The Bangko Sentral ng Pilipinas (BSP) said the country’s US dollar reserves likely ended 2024 at around $109 billion, higher than the expected $106 billion.
This projected reserve level is also higher than the end-2023 level of $103.8 billion. As of end of November last year, the foreign exchange (FX) stock stood at $108.5 billion. The preliminary 2024 GIR data will be released on Jan. 7.
“Given prospects of continued foreign exchange inflows into the economy, further buildup is expected” in gross international reserves (GIR) for 2024 and this year, the BSP said.
The BSP’s GIR forecasts are lower than those of the International Monetary Fund (IMF). Based on its most recent country report update, the IMF has a more optimistic GIR outlook for the Philippines, projecting $113.3 billion for 2024 and $115.9 billion for 2025.
In 2024, the GIR climbed to a new record high of $112.7 billion in September. The previous all-time high was $108.8 billion in 2021.
Last year, the BSP borrowed two GIR-related loans amounting to $587.4 million in January and another $278.5 million in March. These are short-term loans that are part of the GIR and are considered GIR liabilities for reserve management operations.
It is rare for the BSP to borrow GIR-related loans. In 2023, the BSP also borrowed to boost the GIR by $734 million in October and $848.4 million in November. Before October 2023, based on available data, the BSP had not increased its GIR-related liabilities in the previous 10 years, as data only goes back to 2013.
In its latest external accounts projections, the BSP expects the GIR to rise to $110 billion this year, a modest increase from the projected $109 billion in 2024. The BSP is conservative when it comes to GIR forecasts.
According to the IMF, using 2023 data, the country’s GIR is considered to be at a “comfortable” level at 196 percent of the IMF’s ARA (assessing reserve adequacy metric), covering 7.8 months of imports. As of the end of November 2024, the GIR could service up to 7.7 months of imports.
Before the Covid-19 pandemic, the IMF had a recommended maximum limit of $65 billion for the GIR. The BSP could opt to follow the IMF’s recommended maximum limit, which means the central bank may invest any excess amount beyond $65 billion in facilities such as bonds managed by the Bank for International Settlements.
However, since the BSP prefers to accumulate US dollars for defensive purposes, such as a buffer fund to support the peso against the US dollar, it has remained conservative in terms of GIR diversification.
The GIR is supported by FX inflows from remittances, earnings from the business process outsourcing sector, tourism revenue, foreign direct investments (FDI), and foreign portfolio investments.
Based on the latest balance of payments projections from the BSP, it expects FDI to reach $9 billion in 2024 and $10 billion for this year. These estimates are lower than the previous projections of $10 billion and $10.5 billion, respectively.
Meanwhile, the BSP raised its forecast for foreign portfolio investments (or “hot money”) to $6.3 billion for 2024 and $3.1 billion for 2025, compared to the previous projections of $4.2 billion and $2.9 billion.
FDI, hot money, remittances, and other dollar-denominated revenues from key sectors have yet to report the final 2024 data.
The forecast for cash remittances is unchanged at $34.5 billion for 2024 and $35.5 billion for this year, both translating to three percent growth year-on-year.
BPO and tourism revenues are both projected to increase in 2024 to $31.2 billion and $10.5 billion, respectively. For this year, these US dollar sources are expected to further add to the GIR, earning $33 billion and $12.6 billion.