Debt payments, falling gold prices lower foreign exchange reserves

Lawrence Agcaoili – The Filipino Star

October 14, 2021 | 00h00

MANILA, Philippines – The country’s currency cushion edged down to $ 107.16 billion in September from $ 107.98 billion in August as the national government settled more foreign bonds maturing and the value of the central bank’s gold holdings has declined, the Bangko Sentral ng Pilipinas (BSP) reported.

The central bank said the latest level of gross international reserves (GIR) was still more than sufficient as an external liquidity cushion to help the country survive shocks such as the COVID-19 pandemic.

The GIR is the sum of all foreign currency entering the country and serves as a cushion to ensure that it will not run out of foreign currency it could use in the event of external shocks.

“The month-over-month decline in the GIR level was attributed primarily to the debt service payment of the national government’s foreign currency debt obligations and the downward adjustment in the value of foreign currency holdings. BSP gold due to the falling price of gold in the international market, ”BSP said.

Data showed that the value of the central bank’s gold holdings fell 3.3% to $ 8.85 billion in September from $ 9.15 billion in August due to the drop in the price of gold.

Last August, the Philippines received $ 1.96 billion in Special Drawing Rights (SDRs) worth $ 2.78 billion from the International Monetary Fund (IMF) to help strengthen the country’s foreign exchange reserve .

The multilateral lender has launched the unprecedented $ 650 billion SDR allocation to provide additional liquidity to member countries, especially as efforts are made to deal with the COVID-19 crisis.

IMF member countries can exchange their SDRs for hard currencies with other IMF members. These include the US Dollar, Euro, Chinese Yuan, Japanese Yen, and British Pound.

As a result, the country’s SDR rose to $ 4 billion in August, from $ 1.23 billion in July.

According to the BSP, the GIR level at the end of September is equivalent to about 10.8 months of imports of goods and payments for services and primary income. It is also about 7.6 times the country’s short-term external debt on the basis of original maturity and 5.2 times on the basis of residual maturity.

The Philippines built up its foreign exchange reserve, reaching a record $ 110.12 billion last December, as the government borrowed more from foreign creditors to fund its COVID-19 response measures.

The BSP usually acts to smooth volatility or large swings in the forex market using the buffer. The peso has depreciated this year as the US Federal Reserve has turned hawkish and plans to cut its bond buying program.

After appreciating just over five percent to close at $ 48.023-1 in 2020 from $ 50.635 to $ 1 in 2019, the peso has become one of the weakest currencies in the region as it continues to be between 50 and 51 at $ 1.

Based on its official target, the BSP predicts a record GDI of $ 114 billion from $ 115 billion this year and another all-time high of $ 115 billion from $ 117 billion next year.

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