NET INFLOWS of foreign direct investments (FDI) to the Philippines increased anew in June, helping to fuel a first-half surge that pushed the tally closer to an official full-year forecast, according to data the Bangko Sentral ng Pilipinas (BSP) released on Monday. Read the full story.
By Melissa Luz T. Lopez, Senior Reporter
NET INFLOWS of foreign direct investments (FDI) to the Philippines increased anew in June, helping to fuel a first-half surge that pushed the tally closer to an official full-year forecast, according to data the Bangko Sentral ng Pilipinas (BSP) released on Monday.
FDI net inflows reached $831 million for the month, up 9.2% from the $761 million which the country received in June 2017, even as the latest inflows were less than the $1.645 billion recorded in May.
FDI inflows spell more capital for the Philippine economy, fuelling business expansion that, in turn, generate more jobs and spurs overall domestic activity.
Investors remained bullish on the Philippine economy, as evidenced by the surge in equity placements compared to a year ago.
June saw the US Federal Reserve raise interest rates for a second time this year. Back home, the BSP also hiked rates by another 25 basis points for the second straight month in an effort to rein in inflation expectations amid signs that price pressures remain elevated.
June inflows brought the first-semester FDI tally to $5.755 billion, 42.4% more than the $4.041-billion investments received in 2017’s first six months.
“The continued inflows of FDI indicate investor confidence in the Philippine economy on the back of strong macroeconomic fundamentals and growth prospects,” the BSP said in a statement.
Net equity investments reached $184 million in June, turning around from the $67-million net outflows recorded in the same month last year.
Total inflows of equity capital reached $208 million in June, nearly double the $113 million placements a year ago. These inflows were partly offset by just $24 million in withdrawn capital, versus June 2017’s $180-billion outbound capital.
Multinational companies also chose to reinvest a bigger share of earnings drawn from their operations in the Philippines, growing the amount by 7.1% to reach $77 million from $72 million.
These additional flows were enough to offset smaller investments in debt instruments that dropped fourth to $569 million from $756 million the prior year.
One observer said the sustained FDI surge is good for the economy, as it fuels stronger activity particularly in terms of factory output.
“The preference over equity describes the continuing resurgence of manufacturing in the country. This manufacturing growth consequently relates to the government’s push for increasing government spending on infrastructure,” said Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines.
Strong FDI momentum also puts the country on track to hit the $9.2-billion forecast this year, coming from the record $10.049 billion tallied in 2017.
“In fact, at the rate it is growing, the 2018 FDI goal can be readily surpassed,” Mr. Asuncion added, noting that third-quarter investments would be “crucial” to the full-year tally.
For June, the biggest sources of investments were Singapore, Luxembourg, Japan, the United States and the Netherlands, with such inflows going to manufacturing; electricity, gas, steam and air conditioning supply; real estate; financial and insurance; and wholesale and retail trade activities, the central bank said.
Market watchers have flagged that the planned overhaul of the local tax incentives regime could dampen investor appetite towards the Philippines, although the final form of the second tax reform package is yet to be passed by the Senate after the House of Representatives approved the same on third and final reading last night. Tax measures have to come from the House by law, although the Senate can conduct parallel public hearings while awaiting House approval in order to expedite enactment.
THE PHILIPPINES is not expected to slip into a currency crisis anytime soon, Nomura economists said, citing little risk of such an event despite the recent weakness of the peso. Read the full story.
THE PHILIPPINES is not expected to slip into a currency crisis anytime soon, Nomura economists said, citing little risk of such an event despite the recent weakness of the peso.
In a report released on Monday, the global bank counted the Philippines among the “low-risk” countries in terms of risk of an exchange rate crisis according to its Damocles index, designed as an “early warning system” for such an event.
The bank’s Damocles system uses macroeconomic and financial variables to check whether an economy is “vulnerable to a currency crisis.” These indicators include a country’s import cover, short-term external debt versus exports, dollar reserves versus short-term external debt, broad money against reserves and real short-term interest rate.
Other metrics factored in are gross investment inflows; fiscal and current account; and current account and real effective exchange rate deviation.
A score above 100 means a country is vulnerable to a currency crisis in the next 12 months, while a reading above 150 shows that a crisis “could erupt at any time.”
Among emerging markets, Sri Lanka, South Africa, Argentina, Pakistan, Egypt, Turkey and Ukraine are seeing signs of trouble. Sri Lanka obtained a score of 150 in the index.
The Turkish lira plunged to record lows in August amid an intensifying trade dispute with the United States, which has prompted global investors to sell off other emerging market currencies like the Philippine peso.
Back home, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. has said the Philippines has been relatively insulated to possible contagion from Turkey’s economic crisis.
“On the other hand, eight countries —Brazil, Bulgaria, Indonesia, Kazakhstan, Peru, Philippines, Russia and Thailand — have Damocles scores of zero. This is an important result,” Nomura analysts said.
“As investors focus more on risk it is important not to lump all emerging markets together as one homogeneous group; Damocles highlights a long list of countries with very low risk of currency crises.”
The last time the Philippines reeled from substantial currency troubles was in 1997 amid the Asian Financial Crisis.
Now, Nomura said the country remains on solid footing despite a growing current account deficit, saying that the trade gap is relatively “small” and is simply due to greater importation that supports the local infrastructure drive.
Gross international reserves remain “large” as the country’s import cover is beyond seven months, well above the bank’s warning threshold of less than five months.
Short-term external debt also stood at 19.7% of gross domestic product as of July — well below the prescribed 35% cap, according to Nomura’s estimates.
The global bank noted that the BSP has “plenty of room” to raise rates again, which will pull real interest rates back to positive territory. Nomura sees the central bank raising rates by another 50 basis points (bps) in 2018’s remaining months, following a 100-bp cumulative increase so far this year to arrest surging inflation. — Melissa Luz T. Lopez
