Cautious investors’ sentiment slows down FDI inflows in Philippines

MANILA: Cautious investors’ attitude and sluggish economic performance in the Philippines’ major trading partners have slowed down the inflow of foreign direct investments (FDI) in the country from January to April.

The FDI infused into the Philippines in the first four months decreased to 552 million US dollars, or a 15.1 percent drop from 650 million dollars recorded in the same period last year.

According to the Bangko Sentral ng Pilipinas (BSP), the country ‘s central bank, the drop in FDI inflows for the first four months was largely due to the generally lethargic growth in Japan and the United States.

Another reason for the drop, the BSP said, is the prevailing prudent sentiment and uncertainties felt by foreign investors brought about by the sovereign debt crisis in Europe and the social unrest in some countries in the Middle East and North Africa.

The Philippines, however, continued to be a recipient of foreign funds on account of its strong macroeconomic fundamentals and favorable growth prospects.

In fact, portfolio investments or “hot money” posted a 2.3 billion dollar net inflow as of June 18 this year, which was more than thrice the 696.52 million dollar in the same period in 2010.

The BSP said that net equity capital inflows from January to April of US$101 million were also slightly lower by 1.0 percent than those of the previous year. Gross equity capital placements, in particular, amounted to US$150 million compared with the US$197-million inflow recorded in the same period a year ago.

Investors came mainly from the United States, Singapore, Hong Kong, Japan, and the Netherlands.

For the month of April, total FDI amounted to US$81 million, down by 4.7 percent from US$85 million in April 2010.

But while the reinvested earnings and other capital accounts in April yielded net inflows of US$55 million and US$6 million, respectively, the net equity capital infusion amounting to US$20 million was 64.9 percent lower than the level posted during the comparable period in 2010.

Another bad news was that exports from the Philippines contracted by 3.2 percent year-on-year for the month of May, after posting a strong 19.1 percent year-on-year growth in April.

Analysts said this was the first time exports saw an annual decline since October 2009. Philippine exports were forecast to increase by 4.1 in May.

However, the January-to-May exports saw a 7.5 percent growth with a total value of 20.62 billion US dollars, compared with the US$19.18 billion of the first five months last year.

Officials from the Department of Trade and Industry said that the drop in the country’s exports was led by electronics products, which saw a 26.2 percent decline in May 2011.

This was primarily caused by the disasters that hit Japan since Japan is the Philippines’s biggest importer of semi-conductors and other electronic products.

Despite the May export decline, DTI Secretary Gregory Domingo is still confident that the country’s exports would increase by 9 percent to 10 percent this year and 12 percent next year.

Domingo said he expects that export growth this year would even exceed official government estimates, with electronic shipments rising 12 percent when Japan’s economy fully recovers.

Another sour note was that inflation in the Philippines hit a 26-month high of 4.6 percent in June, accelerating from May’s 4.5 percent.

The government also reported a deficit of 9.601 billion pesos in May, compared to a 26.3 billion peso surplus in April. (The present exchange rate is 42.90 pesos to 1 US dollar.)

However, the January-to-May fiscal deficit of 9.540 billion pesos was 94 percent below the deficit registered for the same period last year.

In its latest upgrade on the Philippines, Moody’s Investors Service said that the country should undertake fiscal reforms if it wants its credit rating further upgraded.

“The Philippines’ sovereign rating now sits atop its methodological range at Ba2. Further upward movement in the rating will thus require a more significant improvement of its credit fundamentals,” Moody’s said.

Moody’s noted that the revenue-to-GDP ratio of the Philippine government has been lagging far behind those of similarly rated countries. In 2010, the ratio for the Philippines stood at 14.7 percent compared with the average of 23.7 percent for other countries with comparable credit ratings.

While Moody’s acknowledged that the Philippines has recorded improvements in its revenue collection and significantly reduced its budget deficit, it would take some time before the country could reach the revenue-to-GDP ratio of similarly rated countries.
Moody’s also said that although the country’s overall economy has grown, its per capita income, which has just surpassed the US$2,000 mark in 2010, remains low. –ALITO L. MALINAO XINHUA NEWS AGENCY