Angelo Taningco
Economist, Treasury Group

The Philippines’ foreign reserves have shrunk in September, albeit still more than adequate to meet the country’s import requirements and short-term external debt obligations. As of end-September, import cover and short-term external debt cover stood at 8.5 months and 5.5 times, respectively, well above their minimum internationally-accepted thresholds of 3 months and 1.0 (Figure 1). The foreign reserves’ monthly decline, however, suggests that the country’s balance of payments (BOP) for the month may have incurred a modest deficit position.

Figure 1: Foreign Reserve Adequacy Indicators
Jan. 2016 – Sep. 2017

 
Gross and net international reserves, GIR and NIR, each fell by $379 million in September and leveled off at $81.3 billion apiece. A large chunk of the monthly decline in both GIR and NIR manifested from the revaluation adjustments in the Bangko Sentral ng Pilipinas (BSP) gold reserves amid a decline in gold’s world price during the month. Netting out the gold revaluation adjustment, we computed a lower negative change in the NIR at −$13 million, which we believe will closely resemble the BOP for the month (Figure 2). (Recall that there exists a strong and positive correlation between BOP and monthly change in the difference between NIR and gold’s revaluation adjustment; our correlation coefficient stood at 0.89.) Such small size in the BOP deficit would do little to the cumulative BOP deficit position, which currently stands at $1.4 billion, and, we think, that this would not exert strong depreciation pressure on the Philippine peso.

Figure 2: BOP & Foreign Reserves
Jan. 2016 – Sep. 2017
($ million)

 
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