Forex reserves surge to record $36.5B
PHILIPPINE STAR - April 5, 2008


The country’s gross international reserves (GIR) will surpass earlier projections for the whole of 2008 with the March level surging to $36.5 billion as a result of the Bangko Sentral ng Pilipinas’ (BSP) foreign exchange operations and income from abroad.

The BSP reported yesterday that at the end of March, the GIR was already within half a billion dollar of the full-year projected level of $37 billion.

The BSP said the March GIR rose by over $200 million from $36.287 billion at the end of February, setting yet another historic high that would boost the balance of payments (BOP) position.

BSP officer-in-charge Armando Suratos said the increase in the March GIR resulted from the BSP’s net foreign exchange operations and income from its investments abroad.

At this level, Suratos said the GIR could adequately cover 6.2 months worth of import of goods and payments of services and income. This is a far cry from the crisis level of a little over $20 million in the early 1980s when foreign investments left the country and creditors refused to lend to the government.

Suratos said the GIR was also equivalent to 3.2 times the country’s short-term external debt based on original maturity.

According to Suratos, the strong foreign exchange inflows in March were only partly offset by payments of maturing obligations by the National Government as well as the BSP.

BSP Governor Amando M. Tetangco said earlier that the BSP expects the country’s forex reserves to hit a record high of $35 billion to $37 billion in 2008 although the BOP surplus was projected to drop to $3.5 billion.

Tetangco admitted that the capital accounts under the BOP was relatively harder to project especially since it was unclear how the US economy would fare under the pressure of the credit market crunch and the balancing impact of the US Federal Reserve Board.

The BSP is expecting total remittances from overseas Filipinos to reach $16.2 billion in 2008 with labor deployment increasing despite the slowdown in the US economy.

The overall BOP position is critical in determining the position of the BSP as it performs currency stabilization function by swaying the market to smoothen foreign exchange volatility.

The bigger the surplus, the better the BSP would be able to stabilize the exchange rate whether it is appreciating or depreciating against other currencies, particularly the dollar.

Tetangco expects some developments in the debt payments of the national government after the International Monetary Fund (IMF) said there was some space for a much more aggressive effort to reduce foreign debt.

The country’s external debt rose by 2.9 percent to $54.9 billion in 2008 but the central bank said the country’s overall debt ratio actually improved due to higher reserve levels and the strength of the peso against the dollar.

The country prepaid a total of $1.2 billion last year but foreign debt continued to rise because the National Government would remain a net borrower until it has been able to balance its budget and start generating a budget surplus.

As a proportion of the country’s gross national product (GDP), the BSP said the total external debt was equivalent to 34.9 percent, coming down from 36.8 percent at the end of September and 41.7 percent in 2006.

In terms of gross domestic production, the external debt ratio also improved to 38.1 percent, from 40.3 percent in September and 45.4 percent in 2006.

“The declining ratio indicates the country’s improving capacity to service its maturing foreign obligations,” said Tetangco. The BSP reported that the external debt service ratio (DSR) was estimated at 9.6 percent in 2007.

This ratio represents the proportion of total principal and interest payments to total exports of goods and receipts from services and income.

“The DSR has thus remained well below the 20 to 25 percent international benchmark,” Tetangco pointed out. “This indicated that the country has sufficient foreign exchange earnings to service obligations maturing during the current period.”



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