Global bond issues shore up forex buffer to $108.5 billion

MANILA, Philippines — Proceeds from the Philippines’ first offshore commercial borrowing for this year boosted the country’s foreign exchange buffer to $108.54 billion in end-March from $107.8 billion in end-February, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said.

He said the $740 million increase in the country’s gross international reserves (GIR) was due to the government’s first foray in the international debt market for this year.

“The month-on-month increase in the GIR level reflected mainly the national government’s net foreign currency deposits with the BSP, which include proceeds from its issuance of global bonds and the BSP’s net income from its investments abroad,” Diokno said.

Despite the volatile financial markets due to the global health crisis and Russia’s invasion of Ukraine, the Philippines pushed through with its first offshore commercial borrowing for this year, raising $2.25 billion.

The fund-raising activity also included $1 billion through the maiden issuance of green bonds.

The GIR is the sum of all foreign exchange flowing into a country and serves as a buffer to ensure that a country will not run out of foreign exchange that it could use in case of external shocks.

Diokno said the latest GIR level represents a more than adequate external liquidity buffer, equivalent to 9.6 months’ worth of imports of goods and payments of services and primary income.

The buffer, Diokno said, is also about 7.2 times the country’s short-term external debt based on original maturity and 5.4 times based on residual maturity.

The BSP is expecting a lower GIR of $108 billion instead of $112 billion for this year and $109 billion for next year.

During the Philippine Economic Briefing early this week, Diokno said international rating agencies led by S&P Global Ratings, Moody’s Investors Servicex0x0 and Fitch Ratings have affirmed the investment grade credit rating of the Philippines due to the country’s strong external position.

Latest data showed remittances from overseas Filipino workers (OFWs), as well as foreign direct investments (FDI) increased to hit record high levels last year, together with receipts from the business process outsourcing (BPO) industry.

“The country’s strong external position continued to be a key credit strength, inspiring investor confidence,” Diokno said.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the country’s GIR could still post new record highs in the coming months amid the continued growth in the country’s structural inflows from OFW remittances, BPO revenues, foreign tourism revenues as well as FDI inflows .

“Thus, near record high GIR and prospects of reaching new record highs in the coming months could further strengthen the country’s external position, which is a key pillar for the country’s continued favorable credit ratings for the second straight year, mostly at one to three notches above the minimum investment grade, a sign of resilience despite the COVID-19 pandemic that caused downgrades in other countries around the world,” Ricafort said.

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