The rising number of coronavirus infections prompted the government to reimpose a modified enhanced community quarantine (MECQ) in Metro Manila and nearby provinces until Aug. 18. — PHILIPPINE STAR/MIGUEL DE GUZMAN

By Luz Wendy T. Noble, Reporter

THE SLUMP in foreign direct investment (FDI) inflows in the Philippines is expected to worsen in the coming months, as investors consider the country’s pandemic response and the steep contraction in gross domestic product (GDP) in the second quarter, the International Institute of Finance (IIF) said.

“I believe the worst is not over. COVID-19 (coronavirus disease 2019) cases are still rising, and a new round of lockdown measures has been implemented,” IIF Associate Economist Yuanliu Hu told BusinessWorld in an e-mail.

The soaring number of coronavirus infections in recent weeks prompted the government to again impose a modified enhanced community quarantine (MECQ) in Metro Manila and nearby provinces until Aug. 18.

Net FDI inflows in the first four months of 2020 slid by nearly a third  to $1.98 billion, data from the Bangko Sentral ng Pilipinas (BSP) showed. In April alone, FDI inflows plummeted 67.9% year on year to $311 million in April.

Mr. Hu said the dismal second-quarter GDP will also weigh on investor sentiment, resulting in investment plans either suspended or postponed.

The country’s GDP contracted by 16.5% in the April to June period as many businesses were shuttered amid one of the world’s longest and strictest lockdowns. The economy is now in a technical recession as the first-quarter GDP also slipped by 0.7%.

“Lower FDI will have a direct negative impact on the government’s infrastructure projects and companies that rely on foreign capital,” Mr. Hu said, noting their research showed a close correlation between FDI and investment-related imports.

At this point, Mr. Hu said the ability to control the spread of COVID-19 will be a vital determining factor in attracting FDI inflows.

“For example, in the region, Thailand has relatively good control of the virus and its FDI increased by 76% year on year in the first five months,” he said, adding the Philippines on the contrary has become the epicenter of the outbreak in Southeast Asia.

The Health department on Saturday reported 4,226 new coronavirus infections, bringing the total to 126,885 cases. The Philippines is now the 22nd in the world in terms of the number of confirmed COVID-19 cases.

“To win back investors, the government will need to do more to control the virus and introduce more stimulus plans,” Mr. Hu said.

Senate Bill No. 1564 also known as Bayanihan II that allocates P140 billion for COVID-19 recovery efforts was approved by the Senate in late July. The funds will be used for increased testing and acquisition of medical supplies, cash-for-work program for displaced workers, and benefits for repatriated overseas Filipino workers.

Its Lower House counterpart which allocates a slightly higher P160 billion is pending and is expected to be approved on third reading this week.

Meanwhile, the much bigger P1.3-trillion stimulus package called ARISE (Accelerated Recovery and Investments Stimulus for the Economy) bill has been approved by the House of Representatives in June but remains pending in the Senate.