BSP sees lower FDI, narrower BOP gap in 2023

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has revised downwards its projections for foreign direct investments (FDI) and hot money inflows for the next two years due to external headwinds.

In a virtual briefing, Sittie Hannashi Butocan, director of the BSP’s Department of Economic Research, said the central bank lowered its net FDI inflow projections to $8 billion for this year from the original target of $9 billion and to $10.5 billion for next year from $11 billion previously.

Likewise, the projections for foreign portfolio investment net inflow were also adjusted downwards to $2 billion for this year from the original target of $2.5 billion and to $3 billion from $3.5 billion for 2024.

“Prospects for the financial account have turned more subdued following less notable performance for both foreign direct investments and foreign portfolio investments during the first half of this year,” Butocan said.

Latest data from the BSP showed that net FDI inflow declined by 20.4 percent to $3.91 billion in the first half from $4.91 billion in the same period last year due “largely to investor concerns over weak growth prospects and persistent global uncertainties.”

Likewise, the net inflow of foreign portfolio investments, also known as hot money or speculative funds, plunged by almost 77 percent to $157.77 million from January to July compared to a year-ago level of $675.15 million.

Butocan said there are more subdued prospects for FDI and foreign portfolio investments net inflows amid external headwinds, including the risk of geoeconomic fragmentation.

Butocan also said the BSP has approved the new set of balance of payments (BOP) and current account projections for 2023 and 2024 that incorporated latest available data and recent emerging developments.

“The prevailing high interest rate environment has continued to weigh down on investment activity, adding to the downside risk for the BOP outlook this year,” she said.

The central bank lowered the projected BOP deficit to $100 million for this year from the original target of $1.2 billion for and now expects a BOP surplus of $1 billion for next year from a deficit of $500 million.

She added that the country is now expecting a narrower current account deficit of $11.1 billion from $15.5 billion for 2023 and $10.3 billion from $15.4 billion for 2024.

The BOP is the difference in total values between payments into and out of the country over a period. A deficit means more dollars flowed out of the country to pay for the importation of more goods, services and capital than what flowed in from exports, remittances from overseas Filipino workers, business process outsourcing (BPO) earnings and tourism receipts.

On the other hand, the current account consists of transactions in goods, services, primary income and secondary income. This account measures the net transfer of real resources between the domestic economy and the rest of the world. A deficit occurs when a country spends more on imports than it receives on exports.

Butocan said the BSP now expects goods exports to contract by four percent instead of a growth of one percent for this year and a lower five percent increase from six percent for next year.

“Narrower current account deficit driven by contraction in both goods exports and imports amid sluggish external demand and decline in commodity prices,” she said.

Likewise, she added that imports may drop by three percent this year and may grow by only seven percent from the original target of eight percent for 2024.

The earnings of the BPO sector may expand by nine percent for this year and next year, while tourism receipts are expected to double this year and grow by 40 percent next year.

“We expect a stronger-than-expected rebound in international travel and sustained robust BPO inflows following improved mobility and pent-up demand for both travel and offshoring activities,“ Butocan said.

The BSP maintained the projected growth in OFW remittances at three percent for 2023 and 2024.

“We expect a steady growth of OFW remittances, supported by sustained demand and deployment of Filipino workers partly in response to global labor shortage,” she added.

According to the BSP, the country’s recent hosting of the FIBA Basketball World Cup 2023, where Germany emerged as the champion, provided additional boost to the tourism industry.

For his part, BSP senior director of the Department of Economic Statistics Redentor Paolo Alegre said the Philippines posted a BOP surplus of $2.3 billion in the first half, a reversal of the $3.1 billion deficit booked in the same period last year.

Alegre traced the decline to the narrower current account shortfall of $8.2 billion in the first semester, 32.2 percent lower than then $12.1 billion deficit recorded in the same period last year.