THE Philippine government is open to tapping a repurchase agreement with the International Monetary Fund (IMF) should the country need additional funds, according to the Bangko Sentral ng Pilipinas (BSP).
On the sidelines of a business forum on Monday, Central Bank Governor Felipe M. Medalla told reporters the IMF’s facility will be made available within the year. It is also projected to cost the government 10 to 15 basis points on top of the US Federal Reserve’s overnight rates.
If Manila taps the agreement, this will mark the first time in the country’s history that it will seek IMF assistance. The Philippines graduated as a recipient of IMF loans under the administration of the late Benigno S. Aquino.
“We borrow effectively from them, a repo. Because remember, we have lots of securities in the US. Remember, 60-70 percent of our reserves are US dollar securities.
So in other words, we don’t have to sell them, we just use them to borrow rather than sell them,” Medalla told reporters. “I think the US is also not interested in us selling it because if all of us are selling our US dollar securities, the yields will rise which is too much, which is not good for the US either.”
Medalla said creating this “repo arrangement” is one of the ways that the US can help other countries affected by its efforts to combat inflation. The US has been tightening monetary policy to attain its inflation target of 2 percent.
A repo arrangement, the IMF said in its website, “is a transaction in which the borrower temporarily lends a security to the lender for cash with an agreement to buy it back in the future at a predetermined price.”
“The facility will be available within the year. We may not need to use it within the year. For instance, banks have overnight borrowing facilities with us, yet some banks have not used it for quite some time. They sign ‘participation agreements’ so they have access, which some hardly use,” Medalla told BusinessMirror on Monday.
Medalla also said on Monday that Central Banks in the region, specifically the Association of Southeast Asian Nations (Asean), also have a liquidity fund where members can draw from should the need arise.
He said the IMF repo and the liquidity fund in the region are just some of the facilities that help boost the country’s reserves. The country’s gross international reserves (GIR) declined to $93 billion as of September from $97.4 billion as of end-August 2022.
Nonetheless, the BSP said, it was still equivalent to 7.4 months worth of imports of goods and payments of services and primary income. This was still more than the three months’ import cover that is used as a global standard when it comes to the GIR.
“When you factor in those arrangements, our reserves are much larger, the things we will use for intervention are much larger,” Medalla said.
On Monday, Finance Secretary Benjamin E. Diokno clarified his statements regarding the P10 billion that can be used for foreign exchange intervention.
Diokno said this was only his computation and that it was not the computation of the BSP or Medalla. He said this was based on staff computations which placed remittances and BPO earnings at P15.6 billion.
Given this, Diokno said the government can use at least P10 billion to intervene in the foreign-exchange market. Nonetheless, the decision in terms of the cost of intervention would be up to the BSP.
“I don’t know [the] budget for intervention. That’s the Governor’s prerogative kung magkano yun [as to how much that would be],” Diokno said.
Diokno said the peso could further depreciate to around P60 to the dollar but that may only happen in one day before rebounding to a lower rate.
But, he said, on average, it is expected that the peso could average P55 to the dollar toward the end of the year when OFW remittance inflows would peak.
On Monday, the peso closed at P58.87 to the dollar. The peso opened at P58.7 to the greenback and hit a high of P58.91 and a low of P58.7 during trading.
Image credits: Samuel Corum/Bloomberg