Foreign borrowings boost forex reserves to $106.5 billion

MANILA, Philippines — The country’s gross international reserves (GIR) rose to $106.55 billion in July from $105.76 billion in June due to higher inflows arising from more foreign borrowings to finance the government’s COVID-19 response measures as well as higher prices of gold in the world market.

The $785.8-million month-on-month increase ended two straight months of decline in the foreign exchange buffer.

“The month-on-month increase in the GIR level reflected mainly the inflows from the national government’s net foreign currency deposits with the BSP, which include proceeds from the issuance of global bonds and upward adjustment in the value of the BSP’s gold holdings due to the increase in the price of gold in the international market,” the central bank said.

The Philippines raised $3 billion from a dual-tranche dollar bond offering, with $2.25 billion worth of 25-year bonds and $750 million worth of 10.5-year bonds.

The country has so far raised $6 billion out of the planned $7 billion offshore borrowings for 2021, including the $2.5 billion euro-denominated global bond issuance and another $500 million from the issuance of samurai bonds.

Preliminary data showed the value of the BSP’s gold stash rose by 3.1 percent to $9.15 billion in July from $8.87 billion in June.

According to the BSP, the strong inflows were partly offset by outflows from the national government’s payments of foreign obligations as well as the central bank’s foreign exchange operations.

The GIR – the sum of all foreign exchange flowing into the country and which serves as buffer to ensure that it will not run out of foreign exchange that it could use in case of external shocks – hit a record high of $110.12 billion in December last year.

The BSP said the latest foreign exchange buffer is equivalent to around 12.1 months’ worth of imports of goods and payments of services and primary income. It is also about 7.7 times the country’s short-term external debt based on original maturity and 5.1 times based on residual maturity.

“The latest GIR level represents a more than adequate external liquidity buffer,” the central bank said.

The BSP usually acts to smoothen the volatility or sharp fluctuations in the foreign exchange market using the buffer.

After appreciating by more than five percent to close at 48.04 in 2020 from 50.635 to $1 in 2019, the peso emerged as one of the weakest currencies in the region, depreciating by 4.9 percent to close at 50.39 to $1 last Thursday.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said the GIR level, which is way above the minimum acceptable standard of three to four months, would continue to provide cushion or structural support for the peso exchange rate going forward.

He said proceeds of any additional foreign borrowings by the government and the country’s large conglomerates could add to the country’s balance of payments (BOP) and GIR for the coming months.

Ricafort cited the increased foreign borrowings by the government to finance the wider budget deficits for various COVID-19 programs amid some decline in revenue collections due to the pandemic as well as increased foreign borrowings and other fund-raising activities such as initial public offerings (IPO), real estate investment trusts (REITs) as well as share and bond offering by large companies.

The economist also said the country’s external position is partly supported by the investment grade credit ratings issued by Japan Credit Rating Agency, S&P Global Ratings, Moody’s Investors Service, and Fitch Ratings.

Ricafort said the country’s forex buffer has more than doubled in about 10 years from the $40-billion level in 2010 and already more than seven times over 15 years from the $15-billion level in 2005.