THE buildup in gross international reserves (GIR) among Asia-Pacific economies will support their credit ratings, but at the same time may result in currency appreciations, according to Fitch Ratings.
“A rise in foreign-exchange reserves across Fitch-rated sovereigns in the Asia-Pacific (APAC) over the last two quarters has bolstered external buffers and should support ratings,” Fitch said in a note sent to reporters on Wednesday.
“Indonesia, the Philippines, and India saw sizeable increases. In each of these markets, reserves rose by 12%-13% over the period, bolstering external buffers,” it added.
In May, Fitch affirmed its “BBB” credit rating on the Philippines but downgraded its outlook to “stable” from “positive” after the pandemic sent the country into recession.
Philippine gross international reserves hit a record $100.49 billion at the end of September, exceeding the $100 billion projected by the Bangko Sentral ng Pilipinas (BSP) for the end of 2020.
The end-September tally also exceeds by 17.42% the year earlier $85.581-billion total and by 1.55% the month-earlier level. The GIR level is sufficient for 10 months’ worth of imports of goods and services.
“The increase in foreign-exchange reserves partly reflects intervention by the authorities to smooth currency volatility and build external buffers,” it said.
“However, the trend also reveals a tendency among some national authorities to resist currency appreciation, and could revive international frictions over currency valuations, especially in economies that run persistent current-account surpluses,” Fitch added.
In the case of the Philippines, the current account was in deficit by $464 million in 2019, narrowing from the $8.773 billion gap a year earlier.
In 2020, the BSP projects the current account to come in at a surplus of $6 billion on the back of the decline in imports and exports. It was at $4.4 billion in the second quarter, reversing the year earlier $931-million deficit.
The central bank’s record dollar reserves will be reassuring to the market, strengthening perceptions that the BSP will have the capacity to provide dollar liquidity if the need arises, ING Bank-NV Manila Senior Economist Nicholas Antonio T. Mapa said.
“The BSP will likely maintain a healthy level of GIR for a ‘rainy day’ but as of the moment, with dollar inflows outpacing outflows (current account surplus), we can expect it to continue to build up these stores in the meantime,” Mr. Mapa said in an e-mail. — Luz Wendy T. Noble
