Long-term capital flows to PH decline for 3rd straight month
MANILA -The net inflows of foreign direct investments (FDI) into the Philippines fell for the third month in a row in May, this time by 34 percent to $488 million from $739 million in the same month of 2022.
“The decline in FDI net inflows reflected the 70.7-percent contraction in nonresidents’ net investments in debt instruments to $161 million from $551 million in the same month last year,” the Bangko Sental ng Pilipinas (BSP)said in a statement.
“FDI remains subdued due to the effects of relatively higher price and interest rate levels globally,” the central bank added.
The decline of inbound investments in borrowings was not offset by a 159-percent surge in foreigners’ net investments in equity capital other than reinvestment of earnings, which reached $235 million from $91 million in May last year.
Most of the equity capital placements, which were invested mainly in the manufacturing and real estate industries, came from Germany, Japan, and the United States.
The latest monthly results put the readout for the January-May period at net inflows dropped by 21 percent to $3.4 billion from $4.3 billion in the same period last year.
For comparison, FDI net inflows jumped by 73 percent year-on-year in May 2022 and revved up by 24 percent in January-May last year.
READ: FDI inflows surged by 64% in May
Nalin Chutchotitham, Citi group’s economist covering the Philippines, said in a research note that FDI and investment promotion approvals “remained quite subdued,” especially in the first quarter, which she attributed partly due to global uncertainties.
“Still, a strong pipeline of infrastructure projects could provide momentum in the coming quarters,” Nalin said.
Higher costs
Michael Ricafort, chief economist at the Rizal Commercial Banking Corp., said in a commentary that investments were weighed down by high inflation and higher interest rates that led to higher financing costs for investors in projects.
READ: Analysts betting on key BSP rate staying at 6.25%
However, as higher interest rates were prevailing globally, prospects of investments in debt instruments were less attractive in the Philippines.
“For the coming months, net FDIs could pick up further amid an easing trend in inflation and in global commodity prices that reduce the cost of FDIs, as well as the eventual easing of interest rates especially into 2024 which the markets expect,” Ricafort said.
The BSP keeps FDI data that represent capital which actually moved, instead of pledged or planned investments that may or may not be realized.
Meanwhile, at the Philippine Statistics Authority, latest data show that total pledged foreign investments approved in the first quarter amounted to P172.7 billion, which was about 19 times the P8.98 billion in the same quarter of last year.
These investments were registered with investment promotion agencies that include the Board of Investments, Clark Development Corp., Philippine Economic Zone Authority, and Subic Bay Metropolitan Authority.
The bulk of foreign investment commitments in the first quarter were from Germany, at P156.96 billion or 91 percent of the period’s total.
Pledges from Japan were valued at P3.82 billion (2.2 percent of total) and from The Netherlands at P2.65 billion (1.5 percent).
