MANILA, Philippines — Committed foreign direct investments (FDI) in the country posted a sharp decline in the first quarter, which an analyst said raised concerns about the health of the investment climate amid tight financial conditions.
The government approved total FDI pledges amounting to P148.43 billion in the three months through March, plummeting by 63.6 percent year-on-year, the Philippine Statistics Authority (PSA) reported on Thursday.
The figure represents FDIs committed to the country’s ecozones, which entice investors with tax perks and other fiscal incentives. These pledges may not translate to actual inflows in the future, but they are nonetheless a closely watched indicator of investor sentiment.
The PSA data is different from the Bangko Sentral ng Pilipinas’ (BSP) own tracking of FDI inflows, which is on a net basis.
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But there are caveats to the massive decline in the first quarter. To note, the statistics agency started tracking the pledges in Bases Conversion and Development Authority, Clark International Airport Corp., John Hay Management Corp., and Zamboanga City Special Economic Zone Authority only last year.
But beyond the expanded scope of the data, Robert Dan Roces, an economist at Security Bank, said the drop was “worrying”.
Global economic headwinds
“It may very well be due to several factors, namely global economic headwinds, like elevated interest rates in major economies, which might be making investors wary of riskier emerging markets like the Philippines,” Roces said.
“It’s also possible that the high figures from Q1 2023 were inflated by a few exceptionally large projects, making the current year’s numbers seem lower in comparison,” he added.
READ: PH lags behind Asian peers in foreign investments
Dissecting the PSA’s report, committed FDIs from Singapore accounted for 47.2 percent of the total to P70.06 billion. This was followed by the Netherlands at P38.89 billion (26.2 percent) and South Korea at P20.23 billion (13.6 percent).
Electricity, gas, steam, and air conditioning supply industry received the largest amount of approved investments at P109.19 billion or 73.6 percent of the total.
“Looking ahead, the future of foreign investment in the Philippines hinges on several factors, such as stability in global economic conditions and the current administration’s policies that foster economic growth and investor confidence,” Roces said.
“A policy rate cut in the future will also help. Additionally, the continued strong performance of specific sectors within the ecozones, such as renewable energy or BPO/IT, could attract investors seeking targeted opportunities,” he added.