THE Department of Finance (DoF) said the 4.4% drop in foreign direct investment (FDI) net inflows in 2018 is temporary due to uncertain global economic conditions, with the Philippines poised to implement reforms that will improve the investment environment.
In an economic bulletin sent to reporters on Wednesday, Finance Undersecretary and Chief Economist Gil S. Beltran said that the drop in last year’s FDI was “just a temporary phenomenon” brought about by the “uncertain world economic environment.”
“A regression analysis on determinants of FDI flows to the country confirms that FDI is sensitive to world GDP (gross domestic product), Philippine real GDP growth and the real US Treasury bond (T-bond) rate,” Mr. Beltran said in an e-mail.
FDI net inflows totaled $9.802 billion in 2018 from $10.256 billion the preceding year, the Bangko Sentral ng Pilipinas (BSP) said on Monday. The outcome was below the BSP’s $10.4-billion forecast.
The Finance department said without the drop in world GDP and the uptick in US T-bond rates, the country’s FDI would have grown by or $790 million or an estimated 0.25% of GDP.
“The drop in world GDP by 13.8 bps (basis points) shaved Philippine FDI flows by 0.1% of GDP. Likewise, the 35-bp increase in the US T-Bond rate reduced Philippine FDI by 0.44% of GDP.”
The decline in FDI last year also mirrored the decrease in FDI globally in the past two years, as 2017 FDI worldwide dropped by 6.5% year-on-year to $1.9 trillion.
Meanwhile, global FDI dropped 44% to $432 billion due to the slowdown in the world economy brought on by the US-China trade war as well as UK’s impending departure from the European Union.
BSP Governor Benjamin E. Diokno said in a television interview on Tuesday that the decline in FDI inflows is “nothing to worry about,” noting that the outcome was influenced by non-recurring investments in the energy sector in 2017 which led to a 33% drop in equity capital in 2018.
“There’s a lot of interest in this country. The Philippines is probably going to be one of the fastest-growing countries in this part of the world,” Mr. Diokno said.
Mr. Beltran said direct investment from overseas will “recover when world conditions are better.”
He added that the Philippines should implement reforms to the improve investment environment, such as trimming red tape further and easing foreign ownership restrictions.
The Finance Department recently instructed the Bureau of Customs to activate TradeNet.ph, an online portal which allows traders to apply for permits online, and enable government agencies to receive the forms and send feedback.
Mr. Beltran said that TradeNet and other digital infrastructure currently implemented will “facilitate exports of manufactures.”
The DoF added that foreign ownership restrictions should be eased as the Philippines has one of the most restrictive investment regimes in Asia.
“For example, the Public Service Act should be amended to redefine public utilities and enhance competition to bring down costs,” said Mr. Beltran.
Senate Bill No. 1754, which if passed will become New Public Service Law of the Philippines, seeks to provide a statutory definition of public utility, which has been used interchangeably with public services over the years, causing confusion on whether certain sectors are subject to foreign equity restrictions. The bill was awaiting second reading as of March 2018.
This year, two senior BSP officials see FDI net inflows matching 2018 levels as investors await the outcome of the May 13 midterm polls and the rollout of more infrastructure projects.
As of its latest estimates in November, the BSP expects FDI net inflows to come in at $10.2 billion this year. — Karl Angelo N. Vidal