May forex reserves of $17.34B highest in 3 years

The country’s gross international reserves (GIR) breached the $17-billion mark in May, reaching $17.337 billion due to the government’s $750-million global bond issue.

The Bangko Sentral ng Pilipinas (BSP) reported yesterday that the latest GIR level was the highest since April 2002 and was 3.7 percent higher compared to April’s $16.719 billion.

The BSP expects the country’s foreign reserves to hit between $16 billion and $17 billion this year.

According to BSP Deputy Governor Amando M. Tetangco Jr. the current GIR was the highest since April 2002 and enough to cover about 3.9 months of imports of goods and payments of services and income.

Alternatively, Tetangco said the GIR level was equivalent to 3.7 times the country’s short-term debt based on original maturity and 1.8 times based on residual maturity.

Short-term debt based on residual maturity refers to outstanding short-term external debt on original maturity plus principal payments on medium and long-term loans of the public and private sectors falling due within the next 12 months.

As long as the GIR could cover these obligations, the country would be comfortably out of the default zone.

According to Tetangco, the GIR surged when the NG deposited the proceeds of its $750-million global bonds, only partly offset by the foreign exchange requirements for repayments of maturing NG and BSP obligations.

Tetangco said the BSP’s net international reserves, on the other hand, amounted to $16.258 billion in May, up from $15.557 billion as of end-April, inclusive of revaluation of reserve assets and reserve-related liabilities.

Tetangco said the BSP is expecting inflows to be stronger this year due to healthy inflows from foreign investors and overseas Filipino workers (OFWs).

Because of strong inflows, the BSP has already upgraded its projected balance of payments (BOP) surplus for this year from $464 million to $852 million due to higher remittances from OFWs and better investment inflows.

Remittances from OFWs, according to Tetangco, were expected to reach $9.4 billion this year and could possibly go up to as high as $12 billion including the inflows not captured by the banking system.

Based on BSP’s updated estimates, Tetangco said the combined impact of higher dollar inflows and the shift in accounting policies would increase the BOP surplus by almost $400 million this year.

For the whole of 2005, Tetangco said the GIR was expected to reach at least $16 billion to $17 billion compared to the original projection of $14 billion to $16 billion.

Tetangco told reporters that the BSP’s exports growth projection has been downgraded from 10 percent to eight percent while projected import growth has been likewise lowered from 13 percent to only 10 percent.

The net effect was a lower trade deficit compared to original projections and therefore lower net outflow of foreign exchange due to importation.

According to Tetangco, the BSP was also expecting higher remittance levels from OFWs to $9.4 billion this year from only $8.6 billion in 2004.

"This is just the amount of OFWs that go through the formal banking system," he said. "Usually, we use a raising factor of about 20 percent to account for OFW inflows that are not captured by banks."