Despite global headwinds, FDI improves in May

MANILA, Philippines — Foreign direct investments improved in May as the domestic economy slid into high gear, but warning signs point to a slowdown as global headwinds persist. 

What’s new

Data from the Bangko Sentral ng Pilipinas released Wednesday revealed FDIs recorded a net inflow of $742 million in May, ballooning 64.1% year-on-year. A net inflow means more FDIs entered the country against those that left.

Year-to-date, FDI posted a net inflow of $4.2 billion, up 18.8% on an annual basis.

Why this matters

Unlike the so-called “hot money” which enters and leaves markets with ease, FDIs are firmer commitments that provide jobs for Filipinos, so the government wants to attract more FDIs and not only keep existing ones.

For this year, the central bank projects a full-year haul of $11 billion net inflow, higher than the actual $10.5 billion net inflow recorded last year.

What an analyst says

Domini Velasquez, chief economist at China Banking Corp., said the net FDI growth in May benefitted from base effects in the previous year.

"Nevertheless, we think that the outlook for FDI is still positive. Compared with other emerging economies, the Philippine economy remains to be one of the fastest growing economies. Moreover, structural reforms such as the amended public services act, retail trade liberalization, and foreign investments act, and CREATE, should attract more investments in the country," Velasquez said.

"External headwinds such as potential slowdown in advanced economies can eventually temper the rise of FDI, however, for the year, most of these economies are still growing above their potential output and businesses would have the capacity to invest in emerging economies such as the Philippines. Specific investment priorities should be laid out by the current administration soon to ensure that the country can capitalize on the momentum from a new administration," she added.

Other figures

• Data showed that in the first five months of 2022, equity capital placements, a measure of new FDIs, tumbled 31.3% year-on-year to $607 million.
• Most of the inflows in May were sustained by intercompany borrowings between multinational companies and their local offices, which skyrocketed 93.0% year-on-year to $544 million.
• Reinvestment of earnings inched down 2% on-year to $106 million during the month.