Net inflows of brick-and-mortar foreign direct investments (FDIs) in the Philippines shrank by over a third to $1.03 billion in the first two months of 2026 from the $1.58 billion recorded during the same period in 2025.

The contraction, which came even before uncertainties tied to the Middle East war emerged, was primarily driven by a sharp decline in net investments in debt instruments, particularly intercompany borrowings, the latest Bangko Sentral ng Pilipinas (BSP) data on Monday, May 11, showed.

According to the BSP, the leading sources of equity capital placements for the first two months of the year were Japan, the United States (US), and Singapore.

These investments were channeled largely into the manufacturing, financial and insurance, as well as real estate industries.

For February alone, the US was the “leading source of FDIs, while corporations engaged in financial and insurance activities were the biggest recipients of FDIs.”

Notably, the trend of contraction has persisted into early 2026, with cumulative annual growth remaining negative for both January (-39.2 percent) and February (-34.8 percent). This continues a downward trajectory from 2025, during which cumulative data showed a consistent monthly decline compared to the previous year.

Recall that net inflows of FDIs into the Philippines plunged to $7.79 billion, their lowest level in a decade in 2025—excluding the Covid-19 pandemic slump—as investors stepped on the brakes on injecting funds into the country. This dropped from the $9.4 billion recorded in 2024.

BSP data indicated that the primary factor behind the 34.8-percent cumulative drop as of end-February was a 38.8-percent decline in intercompany borrowings, which shrank to $734 million from $1.2 billion a year ago. Debt instruments typically account for the bulk of FDIs.

Other components also saw substantial contractions. Net equity investments, other than reinvestment of earnings, dropped to $171 million from $196 million a year ago. Reinvestment of earnings—which was the only component to grow on a cumulative basis in late 2025—fell by a third to $128 million from $189 million in the same period last year.

Reyes Tacandong & Co. senior adviser Jonathan Ravelas told Manila Bulletin that the FDI decline in the first two months was due to global caution “rather than a loss of confidence in the Philippines.”

“Higher global interest rates, geopolitical tensions in the Middle East, and strong base effects from last year have made investors more selective and slowed deal timing,” Ravelas said, adding that “faster inflation and softer growth add short-term uncertainty, which tends to delay—not cancel—long-term investments.”

For February alone, net FDI inflows reached $590 million, down 31 percent from the $855 million recorded in the same month last year. However, February saw a month-on-month improvement compared to January, when inflows were $443 million.

According to Ravelas, while uneven, the month-on-month rebound signals sustained investment appetite.

Overall, the economist said the cumulative drop is merely a pause, “not a pullout,” further explaining that a gradual rebound is just on the horizon, especially if the environment stabilizes and government reforms stay on track.

FDIs refer to cross-border investments where a nonresident investor owns at least 10 percent of the equity in a local enterprise. It can take the form of equity capital, reinvested earnings, or intercompany borrowings. These statistics track actual investment inflows and are reported in net terms, or placements less withdrawals.