Philippine Dollar Reserves Decline in December

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As of the end of December, the Philippines experienced a slight dip of 0.3% in its dollar reserves, primarily attributed to the National Government’s repayment of some foreign currency debt obligations. Preliminary data from the Bangko Sentral ng Pilipinas (BSP) revealed that the gross international reserves (GIR) decreased to $102.45 billion compared to $102.72 billion in November. Despite this decline, the December level of dollar reserves demonstrated a 6.6% increase from the end of 2022 and exceeded the BSP’s end-2023 projection of $100 billion.

The month-on-month decrease was mainly influenced by the government’s debt payments, yet the GIR level remains sufficient, covering 7.7 months of imports and payments of services and primary income. This level also represents about six times the short-term external debt based on original maturity and 3.8 times based on residual maturity. Maintaining substantial foreign exchange buffers is crucial for economic resilience, shielding against market volatility, and ensuring the ability to repay debts during economic challenges.

Despite a 1.8% increase in global gold prices, the BSP’s foreign currency deposits and gold holdings decreased. Foreign currency deposits plummeted by 62.5% to $716.3 million, while gold reserves were valued at $10.56 billion. However, these declines were offset by an increase in foreign investments, attributed to significant gains in the US and global financial markets in November-December 2023.

Foreign investments held by the BSP rose by 1.4% to $86.63 billion in December, demonstrating a 6.2% increase from a year ago. The net international reserves, representing the difference between GIR and reserve liabilities, inched up by 0.5% to $102.4 billion.

The Philippines’ reserve position in the IMF and special drawing rights both experienced minor fluctuations, with the National Government’s Islamic bonds proceeds contributing to the dollar reserves. Looking ahead, proceeds from investment banking activities and dollar bond issuances may continue supporting the GIR. However, potential reductions in foreign borrowings and enhanced foreign exchange risk management by the government could offset these gains. The BSP maintains its expectation of reaching $102 billion in dollar reserves by the end of 2024.