BSP projects international reserves hitting record $64B this year

MANILA, Philippines –  The Bangko Sentral ng Pilipinas (BSP) sees the country’s gross international reserves (GIR) hitting a new record level of $63 billion to $64 billion this year as foreign capital continued to flood emerging market economies including the Philippines.

BSP Governor Amando M. Tetangco Jr. said on the sidelines of the first breakfast meeting of the Tuesday Club for 2011 held at the Edsa Shangrila Hotel yesterday that the country’s foreign exchange reserves would continue to climb to new highs this year from about $60.5 billion to $61 billion last year.

“We expect the GIR to continue to go up,” he said in an interview. The GIR is the sum of all foreign exchange flowing into the country.

Tetangco pointed out that the country’s GIR increased by 37.2 percent to $60.6 billion as of end-November last year from $44.167 billion as of end-November 2009 on the back of robust foreign exchange inflows from higher borrowings by the National Government (NG) to finance the country’s swelling budget deficit as well as higher earnings of the BSP from its foreign exchange operations, overseas investments, and gold holdings.

He explained that the GIR as of end-November last year was considerably higher than the end-2009 level of $44.2 billion and could cover close to 11 months worth of imports of goods and services and at the same time equivalent to 11 times the country’s short-term external debt based on orignal maturity and six times based on residual maturity.

“As a result, the international reserves climbed to new highs, providing strong coverage for both imports and short-term external debt,” the BSP chief stressed.

He added that the country’s robust foreign exchange reserves would continue to provide a strong cushion against external shocks.

On the other hand, Tetangco said monetary authorities are now reviewing the projected balance of payments (BOP) surplus of around $2 billion this year as the surplus hit an all-time high of $13.2 billion as of end-November last year on the back of strong overseas Filipino workers’ remittances, high earnings of the business process outsourcing (BPO) sector, sustained export growth as well as surging capital flows.

The BOP refers to the difference of foreign exchange inflows and outflows on a particular period and represents the country’s transactions with the rest of the world.

“Our external payments position continued to be strong,” Tetangco said.

According to him, the country’s strong external payments position helped the Philippines get a credit rating upgrade from New York-based Standard and Poors last November.

“The credit rating upgrade is also significant in that the Philippines received this directly, without having to go through the standard credit outlook upgrade first,” he said.

However, he explained that the market has already priced in the credit rating upgrade issued by S&P.

“Of course, it is our belief that the markets have in fact gone ahead of the credit rating agencies, as the markets have for some time now been pricing our debt papers the way they do sovereign debts that are rated one or two notches better than ours,” the BSP chief said.

Monetary authorities are hoping that the Philippines would get another credit rating upgrade from New York-based Moody’s after getting a sovereign credit rating upgrade from S&P last Nov. 12.

S&P raised the credit rating for the government’s long-term, foreign currency-denominated debt issuances by a notch, or from three to two notches below investment grade. It cited the country’s rising external liquidity, explaining that growing reserves of foreign currencies improves the government’s ability to service its liabilities to foreign creditors and investors.

Moody’s, S&P, and London-based Fitch Ratings are closely watching the economic and fiscal developments in the Philippines.

Moody’s upgraded the country’s credit rating outlook to positive from stable as early as 2008. A positive outlook means there is possibility for a credit rating upgrade in the short term while a stable outlook means no change is anticipated.