Record forex buffer in May boosted by gov’t bond sale

THE country’s dollar reserves reached a new record high in May, getting a boost from the government’s global bond issuance to beef up its war chest for the fight against the coronavirus pandemic.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed gross international reserves (GIR) stood at $93.29 billion as of end-May, up 9.29% from the $85.357 billion a year ago and 2.58% higher from the $90.942-billion level as of end-April.

The May figure exceeded the BSP’s $90-billion dollar reserve target for the year.

“The month-on-month increase in the GIR level reflected inflows mainly from a) the national government’s foreign currency deposits with the BSP of proceeds from its issuance of ROP (Republic of the Philippines) Global Bonds, and b) the BSP’s foreign exchange operations,” the central bank said in a statement.

However, this was partially offset by some foreign currency withdrawals made by the national government to pay foreign currency debt obligations.

The Bureau of the Treasury raised a total of $2.35 billion in late April from the issuance of dollar-denominated bonds with tenors of 10 years and 25 years.

At its end-May level, the dollar reserves could cover up to 8.4 months of imports of goods and payments of services and primary income.

It is also equivalent to seven times the country’s short-term external debt based on original maturity and 4.6 times based on residual maturity, the BSP said.

The central bank assured the end-May GIR level is enough to cushion the local economy against external shocks.

“Specifically, it ensures availability of foreign exchange to meet 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,” the BSP said.

The central bank’s gold reserves, which form part of the GIR was kept at $8.015 billion for the 11^th straight month since June 2019 but lower by 3.81% from the end-May 2019 level by $8.332 billion.

Gains from investments abroad, which make up the bulk of the dollar reserves, stood at $80.733 billion, rising by 11.38% from the $72.478 billion a year ago and by 3.65% from the $77.886 billion as of end-April.

Meanwhile, the reserve position in the International Monetary Fund (IMF) stood at $677.2 million, rising by 30.1% from the $520.6 million a year ago and by 16.67% from the $580.4 million in the previous month.

BSP data also showed that foreign currency deposits declined by 5.65% to $2.689 billion as of end-May from the $2.85 billion a year ago but down by 18.2% to $3.28 billion as of end-April.

Special drawing rights — or the amount which the Philippines can tap from the IMF’s reserve currency basket stood at $1.171 billion, dipping by 0.3% from the $1.175 billion a year ago but higher by $400,000 from the previous month.

BSP said the net international reserves, which refer to the difference between the BSP’s GIR and total short-term liabilities, rose to $93.27 billion as of end-May from the end-April level of $90.93 billion and the $85 billion a year ago.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the proceeds from foreign market borrowings as well as the national government’s foreign exchange operations supported the record high in dollar reserves and peso’s strength.

“These inflows, in turn, have been fueling the strength of the local currency, not to mention, the positive perception about the Philippines’ overall financial strength standing,” he said in an e-mail.

“This robust GIR levels bodes well in the NG’s efforts to stay afloat amidst the COVID-19 pandemic and the economic crisis it is causing,” he added.

In the coming months, the dollar reserve will continue to be fueled by recent foreign borrowings secured to boost the country’s war chest against the pandemic, according to Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

“GIR could still post new record highs in view of additional government borrowings from multilateral agencies as well as possible borrowings from foreign commercial sources such as in bonds denominated in other foreign currencies other than the dollar,” he said in an e-mail.

The country has raised over $6.508 billion through loans and grants as of June to fund programs related to control the spread of the virus and to address its impact on the economy. — Luz Wendy T. Noble