THE COUNTRY’S dollar reserves are expected to rise to a record $94 billion by the end of the year as the country grapples with the coronavirus pandemic, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.
“We have revised our end of the year forecast for the GIR (gross international reserves). It would be something like $94 billion, highest ever,” Mr. Diokno said in an online roundtable on Wednesday.
This new forecast is higher than the $86 billion projected by the BSP in November 2019.
Latest data from the central bank showed GIR stood at a record $88.99 billion at end-March, also higher by 0.91% from the $88.187 billion logged as of end-February.
At the end-March level, the country’s dollar reserves can cover 7.9 months’ worth of imports of goods and services and payments of primary income, according to the BSP.
The GIR serves to shield the country from possible liquidity shocks, including the current pandemic.
“As the country anticipates contractions in exports and remittances, the BSP may use part of the reserves to manage excessive volatility of the peso,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in an e-mail.
Despite market volatility caused by worries over the virus, the peso has been among the most resilient emerging Asia currencies partly due to the country’s strong macroeconomic fundamentals.
Mr. Roces noted that the country’s strength prior to the pandemic has been its ample dollar reserves which have been beyond “the rule of thumb to cover at least three months worth of goods and services imports.”
“Adequate levels boost market confidence in our ability to meet external obligations, and more importantly to absorb any unforeseen external shocks such as those we could see in this pandemic,” he said.
Amid continued external weakness due to the global pandemic, the country’s dollar reserves may remain robust and even grow in the coming months due to inflows as well as proposed legislation that seeks to boost foreign investments, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.
“GIR could still fundamentally grow as the country’s structural US dollar inflows continue especially [through] OFW remittances, BPO (business process outsourcing) revenues…and foreign investments inflows that could be supported by the CREATE (Corporate Recovery and Tax Incentives for Enterprises Act) Bill,” Mr. Ricafort said in an e-mail.
The CREATE Bill is an enhanced version of the Corporate Income Tax and Incentives Reform Act or CITIRA, which looks to progressively lower corporate income tax. Under the CREATE Bill, the proposal is to bring down corporate tax to 25% from the current 30% by as early as July. — Luz Wendy T. Noble