FOREIGN INVESTMENTS into the Philippines jumped by 42% in May, reversing three months of decline due to the coronavirus pandemic’s impact on investor confidence, the central bank said on Wednesday.
Data from the Bangko Sentral ng Pilipinas (BSP) showed net inflows of foreign direct investments (FDI) rose to $399 million in May from $280 million a year ago. Inflows in May also improved by 28% from April’s $311 million.
Despite the rebound in May, year-to-date FDI inflows declined by a fourth to $2.379 billion from $3.196 billion a year ago.
“The stronger FDI performance during the month (of May) relative to the level last year was on account of the increase in nonresidents’ net investments in equity capital and debt instruments,” the BSP said in a statement.
In May, net investments in debt instruments climbed 40.8% year on year to $236 million, while reinvested earnings dropped by 23.7% to $85 million.
Equity other than reinvestment of earnings shot up to $738 million from $1 million last year. This as placements rose by 8.1% to $80 million while withdrawals plunged by 96% to $3 million.
During the month, placements came mainly from Japan, Singapore and the United States where restriction measures were gradually eased. The BSP said most investments went to the manufacturing, financial and insurance, and real estate industries.
Inflows to equity and investment fund shares also increased by 44.8% to $162 million year on year.
The BSP said FDI net inflows could reach $4.1 billion this year, more than half its $8.8-billion projection given last year.
In 2019, FDI net inflows fell by 23.1% to $7.647 billion as investor sentiment was weighed down by global uncertainty, regulatory risks and delays in the Philippines’ tax reform program.
The rebound in May amid the lockdown could be due to lagged effects of FDI entry in the country, said John Paolo R. Rivera, an economist from the Asian Institute of Management.
“This growth may be due to agreements and transactions already sealed maybe as early as 2019 which took effect only during this period,” Mr. Rivera said in a text message.
“Alternatively, the Philippines has alternative locations where FDIs are directed,” he said.
“Not all FDIs settled in COVID-19 hardly hit areas such as NCR (National Capital Region). The diversity of possibilities for an archipelagic economy like the Philippines might have been a factor for sustained FDI growth,” he added.
UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the higher FDI inflows in May may could lift sentiment in the country as it grapples with the coronavirus crisis.
“Even if it were coming from a rather low base, the green sign is a welcome sign for an economy needing positive news, especially from domestic economic data,” Mr. Asuncion said in an e-mail.
Analysts said urgent policies will make or break the recovery track for FDI in the coming months as the COVID-19 pandemic weighs on investor sentiment.
Policy reforms that will be critical to FDI inflows include the passage of the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) bill and amendments to the Public Service Act (PSA), Mr. Asuncion said.
The first bill, which will slash income tax to 25% from 30% is pending at the Senate. Amendments to the PSA, which will lift foreign ownership restrictions in certain sectors is also being tackled by a Senate committee.
The Philippines’ ability to control the coronavirus pandemic will determine whether it can attract more FDI, Mr. Rivera said.
“Note also that other ASEAN countries are very successful in containing the pandemic — they are all potential destinations for FDIs,” he added.
On Wednesday, the Health department reported 2,218 new coronavirus infections, bringing the total to 226,440. The death toll has reached 3,623. — Luz Wendy T. Noble