FDIs soften in August as recession fears gain traction

MANILA, Philippines — Foreign direct investments into the Philippines remain awash in gloomy sentiment as inflows sputtered in August amid a projected global economic recession.

Data released by the Bangko Sentral ng Pilipinas on Thursday showed that while FDIs landed to net inflows in August, the growth proved lower by 19.2% year-on-year to end up with a haul of $797 million. 

In the first six months, FDI posted a net inflow of $5.9 billion, up down 13.0% on an annual basis.

That said, FDIs represent firmer commitments from foreign investors that generate jobs for Filipinos unlike the so-called “hot money”, which enters and leaves markets with ease.

The BSP projected the Philippines would rack up $11 billion in net FDI inflows this year, higher than the actual $10.5 billion generated last year.

Sought for comment, Domini Velasquez, chief economist at China Banking Corp., expects FDIs this year to feel the impact of headwinds abroad. 

“Net FDI will likely remain weak this year as external headwinds and high interest rates weigh on potential investors. We expect this trend to continue next year as the global economy is expected to slowdown,” she said in a Viber message. 

Data broken down revealed that equity capital placements, a measure of new FDIs, plunged 60.7% year-on-year to $31 million in August. 

Likewise, inflows were hampered by a sizeable decline in intercompany borrowings between multinational companies and their local affiliates. BSP noted a contraction of 15.3% year-on-year to $600 million during the month. 

Reinvestment of earnings declined 16.4% on-year to $166 million in August. 

Velasquez noted that the quick implementation of the amendments to the Public Services Act, which will open the domestic economy to greater foreign investments to certain public sectors such as telcos and railways, should be prioritized.

“Interventions in simplifying tax administration and government regulations in starting a business should help buoy the attractiveness of the Philippines as an investment destination,” she added.