By means of Luisa Maria Jacinta C. Jocson, Reporter
LOWER INTEREST RATES will promote this the arrival of more foreign direct and portfolio investments into the Philippines, analysts said.
“The prospects for foreign direct investment (FDI) and foreign portfolio investment (FPI) in the Philippines appear promising, with current trends indicating that the country could meet or even exceed the Bangko Sentral ng Pilipinas (BSP) targets” , according to Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.
The BSP expects net foreign direct investmentFlow of $9.5 billion this year. For foreign portfolio investments, it forecasts net income of $3.1 billionFlows towards the end of the year.
“The BSP’s forecast for this year sounds reasonable as it would not go too far considering such a level of annual FDI coming into the Philippines almost consistently during this period, barring the coronavirus-hit year of 2020,” says Pantheon. Miguel Chanco, chief economist for emerging Asia, said in an email.
From January to May, net foreign direct investment inflows rose 15.8% year-on-year to $4.024 billion, BSP data showed.
Meanwhile, short-term foreign investments produced net gainsFlow of $1.46 billion in the January-July period, up from a net $157.3 million in the January-July period.Flows in the same period a year ago.
FDIs are considered long-term investments, while portfolio investments or ‘hot money’ are seen as more Firritates because of the ease with which these funds enter and leave the economy.
Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said the BSP’s investment targets are achievable as interest rates fall.
“OFOffering attractive rates will be key. Policy rates will fall everywhere, so oFBy offering sensible investments now, potential investors can reap profits. I would like to believe there is time,” he added.
Mr Roces said the further reduction in policy rates this year and next should “stimulate investment activity, especially for foreign direct investment, by making borrowing more attractive.”
At its meeting in August, the Monetary The board cut rates for the first time in almost four years or since November 2020. It cut borrowing costs by 25 basis points (bps), bringing the benchmark interest rate to 6.25%, compared to the previous 17-year high of 6. 5%.
The central bank could also implement another 25 basis point rate hike in the fourth quarter, BSP Governor Eli M. Remolona Jr. said. earlier.
The US Federal Reserve is expected to begin its easing cycle later this month, which also bodes well for investor sentiment, analysts said.
“The biggest catalyst for FDI and FPI in the country is the expected series of interest rate cuts by the Fed that could be matched locally, bringing improvements in global investment, trade and other economic activities,” said Michael L., Chief Economist of Rizal Commercial Banking Corp. Ricafort said in a Viber message.
Apart from lower borrowing costs, analysts said the country has strong macroeconomic indicators will help attract more investments.
“Key drivers for achieving these objectives include sustained economic fundamentals, political stability, an improved regulatory environment, sustained infrastructure developments and the country’s competitive advantages in sectors such as BPO (business process outsourcing) and manufacturing,” Mr Roces said.
Mr. Asuncion said investors are likely to be attracted to the Philippines because of its optimistic economic growth.
“If foreign investors see real opportunities to invest in the Philippines, I don’t think it will be a big problem to get these investors on board,” he added.
The Philippine economy grew by 6.3% in the second quarter, which is the fastest growth in history Ffive quarters or since the 6.4% in the Ffirst quarter of 2023.
On the other hand, Leonardo A. Lanzona Jr., professor of economics at Ateneo de Manila University, said lower financing costs can favor short-term investments over long-term investments.
“BSP’s low interest rates can stimulate economic activity. However, this can only boost short-term investment as borrowing becomes cheaper,” he said in an email.
“It can depress long-term investments if the returns on longer-term projects are considered insufficient in relation to the risks.”
Mr Chanco also mentioned the risks to these investment prospects and pointed to the country’s “policy stasis”.
“The Philippines’ closest neighbors and biggest competitors remain quite aggressive in their pursuit of more open trade borders and a better infrastructure environment for businesses, something the Philippines continues to struggle with,” he added.
The government’s policies can also benefit short-term investments, Mr. Lanzona said.
“The government also implements policies or incentives that encourage direct spending or investment, such as tax breaks or stimulus checks. These policies may encourage short-term investments but may not have the same impact on long-term projects that require sustainable financing and are subject to ongoing risks,” he said.
Mr Ricafort also notes that the investment objectives remain feasible, barring further geopolitical risks.
“However, global economic conditions and exchange rate stability will also play a crucial role. While the current trajectory remains positive, risks such as geopolitical uncertainties and domestic policy changes will impact these projections,” Roces said.
Mr. Ricafort also noted that the country’s improving credit outlook will also support foreign investment growth by boosting the confidence of international investors and creditors.
Japan-based Rating and Investment Information, Inc. last month upgraded the Philippines’ investment grade rating to “A-.”
The country has also been given an ‘A-‘ rating by the Japan Credit Rating Agency, but has not yet received an ‘A’ rating from the ‘big three’ credit rating agencies.
The Philippines is currently rated “Baa2” by Moody’s Ratings, “BBB” by Fitch Ratings and “BBB+” by S&P Global Ratings.
The government aims to achieve an “A” rating by the end of the Marcos administration.