MACTAN ISLAND-- An economist of global financial services firm Nomura said fluctuation in the Philippines foreign exchange reserves is not worrisome to date since the decline was caused by narrowing capital account and some capital outflows.
Nomura Executive Director and Senior Economist for Southeast Asia Euben Paracuelles told PNA that a slight drop in the country's foreign exchange reserves is not really surprising because it was due to a decline in the country's current account surplus, which in turn is affected by higher importation to meet rising requirements of the economy.
I think if it goes lower on a sustainable basis then it becomes a concern. But at the moment the buffers are still large, he said.
On Friday, the Bangko Sentral ng Pilipinas (BSP) reported that the country's gross international reserves (GIR) totalled to USD80.87 billion as of March 2017, lower than month-ago's USD81.43 billion and year-ago's USD82.98 billion.
Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr., in a statement, traced the drop in the country's foreign exchange reserves to outflows as a result of the central bank's foreign exchange operations and payments by the national government of its dollar-denominated liabilities.
He said the decline in the GIR was countered by the national government's net foreign currency deposits with the BSP and the revaluation adjustments of the central bank's gold holdings as a result of the increase of this commodity's price in the international market.
He also stressed that the foreign exchange reserves remain ample since it is enough to cover 8.9 months' worth of imports of goods and payments of services and primary income.
Paracuelles said the current level of GIR is far adequate since the international standard is about three to four months' worth of imports.
Again, this is a significant buffer, he said.
The economist also pointed out that that GIR is expected to remain high since foreign investments continue to pour in the country.
That should also help the current account narrowing, he said.
In end-2016, the country ended with a USD601 million current account surplus, which is about 0.2 percent of gross domestic product (GDP).
This is lower than year-ago's USD7.3 billion primarily due to higher importation to address rising requirements of the domestic economy.
Paracuelles forecasts a current account surplus that is equivalent of 0.6 percent of GDP for the Philippines this 2017, but said that a deficit is possible for some quarters.
He said a full-year current account deficit is possible for the country in the next years but stressed that it is only because of the government's higher infrastructure needs and spending.
If that materializes (higher infrastructure spending), obviously, that puts more pressure on the current account, he said.
To me, it's not a source of worry because it's not driven by a debt build-up by consumers or the households, which is often the case for many other countries. It's more driven by investment spending, which is basically expanding the productive capacity of the economy. And eventually that would lead to more exports, more production. So that should correct the current account also, he added.
Source: Philippines News Agency