The coronavirus (COVID-19) pandemic will likely make it even more challenging for the Philippines to attract foreign direct investments (FDIs) alongside waning structural reform momentum at the latter half of the Duterte presidency, think tank Fitch Solutions said.
As weaker business confidence and disruptions in the investment process add to longtime barriers to FDI flows, Fitch Solutions expects the country to rely more on foreign reserves and government’s offshore borrowings to fund current account deficit this 2020. As such, it sees the country’s reserves declining by 8 percent this year to $73.4 billion and the government’s fiscal deficit surging to 7.4 percent of gross domestic product in 2020, versus 3.5 percent last year.
“We expect the impact of the virus to disrupt FDI inflows into the country due to a combination of weaker foreign balance sheets and the shock to investor confidence and global growth,” Fitch Solutions said in a research note dated June 10.
“Indeed, the outbreak will aggravate the already notable structural barriers that deter investment into the Philippines, namely logistics and an uncertain policy backdrop, weakening the longer-term outlook for both growth and the country’s exporting capabilities.”
The shock to the economic outlook is seen to curb FDI in the near term. In 2019, FDI inflows had already dropped by 23.1 percent.
Meanwhile, the lockdown measures imposed by the government is seen slowing processes surrounding FDI decisions, as backlogs are worked through and travel restrictions delay key investor meetings or in-person research.
This was as wearing global business confidence and disruptions to revenues, supply chains and operations were now expected by Fitch Solutions to result in a 3.6-percent contraction in the global economy this 2020.
In addition, Fitch Solutions noted that unlike the Thai baht, Malaysian ringgit or the Indonesian rupiah, the peso had appreciated against the US dollar since the start of the year, reducing some of the discount on asset prices to foreign investors that might be expected during a global downturn.
Fitch Solutions also noted that the Philippines had a multitude of structural issues that had long hampered FDI inflows. In 2019, the think tank reckoned that the Philippines had failed to capitalize on the relocation of manufacturing from China spurred by US-China trade tensions.
This was something that regional peers like Vietnam and Taiwan were able to benefit from. —Doris Dumlao-Abadilla