The Market Monitor Minding the Nation's Business
By Luis Leoncio
Despite posting a 6-percent growth, the Philippines’s relatively high gross international reserve (GIR) of $85.49 billion in July was still considered a “laggard” in Asia, mainly as a result of the low foreign-capital inflow.
Figures from international data provider Haver Analytics showed that the country’s GIR paled in comparison with neighbors Thailand, with $178.7 billion; Malaysia, $97.2 billion; Indonesia, $109.8 billion; Singapore, $248.9 billion; Hong Kong, $360.7 billion; India, $360.8 billion; and Taiwan, $433.6 billion.
China’s $3.226-trillion GIR remained the highest in the region.
Globally, however, Asia’s GIR figures were among the highest: the Philippines’s relatively low GIR in the region surpassed Argentina’s $30.5 billion, Chile’s $39.7 billion, Colombia’s $40.7 billion, Peru’s $59.6 billion, and the Czech Republic’s $75.2 billion.
The Bangko Sentral ng Pilipinas (BSP) said the high foreign reserves support the resiliency of the Philippines against negative external development.
The GIR in July was higher than June’s $85.28 billion, which the BSP said was boosted by gains from its gold holdings, foreign-exchange operations and investments overseas.
The BSP said the net foreign-currency deposit of the national government (NG) also helped increase the foreign reserves.
However, the BSP said payments by the national government of its maturing foreign exchange-denominated liabilities countered the rise in the GIR.
The current foreign reserve of the country is enough to cover 10.5 months worth of imports of goods and payments of service and income, the BSP said.
During the same period, the net international reserve (NIR), which is the difference between the GIR and total short-term liabilities, rose by $21 million to $85.49 billion.
The BSP has a $82.7-billion GIR target for 2016, which was hit last March when the foreign reserve amounted to $82.98 billion.
Short-term foreign capital flows to the Philippines have remained strong resulting in a jump of more than three times in net inflow as of the third week of July.
The BSP data showed that as of last July 22, the net foreign portfolio inflow, also known as hot money because to its transient nature, stood at $1.458 billion, way higher than the $465.44 million in the week ending July 24, 2015.
Total inflows, to date, amounted to $10.21 billion, lower than the $13.12 billion for same period last year.
However, the outflows are lower this year at $8.75 million compared to the $12.66 billion during the comparable period in 2015.
BSP Deputy Governor Diwa Guinigundo earlier said he expects sustained strong capital flows to the Philippines, given the negative economic developments abroad.
He said that since economic prospects in the US, Europe and Japan remained bleak, investors were looking for higher yields in emerging market economies (EMEs) like the Philippines.
The strong economy and the robust GIR were cited by the Japan Credit Rating Agency Ltd. (JCRA) in its decision to maintain its “BBB+” rating on the Philippines.
JCRA also maintained the “stable” outlook on the rating, with the latter being a notch away from the “A” rating.
”(The rating decision is based on) the country’s certain resilience to external shocks, relatively sound fiscal position and relatively sound economic growth potential underpinned by robust domestic demand,” said the JCRA statement.
JCRA forecasts a growth of over 6 percent for the Philippines this year, the lower end of the government’s 6 to 7-percent target.
It noted the Duterte administration’s bid to continue the Aquino administration’s economic programs, and even improve on it, and to further increase infrastructure spending.
The credit watchdog said the Philippines’s sound fundamentals, strong current-account surplus and foreign reserves will continue to support the domestic economy amid negative external developments.
It noted the drop in the proportion of the government debt burden to domestic output to 44.7 percent in end-2015 from 45.4 percent the previous year.
Guinigundo said the country had consistently posted fast growth rates in the region and “has proved that boom-and-bust cycles are a thing of the past.”
”We credit our economic gains to a solid foundation that consists of decades of structural reforms, including the pursuit of sound fundamentals,” he said. “These fundamentals – including benign inflation, healthy external payments position, and stable banking system – will continue to help the Philippines build on its gains to become a more inclusive economy.”
Finance Secretary Carlos G. Dominguez said the JCRA decision “is a vote of confidence on the Duterte administration’s resolve to sustain and strengthen the macroeconomic fundamentals that have transformed the Philippines into Asia’s newest bright spot.”
“This serves as a strong impetus for the new administration to pursue its 10-point socioeconomic agenda that is meant not only to keep the domestic economy on its upward trajectory but also to make it inclusive for all Filipinos,” he added.