cited record inflows of foreign direct investment.

“Thus, a GIR close to a record high and the prospect of reaching new records in the coming months could further strengthen the country’s external position, which is a key pillar for the country’s favorable credit ratings for the second consecutive year, mostly one to three notches above the minimum investment grade, a sign of resilience despite the pandemic that has caused downgrades in other countries around the world,” Ricafort said.

He said proceeds from any additional foreign borrowing by the government and the country’s largest conglomerates could add to the country’s GIR and balance of payments (BOP) in the coming months.

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