Foreign investments plunge 33% in 10 months, says BSP

MANILA, Philippines — Net inflows of foreign direct investments (FDI) plunged 32.8 percent from January to October last year despite a surge in October, the Bangko Sentral ng Pilipinas (BSP) said.

Data released by the central bank showed FDI inflows amounted to $5.79 billion during the 10-month period last year or $2.82 billion lower than the $8.61 billion recorded in the same period in 2018.

“The lower FDI net inflows reflect subdued investor sentiment due to the continued sluggish global economic activity,” the BSP said in a statement.

BSP Governor Benjamin Diokno earlier said foreign investors continued to adopt a wait-and-see attitude pending the passage of the second package of the Comprehensive Tax Reform Program (CTRP).

Equity placements dropped 44.9 percent to $1.32 billion from January to October compared to the previous year’s $2.39 billion, while withdrawals jumped 58.8 percent to  $629 million from $396 million.

The central bank said bulk of the capital infusion came from Japan, the US, Singapore, China and South Korea and flowed into financial and insurance, real estate as well as manufacturing.

Reinvestments of earnings increased by 12.5 percent to $825 million from $733 million while net debt instruments fell by 27.3 percent to $4.27 billion from $5.88 billion.

For the month of October alone, net FDI inflows jumped by 33.7 percent to a six-month high of $672 million from $502 million in the same period in 2018. This was the highest net FDI inflow since the $963 million recorded in April last year.

Equity infusions fell 28 percent to $80 million in October last year from $112 million in the same month in 2018, while withdrawals surged by 62.1 percent to $22 million from $14 million.

Equity capital came from the US, South Korea and Japan.

Reinvestment of earnings went up by 12.7 percent to $79 million from $71 million, while non-residents’ investments in debt instruments consisting mainly of loans extended by parent companies abroad to their local affiliates surged by 60 percent to $534 million from $334 million.

The BSP has lowered the projected net FDI inflows for 2019 to $6.8 billion instead of $9 billion. For 2020, the central bank sees net FDI inflows recovering to $8.8 billion.

Joseph Incalcaterra, chief economist for ASEAN at British banking giant HSBC, said FDI inflows to the Philippines declined due to tax reform uncertainties.

Incalcaterra said in HSBC’s ASEAN in 2020 report titled “Searching within” administrative success for 2020 would be defined by the progress in the government’s remaining tax reform agenda.

He added the most immediate priority is to pass Package 2 or the proposed Comprehensive Income Tax and Incentive Rationalization Act (CITIRA) that aims to lower corporate income tax rates to 20 percent from 30 percent while reducing fiscal incentives granted to corporations.

“Package 2 is a revenue-neutral proposal, but uncertainty regarding its passage has contributed to a great deal of uncertainty within investors, leading to a substantial decline in FDI throughout 2019,” he said.

Incalcaterra pointed out the timely passage of Package 2 in early 2020 would be crucial to help lift this cloud of uncertainty for investors raising FDI inflows.