Friday, 3 July 2009

Philippine unofficial reserves increased sharply to $4.17b in May

Eileen A. Mencias
Manila Standard

THE Bangko Sentral’s unofficial reserves nearly doubled to $4.172 billion at the end of May from $2.366 billion reported at the end of April, according to data released by the central bank.

The central bank’s unofficial reserves refer to dollars and other foreign currencies that the central bank earned in foreign exchange swaps. They are not counted as part of the gross international reserves.

The central bank started the foreign exchange swaps in 2007, when huge foreign exchange inflows boosted the value of the peso. The swaps prevented the release of too much liquidity in the system.

Steady remittances, an inflow of $497.58 in stock market investments and the proceeds from official development assistance loans were not enough to offset the $1.248 billion the country had to pay for maturing foreign loans in May, causing the $55-million shortfall in the balance of payments.

Despite the month-on-month deficit, however, the balance of payments still yielded a surplus of $2.143 billion in the first five months of the year, just slightly lower than the $2.182-billion surplus reported for the same period last year.

A surplus in the BoP helps support the local currency because it means the economy generated more foreign exchange than it had to pay. A deficit in the BoP means the economy did not generate enough from exports, investments and remittances or loans to pay its imports and foreign loans.

The central bank had forecast a $700-million surplus in the BoP this year, suggesting that there will be significant outflows by the end of the year.

The national government, however, is reviewing its borrowing strategy for the year after it increased its budget deficit target. An increase in foreign borrowings will significantly shore up the BoP.

The central bank expects remittances to amount to some $16.4 billion this year, the same as last year’s, but some sectors have warned of a contraction.

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