Data watch: Gross international reserves

PHILIPPINES - In Brief 21 Jan 2021 by Romeo Bernardo

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Last year, gross international reserves (GIR) surged 25% to end the year at close to $110 billion. This is remarkable considering the unprecedented global scale and severity of the covid19 crisis. While short-term capital exited emerging markets as in past crises, this time around in the Philippines, the balance of payments (BOP) remained in surplus and even ballooned to nearly $12 billion in the year to November. The latter mainly reflects collapsed imports as the economy went into recession and, as tax revenues buckled, increased government borrowings with the overall external debt estimated to have risen by around $10 billion last year.[1]CHART 1.GIR shot up by $22b in 2020 due mainly to a substantial BOP surplus and some gold revaluationSource of data: BSPIn an interview with the editor of the country’s leading business paper last week, BSP Governor Benjamin Diokno highlighted this atypical but positive upshot of the crisis that kept depreciation pressure off the peso and allowed monetary authorities to aggressively cut policy interest rates. He added that he expects the GIR to continue growing this year, possibly reaching $120 billion. Our viewPre-pandemic, the Philippines already had one of the highest foreign exchange stockpiles based on the IMF’s assessment of reserve adequacy (ARA). The ratio of reserves to ARA at end-2019 was at 2, higher than the 1-1.5 ratio considered adequate and above most countries’ reported ratios. Last year, the additional reserve buildup unarguably gave economic managers more wiggle room to manage the crisis, not least by helping to anchor the sovereign’s credit rating and giving government continuing access to international capital m...