By means of Luisa Maria Jacinta C. Jocson, Reporter
Net foreign direct investment (FDI) inflows to the Philippines fell in August, mainly due to a sharp decline in investment in debt instruments, central bank data showed.
Net inFThe lows fell 14.5% to $813 million in August from $951 million a year ago, the Bangko Sentral ng Pilipinas (BSP) said on Monday.
Month-on-month premium income fell 0.9%, compared to $820 million in July.
“The decline in foreign direct investment is netFThe low point during the month was mainly due to the 21.6% contraction in non-residents’ net investment in debt instruments,” the BSP said in a statement.
Net investments in debt instruments fell 21.6% to $529 million in August, compared to $675 million in the same month a year ago.
These consisted mainly of loans between foreign direct investors and their subsidiaries or affbranches in the Philippines, the central bank said.
“The remaining part of the net investments in debt instruments are investments made by non-resident subsidiaries/associates in their resident direct investors, i.e. reverse investments,” it added.
BSP data also showed a 9.4% decline in non-resident income reinvestment to $217 million, compared to $240 million a year earlier.
On the other hand, investments in stocks and mutual fund shares rose 2.8% year-on-year from $276 million to $284 million in August.
Net equity investments, excluding reinvestment of profits, rose sharply (83.6%) to $66 million in August, compared to $36 million in the previous year.
Equity placements fell 52.5% to $103 million, while withdrawals fell 79.8% to $36 million.
By source, the majority of equity placements came from Japan (72%), followed by the United States (17%).
These were mainly invested in production (63%); real estate (20%); supply of electricity, gas, steam and air conditioning (9%).
PERIOD OF EIGHT MONTHS
In the first eight months, net foreign direct investment inflows rose 3.9% to $6.07 billion, compared to $5.84 billion in the year-ago period.
Investments in stocks and mutual fund shares rose 26% from $1.75 billion to $2.2 billion.
Net foreign equity investment rose 59.4% to $1.34 billion in the January-August period.
Placements rose 38.8% to $1.7 billion and withdrawals fell 6.6% to $356 million.
These placements came mainly from the United Kingdom (45%), followed by Japan (36%) and the United States (8%).
Investments were mainly made in industry (75%), the real estate sector (11%) and wholesale and retail trade (4%).
Meanwhile, net investments in debt instruments fell 5.5% from $4.09 billion to $3.86 billion. Earnings reinvestment also fell 4.8% to $866 million.
Michael L. Ricafort, chief economist of Rizal Commercial Banking Corp., said the drop in foreign direct investment could be attributed to high interest rates as the central bank only began its easing cycle in mid-August.
The Monetary Board lowered interest rates for the US economy FFor the first time in almost four years at the August 15 meeting, which saw a rate cut of 25 basis points (bp). Since then, it has reduced financing costs by a total of 50 basis points, bringing the policy rate to 6%.
John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies (PIDS), said global investors are more cautious amid uncertainty in the United States and European countries.
“High global interest rates and concerns about inflation are also causing investors to take a conservative approach, reallocating capital to safer, less volatile markets,” he added.
Mr. Rivera said the Philippines also continues to face structural challenges that make it difficult for investments to come in, such as “complex regulations, high operating and energy costs and persistent infrastructure bottlenecks.”
“The relatively lower FDI could be due to a wait-and-see attitude of some foreign investors as they wait for the CREATE MORE to be passed into law,” Mr Ricafort said.
On Monday, President Ferdinand R. Marcos Jr. signed the Business Recovery and Tax Incentives for Enterprises to Maximize Opportunities to Revitalize the Economy (CREATE MORE) Act. The law expands tax incentives and further reduces corporate taxes.
“For the coming months, the CREATE MORE Act would now make international investors more decisive to locate in the country with better incentives that could better compete with other Asian countries,” Ricafort said.
“There will thus be more foreign direct investment coming into the country in the coming months due to CREATE and also due to expected further rate cuts by the Fed that could be matched by the BSP,” he added.
The Monetary Council will decide on it Flast policy meeting of the year on December 19. BSP Governor Eli M. Remolona Jr. has flagged the possibility of another 25 basis point cut.
Meanwhile, Mr. Ricafort noted that risk factors such as more protectionist policies from a Trump presidency from 2025 would “discourage some U.S. companies from investing outside the U.S. and creating more jobs.”
“However, offsetting risk factors for future FDI data might be more protectionist if the Trump presidency declared in 2025 that some US companies would be discouraged from investing outside the US and creating more jobs,” Mr Ricafort added .
Newly elected US President Donald J. Trump will take office again in January. One of Trump’s key policy proposals is his tougher trade restrictions, including plans to implement a universal tariffFf and tariFfs on Chinese goods.
The central bank expects to end this year with net foreign direct investment of $10 billionFlows.