Foreign capital inflow seen to plunge by 41% in 2020 | Inquirer Business

Foreign capital inflow seen to plunge by 41% in 2020

PH to post steepest decline in Asia-6
By: - Reporter / @bendeveraINQ
/ 05:20 AM October 23, 2020

The Philippines is seen to post the biggest drop in foreign capital inflows among emerging Asian economies this year even as the solid macro fundamentals prepandemic would facilitate a regionwide rebound next year, the Washington-based Institute of International Finance (IIF) said.

“We expect nonresident capital flows to the Asia-6—India, Indonesia, South Korea, Malaysia, the Philippines and Thailand—to decline in the second half of 2020, following a temporary pickup in the second quarter. For the full year, we project flows to come in at $210 billion—a drop of roughly 25 percent from $282 billion in 2019, largely as a result of sharply lower portfolio capital inflows as well as weaker foreign direct investment,” the IIF said in an Oct. 21 report titled “EM Asia: Gradual Recovery in Capital Flows.”


In the Philippines, which the IIF noted had the most stringent COVID-19 lockdown in the region, foreign capital flows were projected to shrink by 41 percent, the largest drop in Asia-6, equivalent to $7 billion.

“The country also reinstitu­ted restrictions in August, which have led to further damage to the economy,” the IIF added, referring to the two-week modified enhanced community quarantine imposed in Metro Manila and four neighboring provinces, which accounted for half of the economy.


In terms of the volume of foreign capital flows, India—the second most badly hit by COVID-19 infections next to the United States—will shed the biggest amount or $38 billion, about half of Asia-6’s total.

The IIF nonetheless noted that the Philippines and India were able to revert their current account deficits to surpluses while Indonesia’s deficit narrowed as they accumulated reserves when capital flows stabilized despite the pandemic-induced global recession.

The Bangko Sentral ng Pilipinas reported last week that the country’s gross international reserves excee­ded $100 billion for the first time in September.

With economic recovery expected next year, nonresident capital flows to these six emerging Asian countries were expected to rise to $275 billion in 2021, although still below the prepandemic level.

“The Asia-6 are benefiting from better growth prospects, solid macro fundamentals, the advancement of reforms and strong external positions,” the IIF said.

However, the IIF warned that the top downside risk for these emerging Asian economies remained “a new wave of COVID-19 infections, similar to current developments in Europe and the US, and the potential need for renewed lockdowns.”

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TAGS: foreign capital inflows, Institute of International Finance (IIF)
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