The country’s net foreign direct investments (FDI) again declined by 10 percent to $6.71 billion as of end-September compared with $7.46 billion same time last year.
“FDI remained subdued amid lingering concerns on global economic slowdown, higher inflation, and the depreciation of the peso,” said the Bangko Sentral ng Pilipinas (BSP) on Monday, Dec. 12. FDIs are equity capital, reinvestment of earnings, and borrowings.
Last week, the BSP’s policy-making arm, the Monetary Board, reduced the net FDI projection for this year to $8.5 billion from its previous estimate of $10.5 billion three months ago. For 2023, however, the BSP expects healthier FDI of $11 billion but still not as hefty as 2021’s record high of $12.4 billion.
For the month of September alone, net FDI decreased by 7.9 percent to $626 million versus $680 million same time in 2021. The BSP pointed to the decline in non-residents’ net investments in debt instruments as a factor and this “more than offset the growth in their net equity capital placements.”
Net debt instruments decreased by 36.8 percent to $351 million from $555 million. These are mainly intercompany borrowing or lending between foreign direct investors and their subsidiaries or affiliates in the Philippines.
Equity capital placements, meantime, increased by 474 percent to $187 million in September from $33 million in 2021. These funds came from investors in Singapore, Japan and the US. About 52 percent of were invested in the financial and insurance sector.
For the first nine months, equity capital placements totalled $1.29 billion, down 12.2 percent from $1.46 billion same period last year. Net debt instruments also declined by 12 percent to $4.69 billion from $5.33 billion.
The first three quarters’ net FDIs mostly came from Japan, Singapore, US and Malaysia. About 30 percent of funds were placed in the manufacturing sector and an equal share of 19 percent were in real estate and the financial and insurance sector.
The BSP defines FDIs as an investment by a non-resident direct investor in a resident enterprise, whose equity capital in the latter is at least 10 percent. It also includes an investment made by a non-resident subsidiary or associate in its resident direct investor.
The latest 2022 and 2023 FDI estimates factored in the lower global growth outlook and tighter financial conditions.
“For 2022, external sector prospects continue to be primarily constrained by elevated global inflation which has prompted central banks to maintain an aggressive monetary tightening stance, with attendant effects on growth and demand. Against this backdrop, the key growth drivers that supported domestic recovery, that of expanded vaccine coverage and a gradual full reopening of the economy, have also resuscitated high value services exports which were earlier hampered by the pandemic, such as travel and travel-related activities as well as BPO services,” said BSP last week when it revised its external sector projections.
The BSP added that as mobility and travel conditions improved, remittances sent by overseas Filipinos will continue to be strong and resilient. “Both FDI and foreign portfolio investments are expected to lead to sustained inflows, albeit at a more modest level than initially anticipated, following dampened investor sentiment from external headwinds,” said the BSP.