THE Philippines’ gross international reserves (GIR) slipped to their lowest level in nine months due to foreign debt servicing and softer gold prices, although they stayed above their year-earlier level, official data showed on Thursday.
The GIR level stood at $82.73 billion in November, down 2.78 percent from the $85.10 billion recorded in October, but up 3.19 percent from $80.17 billion in the same month last year, the Bangko Sentral ng Pilipinas (BSP) said in its latest report.
The gross reserves in November were enough to cover 9.6 months’ worth of imports, down from March, when the reserves stood at $82.977 billion, enough to cover 10 months’ imports. They were also the lowest since February’s $81.87 billion.
An analyst said the current foreign reserves level is enough to protect the economy against external challenges, but warned that a continued weakening of the peso could further reduce the GIR.
“The decline from October to November was due mainly to outflows arising from the foreign exchange operations of the BSP, revaluation adjustments on the BSP’s gold holdings resulting from the decrease in the price of gold on the international market, and payments made by the national government (NG) for its maturing foreign exchange obligations,” the BSP said.
These were partially offset by the national government’s net foreign currency deposits, along with the BSP’s income from investment abroad, it said.
The November GIR level is equivalent to 5.9 times the country’s short-term external debt due within one year, and 4.2 times based on residual maturity, the BSP said.
Net international reserves—which refer to the difference between the BSP’s GIR and total short-term liabilities—dropped to $82.72 billion from $85.09 billion.
Sufficient, but watch out for peso
“While our reserves dropped in November, it was still more than enough to cover 9.6 months’ worth of imports, a level which is considered sufficient,” Guian Angelo Dumalagan, market economist at the Land Bank of the Philippines, said.
He said that at November’s level, the country’s reserves remained large enough to shield the economy from external headwinds, including a likely peso depreciation next year.
Moving forward, Dumalagan said bets for a stronger US economy and more rate hikes by the US Federal Reserve could exert much weakening pressure on the peso, and this might result in more intervention by the BSP in an effort to limit excessive volatility.
More active foreign exchange operations could reduce the country’s reserves, he explained.
“However, I think this might be offset by a possible rebound in gold prices amid bets on higher inflation, which could increase gold’s attractiveness as an inflation hedge,” he said.
The GIR is the sum of a country’s foreign transactions and is composed of the reserve position in the International Monetary Fund, foreign exchange holdings, gold reserves, special drawing rights (SDRs) and foreign investments.