Foreign direct investments down in January

MANILA, Philippines—Net inflow of foreign direct investments (FDI) plunged in January as uncertainties in the global front, such as those brought about by weakness of advanced economies, prompted fund owners to exercise prudence in making business decisions.

The Bangko Sentral ng Pilipinas on Wednesday reported that FDIs posted a net inflow of $576 million in January, down 45 percent from the $1.05 billion in the same month last year.

Gross inflow of FDIs reached $1.29 billion, up by about 20 percent from $1.08 billion.

However, the effect of higher gross FDI inflow was wiped out by the surge in FDI outflow. FDI outflow hit $711 million, about 32 times the $22 million registered in January last year.

Monetary officials said the ability of the Philippines to attract investments partly hinges on developments in the global economy. The prolonged crisis in the eurozone and the anemic growth of the US economy are seen as dragging down growth prospects for the global economy, thus affecting the appetite to invest even in economies that are performing favorably.

The BSP, however, believes the net FDI inflow in January was significant enough to meet the government’s 2013 projections on foreign investments.

Under the original forecast, net inflow of FDIs are seen to reach $2.2 billion this year.

Monetary officials are now reviewing the projections for FDIs and other sources of foreign exchange, such as exports and remittances, for possible revisions. The results will be announced this month.

They said there was a likelihood that the forecast for FDIs could be raised on account of the impact of the country’s attainment of its first-ever investment grade rating from a major international credit rating agency.

They said the decline in net inflow of FDIs in January could be reversed in the months ahead because of the potentially positive effect of the investment grade rating on investor sentiment for the Philippines.

Last month, Fitch Ratings upgraded the country’s credit rating by a notch from BB+ to BBB-, which is the minimum investment grade.

Fitch cited macroeconomic fundamentals that showed improved ability of the Philippines to service its debts to foreign creditors. These fundamentals include the buildup in the country’s foreign exchange reserves, the government’s declining debt burden, and sustained growth of the economy.

Meantime, economists said that the country needs to accomplish more besides investment grade status to attractmore FDIs.

They said the Philippines needs to address problems like inadequate infrastructure and the tedious process of setting up businesses, and to invest more in education to improve the quality of its workforce.