‘Hot money’ disappoints with $247-M outflow in 2023

MANILA, Philippines  —An above-target inflation that spoiled growth and jacked up borrowing costs for both consumers and businesses sent flighty foreign funds fleeing in 2023, with the exodus defying the Bangko Sentral ng Pilipinas’ (BSP) expectation of inflows.

Data released on Thursday by the BSP showed a net outflow of $247 million in foreign portfolio investments (FPIs) in 2023, a reversal from the $887-million net inflow recorded in 2022.

A net outflow means more hot money left the economy than entered, while a net inflow occurs when the reverse happens.

In December 2023 alone, FPIs registered a net outflow of $205 million, a turnaround from the $673-million net inflow in November.

Also known as “hot money” because of their flighty nature, FPIs are highly sensitive to developments onshore and offshore unlike firmer commitments such as foreign direct investments, which tend to stay longer and can generate jobs for Filipinos.

READ: 2024 inflation seen slowing to 2-4%

The 2023 net outflow bucked the BSP’s forecast of a $1-billion net inflow for last year. Sought for comment, Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, said there was risk aversion among investors who were wary of accelerating inflation.

Cooling inflation

Despite inflation easing back to within the 2- to 4-percent target band in December after 20 months of soaring above the range, the BSP said it deemed it necessary to “keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes evident.”

READ: PH central bank says to keep policy tight despite an easing in inflation

At its last meeting for 2023, the powerful Monetary Board kept the BSP’s policy rate unchanged at 6.5 percent, the tightest in 16 years.

“It was a difficult year for investment inflows last year. Because of higher inflation, in turn, higher interest rates and increased market volatility brought about by geopolitical events, the flight to safety for investments was the main narrative,” Asuncion said.

”This has been the main theme for most of 2023 only to turn for the better toward year-end,” he added.

READ: Milder inflation boosts ‘hot money’ inflows

Broken down, $12.9 billion in hot money entered the economy in 2023, up 4.4-percent year-on-year. Of that amount, 57.3 percent was invested in publicly listed companies while the rest went to peso-denominated government securities like Treasury bonds and Treasury bills.

But $13.1-billion flighty funds left the country last year, worse than the 2022 exodus by 14.6 percent. The United States, a safe haven for investors, continued to be the main destination of outflows with 63.6 percent of total.

The BSP forecasts a $1.7-billion hot money net inflow this year.