FDI expectations lowered as investor sentiment weakens

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) lowered its foreign direct investments (FDI) inflow target for the next two years as investor sentiment is expected to weaken due to external headwinds.

Sittie Hannisha Butocan, director of the Department of Economic Research at the BSP, said in a virtual press conference that the central bank approved the lowering of the projected FDI inflow to $9 billion for this year from the original target of $11 billion, and to $11 billion for next year from the previous target of $12 billion.

FDI inflows are expected to drop due to lower investments from non-residents globally amid the observed geo-economic fragmentation of FDI and the slowdown in the globalization process triggered primarily by rising geopolitical tensions among major economies.

“There is continued FDI net inflows but lower, given dampened investor sentiment from external headwinds, including the risk of geo-economic fragmentation,” Butocan said.

FDI inflow contracted by 19.6 percent to $2.04 billion in the first quarter from $2.54 billion in the same quarter last year.

The decline was traced to investor concern about subdued global growth prospects.

In 2022, the Philippines managed to exceed its FDI inflow target of $8.5 billion despite the 23-percent plunge in net inflow to $9.2 billion from an all-time high of $11.98 billion in 2021.

Butocan also attributed the less optimistic outlook on FDI inflow over the next two years to the delay in the finalization of the rules and regulations covering recently enacted investment-friendly legislations.

According to the BSP, emerging market economies including the Philippines are more susceptible to FDI relocation as most rely heavily on capital investment from distant countries.

Butocan, however, said the BSP decided to retain the projections for the net inflow of foreign portfolio investments or hot money at $2.5 billion for this year and at $3.5 billion for next year.

She said that both FDI and foreign portfolio investments continue to post net inflows amid improvements in domestic activity and finalization of rules covering investment-related legislation.

The Philippines recorded a net outflow of speculative funds amounting to $680.07 million from January to April, a complete reversal of the $1.94 billion net inflow recorded in the same period last year.