COVID loans push buffer to new all-time high
MANILA, Philippines — The Philippines continued to beef up its foreign exchange buffer to reach an all-time high of $93.29 billion as of end-May from $90.94 billion a month earlier, as the government turns to the offshore debt market for more funds to soften the economic blow from the coronavirus disease 2019 or COVID-19 pandemic, according to the Bangko Sentral ng Pilipinas.
BSP Governor Benjamin Diokno said the $2.35 billion month-on-month rise in the country’s gross international reserves (GIR) reflects inflows mainly from the national government’s foreign currency deposits with the central bank of proceeds from the issuance of global bonds. as well as the BSP’s foreign exchange operations.
The Philippines returned to the offshore debt market in late April through the sale of $2.35 billion global bonds to raise funds for the government’s outbreak response.
The inflows, Diokno said, were partly offset by the foreign currency withdrawals made by the government to pay its foreign currency debt obligations.
“The hefty level of GIR represents an external liquidity buffer which can cushion the domestic economy against external shocks,” Diokno said.
The GIR is the sum of all foreign exchange flowing into the country and serves as a 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 GIR is enough to cover 8.4 months’ worth of imports of goods and services and payments of primary income. Moreover, it can cover seven times the country’s short-term external debt based on original maturity and 4.6 times based on residual maturity.
“Specifically, it ensures availability of foreign exchange to meet the balance of payments financing needs, such as for payment of imports and debt service, in extreme conditions when there are no export earnings or foreign loans,” Diokno said.
The BSP chief said earlier the GIR level may hit an all-time high of $95 billion this year, higher than the revised target of $90 billion set by the Monetary Board.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said a record-high forex level could provide structural support for the peso.
“A record-high GIR could provide greater cushion or buffer for the peso exchange rate versus the dollar, although the latest increase in the GIR may be largely due to long-term borrowings by the government,” Ricafort said.
The BSP has been building up the country’s foreign exchange buffer to help the country survive external shocks. It uses the buffer to buy or sell dollars if it deems necessary to prevent sharp depreciation or appreciation of the peso.
For the coming months, Ricafort said the GIR could still post new record high due to the additional government borrowings from multilateral sources such as the World Bank, Asian Development Bank, Asian Infrastructure Investment Bank, and more foreign commercial loans.