Net inflows of foreign direct investments fell 45.7 percent in January to $448 million from $824 million a year ago as higher inflation and interest rates impacted investors’ sentiment, latest data from the Bangko Sentral ng Pilipinas show.
The BSP said in a statement Tuesday the slowdown resulted from the decrease in non-residents’ net investments in debt instruments and equity capital. Non-residents’ reinvestment of earnings increased slightly.
“FDI net inflows declined during the month amid global economic uncertainties and high inflation, which continued to weigh on investor decisions,” the BSP said.
It said that by country source, equity capital placements came mostly from Japan, Singapore and the United States. These were invested largely in manufacturing, financial and insurance and real estate industries.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said the January 2023 FDI net inflows were the lowest since May 2021.
Ricafort said higher inflation was one of the causes of decline “that fundamentally led to the rising trend in short-term interest rates and still relatively higher long-term interest rates in the US/globally/locally recently that increased borrowing costs.”
He also underscored the risk of recession in the US. He said these factors dragged FDIs. He said net FDIs could pick up in the coming months as the economy reopened towards greater normalcy and the economy was expected to have one of the fastest growth rates in the region.
Net FDI inflows contracted by 23.2 percent in 2022 to $9.2 billion from the record $12-billion in 2021 amid the sluggish global growth and elevated inflation. The 2022 net inflows, however, surpassed the target for the year of $8.5 billion.
The BSP statistics on FDI are compiled based on the balance of payments and international investment position manual, 6th edition.
FDIs include investment by a non-resident direct investor in a resident enterprise, whose equity capital in the latter is at least 10 percent and investment made by a non-resident subsidiary/associate in its resident direct investor. It can be in the form of equity capital, reinvestment of earnings and borrowings.
The BSP FDI statistics are distinct from the investment data of other government sources. The BSP’s FDI report covers actual investment inflows.
Meanwhile, the approved foreign investments data published by the Philippine Statistics Authority are sourced from investment promotion agencies and represent investment commitments which may not necessarily be realized fully, in a given period.
The PSA data are not based on the 10-percent ownership criterion under BPM6.