Investment flows to the Philippines may stay muted this year as the US economy roars back to life and regains its old post as the most attractive destination for fund managers.
The Philippines, however, is seen weathering this storm and maintaining its strong external payments position, fueled by the stable flow of remittances from migrant workers and revenues from dollar-earning sectors.
“Our expectation … is that our foreign exchange reserves will remain broadly stable over the policy horizon,” Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said this week.
In an e-mail to reporters, Tetangco recognized the risks to the country’s balance-of-payments, which is the measure of the amount of money the country earns from overseas, this year.
Better economic prospects in the US would be the main area for concern, as this tends to lead to the repatriation of capital away from emerging markets.
“The projected increase in growth in 2015 in the advanced economies is seen as being supported by the decline in oil prices, with the United States playing the most important role,” he said. “Should the US recovery continue, we may see further global portfolio rebalancing, with funds moving to the US market,” he added.
Streams of foreign income such as investments in capital markets is an important factor to economic stability. This ensures the steady supply of dollars that the government and businesses need for transactions such as importation of goods, and foreign debt payments.
Without steady income from abroad, the public and private sector will have to buy dollars from overseas at higher prices, driving down the peso’s value and making foreign transactions more expensive.
Earlier this week, BSP data showed net outflows of $22 million in foreign investments in stocks, bonds, and deposit certificates for March, a reversal from record inflows of $1.2 billion the month before. BSP officials attributed the capital flight to profit taking by fund managers.
Fortunately for the Philippines, recurring streams of dollar income, which are not subject to shifts in investor sentiment, is expected to pick up the slack.
“We see sustained [tourism] receipts, business process outsourcing (BPO) revenues, and strong overseas Filipino remittances,” Tetangco said.