The ease of borrowing in dollars across the globe has been key in preventing the health and economic crisis from spiraling into a financial one by providing companies and governments cheap access to funds. But it may also be sowing seeds for the next crisis: If the greenback sees a sustained appreciation trend, it will drive up debt-servicing costs, potentially creating, for some, repayment difficulties down the road.

The Philippines’ dollar reserves reached a new all-time high as of end-2020, the central bank said on Friday.

GROSS international reserves (GIR) — which shield the country from liquidity shocks — stood at $109.8 billion as of end-December, up 4.8% from $104.8-billion level as of end-November and 25% higher than the $87.839 billion a year earlier.

“This buffer is equivalent to 11.7 months’ worth of imports of goods and payments of services and primary income, the Bangko Sentral ng Pilipinas (BSP) said in a statement on Friday.

“It is also about 9.6 times the country’s short-term external debt based on original maturity and 5.5 times based on residual maturity,” it added.

The BSP said the increase was supported by inflows from the central bank’s foreign exchange operation, revaluation gains from its gold holdings, and proceeds from the national government’s global bonds.

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These gains were partially offset by foreign currency debt payments by the national government.

“The BSP has more than enough GIR to weather most short term spikes in demand for foreign currency in the future with reserves hitting yet another historical high and accounting for a good number of months worth of imports,” ING Bank-NV Manila Senior Economist Nicholas Antonio T. Mapa said in an email.

Broken down, gold reserves stood at $11.605 billion as of end-November, climbing 45% against its $8.015-billion level a year ago.

Gains from investment abroad stood at $93.428 billion, making up the bulk of the reserves. It rose 24% from last year’s $75.304 billion.

Buffers in the form of reserves in the International Monetary Fund (IMF) increased 37.7% to $812.9 million from $590.4 million.

Special drawing rights – or the money the Philippines can tap from the IMF – went up 3.6% to $1.224 billion from $1.182 billion in the year prior.

Meanwhile, foreign currency deposits decreased 0.8% to $2.726 billion from $2.747 billion.

BSP Governor Benjamin E. Diokno has said they expect to continue beefing up the dollar reserves with the crisis yet to be resolved.

During the BusinessWorld One on One online interview on Wednesday, Mr. Diokno that GIR could possibly reach “$110 billion this year and even $120 billion by next year”.

“The BSP will continue to be opportunistic in investing to maximize value to the bank, choosing between gold, dollars and Treasuries [securities] when market conditions warrant it,” ING Bank-NV Manila’s Mr. Mapa said. — Luz Wendy T. Noble

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