Angelo Taningco
Economist, Treasury Group
Foreign direct investment (FDI) net flows to the Philippines jumped 21.4% yoy to $10.0 billion in 2017 on the back of double-digit growth in foreign investors’ net debt investments (20.7% yoy, $6.0 billion) and net equity placements and reinvestment of earnings (22.3% yoy, $4.0 billion). The FDI total is a record-high, breaching the central bank’s forecast of $8 billion, and we assert this was brought about by the domestic economy’s buoyant growth that was reinforced by the central bank’s accommodative monetary policy and bigger spending by the national government.
For this year, our FDI net inflow forecast is pegged at $9.5 billion. We think FDIs will remain strong given our expectations of monetary policy to remain supportive of growth; ongoing tax reforms; public infrastructure spending push amid the Build, Build, Build program; and efforts to curb red tape and reduce foreign ownership limits. However, we recognize certain obstacles that could challenge the potential for FDIs and these include higher inflation risk and financial market volatility. Meanwhile, we expect this year’s FDI net inflows to support the balance of payments (BOP) and to help cushion the peso depreciation, which we estimate to be at 4.0% with our end-2018 USD/PHP forecast pegged at 52.00.
On a monthly basis, FDI net inflows fell 9.0% yoy to $699 million in December mainly due to a drop in net debt investments that was marginally offset by an uptick in net foreign equity placements and reinvestment of earnings. On a quarterly basis, FDI net inflows soared 62.1% yoy to $3.6 billion in the fourth quarter given a surge in net equity placements and reinvestment of earnings that eclipsed the slide in net debt investments.
Similar to the previous year, 60% of FDI net inflows last year were in the form of debt. By industry, large chunks of foreign investors’ net equity placements were in electricity, gas, steam, airconditioning supply (42% share) and manufacturing (35% share).
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