The country’s international reserves contracted 7.4 percent year-on-year in January, according to data from the Bangko Sentral ng Pilipinas (BSP).
BSP data showed that the country’s Gross International Reserves (GIR) declined to $99.72 billion in January 2023 from $107.69 billion in January 2022.
Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael Ricafort said this decline may have been caused by the weak peso.
“The year-on-year decline in the GIR somewhat correlated with the relatively weaker peso in earlier months of 2022,” Ricafort said in RCBC’s Hexagon Perspective.
In the coming months, Ricafort said the GIR could be driven by Overseas Filipino worker (OFW) remittances, revenues from the business process outsourcing (BPO) sector, higher exports, and foreign tourism revenues.
Other factors include foreign direct investment (FDI) inflows, hot money inflows, proceeds from the proposed US dollar-bond issuances, and foreign borrowings by the national government in the first semester of 2023.
However, Ricafort said these drivers may be offset by the government’s plans to reduce foreign borrowings relative to domestic borrowings in the coming months and years to better manage the country’s foreign borrowings.
“[GIR growth may be] offset by the still relatively wider trade deficit/net imports compared to recent years and some net foreign debt payments, going forward,” he said.
The BSP said the GIR in January is higher compared to the end-December 2022 level of $96.1 billion.
The BSP said the January 2023 GIR level is 6 times the country’s short-term external debt based on original maturity and 4 times based on residual maturity.
The latest GIR level is also more than adequate external liquidity buffer equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income.
“The month-on-month increase in the GIR level reflected mainly the National Government’s [NG] net foreign currency deposits with the BSP, which include proceeds from its issuance of ROP Global Bonds, the upward valuation adjustments in the value of the BSP’s gold holdings due to the increase in the price of gold in the international market, and net income from the BSP’s investments abroad,” BSP said.
Similarly, the net international reserves, which refers to the difference between the BSP’s reserve assets and reserve liabilities, increased by $3.6 billion to US$99.7 billion as of end-January 2023 from the end-December 2022 level of $96.1 billion.
The reserve liabilities are composed of short-term foreign debt and credit and loans from the International Monetary Fund (IMF).
The BSP also said the level of GIR, as of a particular period, is considered adequate, if it provides at least 100 percent cover for the payment of the country’s foreign liabilities, public and private, falling due within the immediate 12-month period.
Short-term debt based on residual maturity refers to outstanding external debt with original maturity of one year or less, plus principal payments on medium- and long-term loans of the public and private sectors falling due within the next 12 months.
Image credits: Nonie Reyes
