FDI inflows soar to $2.97 billion in Q1

MANILA, Philippines — The inflow of foreign direct investments (FDI) went up by 23.1 percent to $686 million in March, bringing the total in the first three months to $2.97 billion or 42.1 percent higher than in the comparable period a year ago, data from the Bangko Sentral ng Pilipinas (BSP) showed.

“FDI increased during the quarter on the back of the country’s strong growth prospects and moderating inflation,” the central bank said in a statement yesterday.

The Philippine economy grew by 5.7 percent in the first quarter, falling short of the government’s six to seven percent target, but faster than the 5.5 percent expansion in the fourth quarter of 2023.

Meanwhile, inflation averaged 3.3 percent in the first quarter, still within the central bank’s two to four percent target.

On a monthly basis, FDI inflows plunged by 49.8 percent in March from $1.37 billion in February. This marked the lowest FDI level in five months or since $670 million in October 2023.

Based on BSP data, investments in debt instruments – consisting mainly of inter-company borrowing between foreign direct investors and their subsidiaries or affiliates in the Philippines – climbed by 19 percent to $465 million in March.

Equity capital other than reinvestment of earnings also skyrocketed by 67.1 percent to $157 million in March from $94 million in the same period last year.

Source: Bangko Sentral ng Pilipinas

Placements grew by 50.3 percent to $173 million while withdrawals fell by 23.9 percent to $16 million.

Equity infusions were primarily from Japan, Singapore and the United States. The inflows were channeled into manufacturing, financial and insurance as well as real estate.

On the other hand, total reinvestment of earnings dipped by 11.3 percent to $64 million in March from $72 million in the same month last year.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., attributed the five-month-low FDI inflow in March to still elevated inflation and high borrowing costs for global and local investors.

But the year-on-year improvement in FDI “may have to do with improved economic and financial markets performance in recent months, such as headline inflation trending toward central bank targets that could support Fed and local policy rate cuts later in 2024,” he said.

Meanwhile, investment in debt instruments rose by 14.2 percent to $1.83 billion from January to March, while reinvestment of earnings dropped by 11.3 percent to $229 million.

On the other hand, equity inflows from the Netherlands and Japan almost tripled to $1.13 billion from $377 million, while outflow surged by 90 percent to $219 million from $115 million.

This brought equity other than reinvestment of earnings at $910 million in the first quarter, more than three times higher than the $261 million in the comparable period in 2023.

“For the coming months, possible cuts in the global and local policy rates later in 2024 and in 2025, especially if inflation remains well anchored within the inflation target of the central bank, could lead to further improvement in FDI eventually,” Ricafort said.

The BSP expects FDI net inflows at $9 billion this year.