GIR drops to 4-month low at end of March

Debt servicing by the national government and lower gold prices pulled down the country’s gross international reserves (GIR) to a four-month low of $104.82 billion as of the end of March.

Preliminary Bangko Sentral ng Pilipinas (BSP) data showed on Friday the amount was 0.32 percent lower than the $105.16 billion in February, but 17.95 percent larger than the $88.61 billion a year ago.

March’s figure was the smallest foreign reserves level since the $104.81 billion in November last year.

“The month-on-month decrease in the GIR level reflected outflows mainly from the net withdrawal in the national government’s foreign currency deposits with the BSP, which were largely used for debt servicing, and a downward adjustment in the value of BSP’s gold holdings due to the decrease in the price of gold in the international market,” the central bank explained in a statement.

“These outflows were partly offset, however, by the BSP’s income from its investments abroad,” it added.

The Bangko Sentral also said the latest dollar-reserves figure “represents an adequate external liquidity buffer, which can help cushion the domestic economy against external shocks.”

It is also enough to cover 12 months worth of imports, matching February’s level, but wider
than March 2020’s 7.9 percent; 7.5 times the country’s short-term external debt based on original maturity; and 5.3 times based on residual maturity.

Net international reserves, which refer to the difference between GIR and total short-term liabilities, also declined to $104.81 billion as of end-March from $105.15 billion a month before.

The central bank estimates these reserves to expand to $106 billion this year. This is equivalent to 10.9 months of import cover, with the support coming from current and financial account inflows.

Commenting on the data, Michael Ricafort, Rizal Commercial Banking Corp. chief economist, said tighter lockdowns and structural inflows, such as remittances, business process outsourcing receipts, Philippine offshore gaming operators revenues and foreign direct investments, are the major catalysts for the GIR figure in the coming months.

“Tighter quarantine standards in NCR Plus since March 29, 2021 could lead to slower recovery in imports and the demand for US dollars to pay for imports, resulting to relatively narrower trade deficits as seen since the Covid-19 (coronavirus disease 2019) pandemic, thereby adding to the country’s BOP (balance of payments) and GIR,” he noted. NCR Plus is the National Capital Region and the provinces of Bulacan, Cavite, Laguna and Rizal.

Ricafort added the still relatively high dollar reserves could still fundamentally provide some support for the Philippine peso against any speculative attacks.