FDI inflows slump 31% in February

By Katherine K. Chan, Reporter

NET INFLOWS of foreign direct investments (FDIs) into the Philippines declined by nearly 31% year on year in February, the Bangko Sentral ng Pilipinas (BSP) said.

Preliminary BSP data showed FDI net inflows fell by 30.99% to $590 million in February from $855 million in the same month last year.

Month on month, however, FDI net inflows increased by 33.18% from the $443 million recorded in January, marking the highest monthly level in three months.

“Foreign direct investments into the Philippines posted net inflows of $590 million in February 2026,” the BSP said in a statement on Monday.

“The United States was the leading source of FDIs, while corporations engaged in financial and insurance activities were the biggest recipients of FDIs during the month,” it added.

The lower February figure came amid a 39.12% annual drop in net investments in debt instruments to $414 million from $680 million previously.

Investments in equity and investment fund shares, meanwhile, edged up by 1.14% to $177 million from $175 million a year earlier.

Reinvestment of earnings likewise climbed by 11.94% year on year to $75 million from $67 million.

However, foreigners’ investments in equity capital other than reinvestment of earnings stood at $101 million, 6.48% lower than the $108 million recorded in February 2025.

Equity placements declined by 24.49% year on year to $111 million from $147 million, while withdrawals plunged by 74.36% to $10 million from $39 million.

Analysts said cautious investor sentiment amid global geopolitical risks and still-elevated interest rates likely dragged FDI net inflows in February.

“The year-on-year decline reflects how global investors have become more cautious amid wars, high borrowing costs, and uncertainty abroad, while the rebound from January suggests capital has not left the Philippines but is becoming more selective and timing-sensitive,” SM Investments Corp. Group Economist Robert Dan J. Roces said in a Viber message.

Meanwhile, Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said global headwinds had taken a toll on investors’ risk appetite and pushed them to defer overseas investments.

“Domestically, moderating GDP (gross domestic product) growth and lingering inflation pressures have reduced the country’s relative attractiveness by raising operating costs and tempering return expectations,” he said via Viber.

The Philippine economy weakened for a third straight quarter in the January-to-March period, with GDP growth slowing to a new post-pandemic low of 2.8%.

Inflation, meanwhile, breached the BSP’s target for a second straight month. It stood at 4.1% in February and further accelerated to a more than three-year high of 7.2% in March.

However, beyond the amount of FDI net inflows, Mr. Roces noted that it is more crucial to track whether such investments fund long-term initiatives, including infrastructure, digital services, manufacturing and supply chain shifts.

TWO-MONTH SLUMP
For the first two months of 2026, cumulative FDI net inflows declined by 34.79% to $1.033 billion from $1.584 billion in the comparable period a year earlier.

Bulk of the equity capital placements during the period came from Japan, the United States and Singapore, and “were channeled largely into the manufacturing, financial and insurance, and real estate industries,” the BSP said.

Central bank data showed investments in equity and investment fund shares slid by 22.34% to $299 million as of end-February from $385 million a year earlier.

Net investments in equity capital other than reinvestment of earnings stood at $171 million during the period, down 12.76% from $196 million in the first two months of 2025.

Broken down, equity capital placements fell by 18.07% to $204 million from $249 million a year earlier, while withdrawals declined by 39.62% to $32 million from $53 million.

Meanwhile, nonresidents’ reinvestment of earnings dropped by 32.28% to $128 million in the two-month period from $189 million a year earlier.

Net investments in debt instruments likewise fell by 38.78% year on year to $734 million from $1.199 billion previously.

Analysts said the Philippines could start to feel the heavier impact of the Middle East conflict on foreign investment flows in the coming months amid elevated oil prices and persistent global uncertainty.

“The Middle East conflict could slow investment decisions if oil prices stay elevated and volatility persists, but unless it turns into a broader global disruption, the bigger effect may be delays in commitments rather than a complete pullback in investor interest,” Mr. Roces said.

The conflict in the Middle East, which has rattled global oil trade and damaged key energy infrastructure in the region since late February, remains unresolved.

Meanwhile, Mr. Asuncion said FDI inflows could gradually recover later this year if financial conditions improve and inflation pressures ease.

“Moving forward, FDI inflows are likely to remain subdued in the near term amid ongoing global and macroeconomic uncertainties, but could gradually stabilize in the latter part of 2026 if financial conditions ease and inflation pressures moderate,” he said.

“Over the medium term, structural strengths such as favorable demographics, a resilient services sector, and continued investment reforms should support a measured recovery in FDI, albeit not a sharp rebound,” he added.

FDIs refer to cross-border investments in which a nonresident investor holds at least 10% equity in a resident enterprise. These may take the form of equity capital, reinvestment of earnings and intercompany borrowings.

The BSP’s FDI data reflect actual investment flows. This differs from the Philippine Statistics Authority’s approved foreign investment data, which represent investment commitments that may not necessarily be realized within the reference period.

The central bank expects FDI net inflows to reach $7.5 billion this year.