Forex reserves level reaches $39.3 billion as of February

Published: March 6, 2009

The country’s gross international reserves (GIR) went up by $100 million in February to $39.30 billion, boosted largely by borrowings of the National Government from multilateral funding agencies.

The Bangko Sentral ng Pilipinas (BSP) reported yesterday that the country’s GIR was enough to cover 5.9 months of imports of goods and payments of services and income.

BSP Governor Amando M. Tetangco Jr., said the increase in international reserves was due mainly to deposits by the National Government of the loan proceeds from the World Bank and the Asian Development Bank.

But Tetangco said there were also inflows from the BSP’s net foreign exchange operations, as well as revaluation gains in the BSP’s gold holdings on account of the rise in the price of gold in the international market in February 2009.

According to Tetangco, the inflows were only partly offset by payments of maturing foreign exchange obligations of the NG and the BSP.

The BSP has been expecting the GIR to remain strong this year, allowing the country to build up a $700-million balance of payments surplus despite the dramatic decline in exports and the slowdown in remittances from overseas Filipino workers.

The BSP actually projected that the GIR would reach only $37.5 billion this year, down-scaling its earlier projected level of $39 billion as the growth in remittances grinds to a halt this year due to job losses abroad

The GIR is the sum of all foreign exchange flowing into the country and the balance of payment (BOP) position is the remaining balance net of all external payments for debt servicing and imports.

The BSP said remittances from overseas Filipinos will reach $16.4 billion this year, unchanged from the same level in 2008 – marking the first time that remittances would not expand since the country stated exporting workers.

The BSP had earlier projected that remittances would expand by six to nine percent but Tetangco disclosed that the projection needed to be adjusted as major economies start to contract this year.

Tetangco said the revision has been approved by the Development Budget Coordinating Committee (DBCC), pegging the growth rate at zero compared with the $16.4 billion remitted by overseas workers in 2008.

“There is a very real danger that the global economy would weaken more and the Philippines has to face this,” Tetangco said. “We might be an island of calm but we are at risk of a negative feedback loop if credit markets freeze up and economic activities grind to a halt.”

With weakening inflows, Tetangco said the gross international reserves would be $37.5 billion to $38.5 billion, slightly lower than earlier projections which placed the expected level at $39 to $40-billion for this year.

Tetangco said the country’s relatively robust external position would allow the economy to tolerate inflationary pressures while supporting sustainable growth trajectory that would lead to a 3.7 percent to 4.4 percent expansion in gross domestic product.

The BOP is keenly watched by both credit rating agencies and investors since it was one of the major determinants of the country’s ability to continue servicing its external debt and other payments.

The BSP had originally projected that the BOP surplus would reach $2.3 billion but the slowdown in exports, remittances, investments and other inflows would weight down the reserves, offsetting the relief from lower oil prices.

But the central bank chief said weakening imports would also ease some pressure on the country’s reserves since global demand is expected to fall even more dramatically this year.

As global consumption slows down, the country’s import-dependent exports would also weaken and this would hit the BOP from two opposing sides: on the one hand, there would be less dollar outflows paying for imported components and on the other, there would also be less inflow from exports.

In January, the BSP reported that the BOP surplus rose to $1.735 billion as the National Government deposited the proceeds of its $1.5-billion commercial borrowing in January.

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