BSP sees stable GIR stock
The central bank has a moderate view of gross international reserves (GIR) growth in 2018 of $80 billion, almost unchanged from the $80.7 billion expected this year.
The Bangko Sentral ng Pilipinas (BSP) said the lower GIR forecasts stem from the expected fund withdrawals or net outflows this year and in 2018, resulting from the normalization of US interest rates.
The BSP also expects a higher balance of payments (BOP) deficit of $1.4 billion this year from a previous projection of $500 million on account of financial account shortfalls, but it has lowered its estimated current account deficit from $600 million to $100 million.
In a statement, the BSP said this year’s financial account will reverse to a net outflow “reflective of the anticipated higher net outflow of foreign portfolio investments following possible series of rate hikes by the US Federal Reserve as well as the higher-than-expected prepayments done by both the public and private sectors.”
“As a result,” it added, “year-end GIR are anticipated to settle at around $80.7 billion from $80.5 billion in the previous projection exercise (June 2017).”
At $80.7 billion, the GIR level could cover more than eight months worth of imports of goods and payments of services and income.
However, next year’s $80-billion GIR outlook will only cover seven months’ worth of imports of goods and payments of services and income. It’s been reported before that the BSP is generally comfortable with at least eight months’ import coverage.
The financial account situation next year is seen to be better than in 2017 since the BSP expects to see an increase in foreign direct investments (FDI) at $8.2 billion.
The projection is a “small net inflow on account of increased FDIs as well as the anticipated lower net outflow in the foreign portfolio investments account.”
“The expected increase in FDIs to $8.2 billion in 2018 is in line with the sustained positive developments in the domestic economy, the expected improvement in global economic conditions relative to 2017, as well as the continued thrust toward fast-tracking and modernizing the country’s infrastructure,” said the BSP.
“The anticipated lower net repayment by residents abroad reflects the lower level of foreign obligations that could be prepaid even with some penalties,” it added.
As of end-November this year, the GIR stood at $80.31 billion, the lowest level for 2017. The highest level was $86 billion in September.
The lower GIR is due to outflows from the payment of government maturing loans and the revaluation adjustments of its gold reserves after gold prices declined in the world market. The current level is good enough to cover 8.4 months worth of imports of goods and payments of services and primary income.
The central bank’s original 2017 GIR projection was $84.7 billion which it later cut to $80.5 billion in June.
GIR are foreign assets and foreign exchange that are under the disposal of the BSP for direct financing of payments imbalances and for “managing the magnitude of such imbalances.”