Philippine reserves hit 1.5-year low

The Philippines’ gross international reserves (GIR) declined to $103.3 billion at the end of July from $104.7 billion a month earlier, while the country posted a $1.5-billion balance of payments (BOP) deficit during the month, according to the Bangko Sentral ng Pilipinas (BSP).

The BSP said the end-July GIR level remained sufficient to cover the country’s external financing needs, equivalent to 6.7 months of imports of goods and payments of services and primary income. It could also cover about 3.7 times the country’s short-term external debt based on residual maturity.

However, RCBC Chief Economist Michael Ricafort noted that the current reserve level remains “the lowest in 1.5 years or since January 2025.”

“The GIR is equivalent to 6.7 months' worth of imports, among the lowest in 8 years or since 2018, and down from an immediate high of 8.1 months in September 2024; but still more than twice the international standard of 3-4 months and still above the US$100 billion mark,” he added.

The $1.43-billion month-on-month decline in reserves was mainly attributed to the BSP’s net foreign exchange operations, the National Government’s drawdowns on its foreign currency deposits with the central bank for external debt payments, downward valuation adjustments on the BSP’s foreign currency-denominated reserve assets, and the government’s net foreign currency withdrawals.

These were partly offset by income from the BSP’s investments abroad and upward valuation adjustments to the central bank’s gold holdings following higher international gold prices.

Meanwhile, the country’s BOP deficit widened to $1.47 billion in July from a $131-million surplus in June. The January-to-July BOP position stood at a $5.35-billion deficit, although this was narrower than the $5.76-billion shortfall recorded during the same period in 2025.

Ricafort noted that the July level was “the widest in 3 months or since March 2026,” and far wider than the $167-million deficit the BOP posted in the same month a year ago.

“[T]his could reflect the trade deficit, volatility in the global financial markets after US-Iran retaliatory attacks resumed since July 11, 2026 (after the interim deal on June 17, 2026), as well as some payment of foreign debt/obligations,” he added.

The BSP said the year-to-date BOP deficit reflected the Philippines’ continued trade-in-goods shortfall and net outflows from foreign portfolio investments. These were partly cushioned by sustained net inflows from overseas Filipino remittances, government foreign borrowings, trade in services and foreign direct investment.

Ricafort said the absence of a peace deal between the US and Iran will weigh on the Philippines’ external position in the coming months, with shipping disruptions in the Strait of Hormuz due to the conflict impacting the country’s oil import bill.

“For the coming months, the recent geopolitical risks in the Middle East, especially [those involving] Iran, could lead to some hedging of the country's imports of crude oil, fuel, petroleum, and other commodities, especially if prices go down, as an opportunity to buy and increase local supplies [and] inventories, especially if the Strait of Hormuz remains disrupted/closed from time to time, or at least is slow to normalize, and could disrupt parts of the global supply chains,” he said.

“[A]s a matter of prudence, [this] could still lead to relatively wider trade deficits/net imports and, in turn, wider BOP deficits.”