Foreign reserves fall to three-year low as BOP deficit widens

The Philippines’ gross international reserves (GIR) fell to $99.5 billion at end-September, while the balance of payments (BOP) deficit widened to $9.1 billion in the first nine months of the year, the Bangko Sentral ng Pilipinas (BSP) said Monday.

BSP data showed that September’s GIR level was down from $104.8 billion in August. The revised figure was also lower than the $99.997 billion reported by the central bank on 8 October.

The revised level was the lowest monthly reading since September 2023.

The BSP attributed the decline to its net foreign exchange operations, downward valuation adjustments mainly due to changes in gold prices and foreign currency-denominated reserve assets, and the national government’s foreign currency withdrawals for debt service and other requirements.

Despite the decline, reserves remained sufficient to cover 6.2 months’ worth of imports of goods and payments for services and primary income. They were also equivalent to 3.1 times the country’s short-term external debt based on residual maturity.

The BSP uses foreign reserves to ensure sufficient foreign currency for import payments and external debt obligations. The reserves also serve as a buffer against external economic shocks, help manage excessive peso volatility and bolster investor confidence in the country’s ability to meet international financial commitments.

The central bank has said it does not rely solely on foreign reserves for foreign exchange intervention, maintaining a “hands-off” approach to the forex market and intervening only during periods of extreme volatility.

However, the peso has hit record lows nearly 30 times since the Gulf conflict began in March, while GIR has fallen by roughly $13.77 billion from its February all-time high, before the conflict escalated.

Bank of the Philippine Islands lead economist Emilio Neri Jr. said in a Friday commentary that the decline in GIR this year could strengthen the case for another rate hike at the BSP’s monetary policy meeting this Thursday, 22 October.

“While it remains substantial, the uncertain duration of the Middle East conflict increases the importance of maintaining a sufficient buffer, especially in a scenario where the conflict could persist in 2027,” Neri added.

Meanwhile, the BSP said the country posted a $3.1-billion BOP deficit in September, bringing the cumulative shortfall from January to September to $9.1 billion, wider than the $5.3-billion deficit recorded in the same period last year.

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

The central bank earlier projected the annual BOP deficit at $9.2 billion this year and $8.5 billion in 2027, citing elevated oil prices, transport costs and geopolitical tensions. The end-September deficit was about $100 million below the full-year forecast.