Foreign portfolio investments (FPI) yielded a net inflow in May, reflecting renewed optimism in the local economy as restriction measures were gradually lifted during the month. 

Hot money – dubbed as such due to the ease by which these funds enter or leave an economy – posted a net inflow of $416.74 million in May, based on data released by the Bangko Sentral ng Pilipinas (BSP) on Friday. 

This is a turnaround from the $1.006 billion in net outflow in the same month of 2020 as well as the $373.95 million in net outflow logged in April. 

Key developments in May included the further easing of restriction measures in Metro Manila and adjacent provinces; S&P Global Ratings’ affirmation of the country’s credit rating; and the central bank’s decision to keep its record low key policy rate, among others. 

The BSP also cited the steady May inflation, which stood at 4.5% for a third straight month; and the release of data showing gross domestic product (GDP) shrank by 4.2% in the first quarter. 

Asian Institute of Management economist John Paolo R. Rivera said the hot money inflows in May may have been buoyed by previous investment pledges as well as the pickup in the mass vaccination campaign.  

“It seems that this may be a lagged effects of previous pledges entering the economy just now. These may be inflows related to short term investment decisions to take advantage of the interim opening of the economy,” Mr. Rivera said in a Viber message. 

“We cannot also ignore the fact that the Philippines is vaccinating, and economic recovery is underway,” he added. 

For his part, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said fund-raising activities during the month, particularly Monde Nissin’s initial public offering also supported the FPI inflows into the country.  

The maker of Lucky! Me noodles raised P48.6 billion from its initial public offering (IPO), considered to be the biggest ever debut in the Philippines. 

Based on BSP data, inflows in May ballooned to $1.458 billion from $486.26 million a year earlier. It was also more than twice the $651.16 million recorded in April. 

Meanwhile, outflows dropped 30% to $1.041 billion from $1.492 billion a year earlier. It however inched up by 1.56% from the $1.025 billion in April. 

Top investor countries during the month were United Kingdom, Singapore, United States, Luxembourg, and Norway, which made up 88% of the total investments. 

More than two-third (67.9%) of the FPIs during the month went mainly to securities listed in the Philippine Stock Exchange such as utility companies, property firms, banks, holding firms and food, beverage and tobacco companies. The remaining 32.1% went into investments in government securities, the BSP said. 

For the first five months of 2021, hot money posted a net outflow of $441 million, dropping by 85.8% from the $3.1 billion in the same period of 2020. 

Mr. Rivera said the central bank’s decision to keep interest rates at record lows could help attract foreign investments in the coming months. 

However, Mr. Ricafort said prospects for short-term portfolio investments remain cloued due to the emergence of more contagious coronavirus variants and the delays in the arrival of vaccine supplies.  

The central bank last week said it projects hot money to yield a net outflow of $5.5 billion, slightly lower than the previous estimate of $5.7 billion net outflow. 

Outsourcing firms in Philippine economic zones will need a long-term remote work considerations to remain competitive against other major outsourcing economies, an official from the industry group said.  

Louie Benedict C. Hernandez, chair of the Information Technology and Business Process Association of the Philippines (IBPAP), said that outsourcing firms located in economic zones that receive government incentives were given emergency authorization to allow employees to work from home until September. 

This authorization can be extended under the guidelines of a recently signed law that cuts corporate income tax and reforms the tax incentives system. 

“We can extend it. We feel that is a short-term solution. The particular topic that we need to be discussing in the industry is the rest of the world is actually moving into a hybrid model,” he said at a virtual event organized by the Management Association of the Philippines. 

“India has been driving a lot of flexibility not just in general rules and regulations in the way their businesses will be supported particularly in IT-BPM but also in work from home.”  

The local industry, he said, needs a permanent solution to be as competitive.   

Outsourcing firms were allowed to have on-site operations even during the stricter lockdown last year. The companies rolled out remote work operations in response to health safety concerns and limited mobility amid the coronavirus disease 2019 (COVID-19) pandemic.  

During the initial lockdown in March 2020, the outsourcing industry was at 50% productivity as 40% of staff worked from home and only 10% worked on site. As restrictions loosened by November, the industry returned to 95% productivity as 70% of its employees worked remotely. 

Business process outsourcing firms are now looking to retain a hybrid remote and on-site work model. 

“We feel (a hybrid model) is going to help with even tapping employees that we can’t reach with our physical location,” Mr. Hernandez said. 

Trade Undersecretary Ceferino S. Rodolfo in a separate event on Friday said that the department will propose to the Fiscal Incentives Review Board approval of work from home arrangements past September. 

 “I’m just not sure if we can get the ceiling level of 90% work from home or it will be reduced. We cannot promise that at the moment, but we’ll see,” he said. 

He added that there are discussions on removing location restrictions for outsourcing firms planning to register for incentives in the National Capital Region. 

Although there cannot be new proclamations for information technology ecozones in the capital region, the government is considering allowing firms to register in areas vacated by Philippine offshore gaming operators, Mr. Rodolfo said. 

Outsourcing revenue rose just 1.4% to $26.7 billion last year from the 2019 figure, IBPAP said. To compare, the sector’s revenues jumped 7.1% in 2019, beating industry targets.  

Philippine President Rodrigo R. Duterte on Thursday night urged the Congress to pass his administration’s last two tax reform bills. 

In his speech during the ceremonial signing of several bills in Malacañang, Mr. Duterte called on Congress to ensure the passage of two more measures under the Comprehensive Tax Reform Program. 

The proposed Real Property Valuation and Assessment Reform Act and the Passive Income and Financial Intermediary Taxation Act are the third and fourth packages of the administration’s tax reform program, respectively. The two measures are still pending at the Senate. 

If passed, the third tax reform package will establish a “single valuation base for taxation through the adoption of the schedule of market values of LGUs, and use the updated values as benchmark for other purposes, such as right-of-way acquisition, lease, rental, etc.” 

The measure is set to broaden the property-related taxes of the governments and generate more revenue for local government units “without increasing the existing tax rates or devising new tax impositions.”  

The House of Representatives passed its version of the bill on third reading in November 2019, while the Senate version is still pending at the committee level. 

The proposed passive income law, which aims to simplify the tax structure for financial instruments, was approved by the House in September 2019 but remains at the Senate committee level. 

The President also asked the Congress to approve the bills amending the Public Service Act and Foreign Investments Act. The measures, which remain pending at the Senate, were certified as urgent by the President in April. 

The bills are part of the list of priority measures identified by the Legislative-Executive Development Advisory Council (LEDAC) to be passed before the Duterte administration ends in mid-2022. 

The bill amending the country’s 85-year old public service law will allow full foreign ownership in the public service sector, including transportation and communications, which had been restricted only to Filipino investors.  

The measure amending Manila’s foreign investment law seeks to relax restrictions on foreign companies. It lowers the number of direct local hires required for foreign firms. 

The President also urged Philippine legislators to approve the bill amending the Retail Trade Liberalization (RTL) Act. The bill, which lowers the required paid-up capital for foreign retail enterprises, was approved by the House and the Senate in March 2020 and May 2021, respectively. The two chambers have yet to reconcile their conflicting versions.  

“The Filipino people eagerly await these genuine reforms and may these laws come to fruitful fruition soon,” Mr. Duterte said.  

Maria Ela L. Atienza, a political science professor at the University of the Philippines, told BusinessWorld in January that key economic bills usually take a back seat at the Senate because the chamber is “of national” significance, and senators may be considering their chances in the next elections. 

The 18th Congress opens its third and last regular session on July 26. 

The prolonged COVID-19 pandemic is clouding economic projections for Southeast Asia, with most countries not expected to return to pre-pandemic growth levels for several years. 

The Philippines will see the largest decline in average annual gross domestic product growth in the three years ending 2022 — more than five percentage points — compared to 2019, the last full year before the outbreak, according to median estimates of economists surveyed by Bloomberg. 

Major economies in Southeast Asia expect to grow this year and next, but more slowly than before the pandemic. New local outbreaks and tightened lockdowns have prompted economic downgrades, with most countries reporting their economies contracted in the first three months of the year. 

Singapore is expected to be the lone country in the region to buck the trend, forecast to grow GDP by an average of 1.67% in 2020-2022, compared to 1.3% in 2019, amid a strong post-pandemic rebound in global trade, said Arjen van Dijkhuizen, senior economist at ABN Amro. 

The return to normal of international tourism, expected in 2023, could be a key moment for Southeast Asia. Indonesia is expected grow above its long-term trend in 2023 — similar to Singapore and Thailand — after likely reaching herd immunity by the end of 2022, according to Mohamed Faiz Nagutha, an economist with Bank of America Securities in Singapore. Most countries in the region will return close to their long-term growth trends in 2023, he said. 

Elsewhere in Asia, Hong Kong will see average annual growth of 1% during 2020-2022, compared to a contraction of 1.7% in 2019, when political protests rocked the island. The Chinese territory recently approved plans to ease some pandemic travel restrictions. 

“We sense that Hong Kongers are increasing consumption on services, but remain unmotivated in purchasing non-essential goods,” Citigroup economist Adrienne Lui said. “We continue to believe that achieving herd immunity via vaccination is the key to genuine recovery in local consumption, reopening of the border and normalization of the economy.” — Bloomberg