FOREIGN DIRECT INVESTMENT (FDI) net inflows dropped by 8% in September, amid monetary tightening and a looming global economic slowdown.
Data released by the Bangko Sentral ng Pilipinas (BSP) on Monday showed FDI net inflows declined by 7.9% to $626 million in September from $680 in the same month in 2021. This was also 19.1% lower than the $774-million FDI net inflows in August.
The September figure was the lowest monthly net inflow of FDI in two months, or since the $502 million in July.
“The decline in FDI net inflows reflected the decrease in non-residents’ net investments in debt instruments, which more than offset the growth in their net equity capital placements,” the central bank said in a statement.
BSP data showed non-residents’ net investments in debt instruments of local affiliates fell by 36.8% to $351 million in September, from $555 million in the same month in 2021.
Meanwhile, investments in equity and investment fund shares more than doubled to $276 million in September, from $125 million a year ago.
Reinvestment of earnings also slipped by 4.8% year on year to $88 million in September.
ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail that the FDI net inflow remained positive in September, but was lower year on year.
“One positive (factor), however, from the data release was the fact that ‘fresh’ FDI or equity other than reinvestment of earnings was up,” he added.
Non-residents’ net investments in equity capital (other than reinvestment of earnings) surged by 474.5% to $187 million in September, from $33 million in the same month last year.
Broken down, equity capital placements rose by 158.7% to $230 million, while withdrawals dropped by 24.2% to $43 million.
The equity placements were mainly from Singapore, Japan and the United States, and invested mostly in financial and insurance, manufacturing, and real estate industries.
For the first nine months of the year, FDI net inflows dropped by 10% to $6.7 billion from $7.5 billion in the comparable year-ago period.
“FDI remained subdued amid lingering concerns on global economic slowdown, higher inflation, and the depreciation of the peso,” the BSP said.
BSP data showed foreign investments in debt instruments declined by 12% year on year to $4.69 billion in the January-to-September period.
Investments in equity and investment fund shares also dropped by 5.2% to $2.02 billion in the nine-month period.
Net foreign investments in equity capital dipped by 2.9% to $1.1 billion. Equity capital placements slipped by 12.2% to $1.3 billion, while withdrawals fell by 43% to $192 million.
Most of these placements were from Japan, Singapore, the United States, and Malaysia.
Reinvestment of earnings dropped by 7.7% to $924 million in the January-to- September period.
Mr. Mapa noted overall FDI was down by 10% in the January-to-September period “with investors still possibly worried about the global and domestic economic challenges faced by the Philippines in 2023.”
“Apart from a seasonal slowdown, it seems FDI is strained on down factors in September, including rising inflation, peso weakness, and rate hikes,” Security Bank Corp. Chief Economist Robert Dan J. Roces said.
Inflation zoomed to 6.9% in September, bringing the average inflation in the nine-month period to 5.1%. Inflation remained elevated as food and transport costs continued to spike.
At its Sept. 22 meeting, the BSP raised its benchmark interest rate by 50 basis points (bps) to 4.25% to curb inflation.
The peso finished that month’s trading at P58.625 per dollar on Sept. 30. In September alone, the peso has weakened by P2.48 or 4.2% from its Aug. 31 close of P56.145.
The decline in FDI net inflows is expected to continue through 2023.
“We expect this downtrend to persist through 2023 with the lagged impact of the Fed’s aggressive rate hikes to tamp US inflation, our own rate hike’s effects, and expectations of a global economic slowdown,” Mr. Roces said.
“If the risk factors prove to be tame, then investor confidence may improve and FDI should recover,” he added.
The US Federal Reserve has raised its policy interest rate by 375 bps since March, and is expected to continue policy tightening to cool inflation at its Dec. 13-14 meeting.
The BSP is widely expected to raise policy rates by 50 bps on Thursday. A BusinessWorld poll conducted last week showed 14 out of 15 analysts expect the Monetary Board to continue hiking borrowing costs.
The BSP lowered its projection for FDI net inflows to $8.5 billion by end-2022, from $10.5 billion previously.
The BSP expects FDI net inflows at $11 billion by end-2023, lower than its previous estimate of $12.5 billion. — Keisha B. Ta-asan