The March data released by the Bangko Sentral ng Pilipinas (BSP) indicates a significant 30.7 percent reduction in foreign direct investments (FDI).
In that month, the inflow went down from $792 million to $548 million compared to the same period last year.
This decline is due to investor concerns about the global growth outlook.
The FDI inflow for the first quarter amounted to $2.04 billion, which represents a 19.6 percent decrease compared to the previous year’s $2.54 billion.
According to the BSP, the decrease in FDI inflow across all major components is a consequence of investor worries regarding the subdued global growth prospects.
Notably, investments in debt instruments, primarily involving intercompany borrowing between foreign direct investors and their subsidiaries or affiliates in the Philippines, declined by 37.2 percent to $389 million in March, down from $620 million in the previous year.
The reinvestment of earnings also experienced a slight decline from $65 million to $62 million during the same month in the previous year.
In contrast, equity other than reinvestment of earnings witnessed an 11.7 percent drop to $94 million in March, compared to $106 million in the corresponding period of the previous year.
The inflow of equity from Singapore, Japan, and the United States decreased by 2.5 percent to $115 million in March.
These funds were directed to various sectors, including manufacturing, information and communication, and real estate.
Conversely, equity withdrawals increased significantly by 80.3 percent, reaching $21 million, up from $12 million.
Michael Ricafort, the chief economist at Rizal Commercial Banking Corp., attributed the decrease in FDI inflow for March to heightened market volatility and risk aversion caused by uncertainties surrounding the failures of certain US regional banks like Silicon Valley Bank, Signature Bank, and First Republic Bank.
Between January and March, investment in debt instruments saw a decline of 22.1 percent, totaling $1.58 billion, compared to $2.03 billion in the same period last year.
The reinvestment of earnings also experienced a slight decrease of 0.7 percent, falling from $204 million to $202 million.
In contrast, there was a 6.9 percent growth in equity inflows from Japan, Singapore, and the US, reaching $377 million, while outflows nearly tripled from $42 million to $115 million.
Ricafort predicts that net FDIs are likely to increase in the coming months due to several factors such as easing inflation and interest rates, the government’s focus on fully reopening the economy without restrictions, the projected robust economic growth of the country, its favorable demographics, China’s economic reopening since December, and the investment commitments obtained by the administration from recent overseas visits.
Inflation in May dropped to a 12-month low of 6.1 percent, down from 6.6 percent in April.
This decline can be attributed to the Monetary Board’s tightening cycle, which resulted in cumulative key policy rate increases of 425 basis points since May of the previous year.
Considering the downward trend in inflation and the solid 6.4 percent GDP growth in the first quarter (albeit slightly slower than the 7.1 percent growth in the fourth quarter and the eight percent expansion in the first quarter of the previous year), the BSP decided to maintain interest rates unchanged on May 18, adopting a cautious approach.
Ricafort holds the belief that the Philippines’ participation in the Regional Comprehensive Economic Partnership (RCEP), the world’s largest free trade agreement led by China, will attract more FDI and position the country as a production and marketing base, as well as an access point to larger export markets within the region.
Despite experiencing a 23.2 percent decline in net inflow to $9.2 billion from an all-time high of $11.98 billion in 2021, the Philippines surpassed its FDI inflow target of $8.5 billion in 2022.
The BSP projects that the net inflow of FDI will increase to $11 billion this year and further rise to $12 billion next year.
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