FDI inflows to recover this year – S&P

by Lawrence Agcaoili (The Philippine Star), 31 May 2021

MANILA, Philippines — S&P Global Ratings expects the inflow of foreign direct investments (FDI) into the Philippines to recover this year after declining for three straight years.

In a report, the debt watcher said FDI inflow may pick up this year amid the continued rollout of COVID-19 vaccines.

“We expect FDI in the Philippines to recover in 2021 thanks to wider deployment of vaccines, which will reduce uncertainty and enable economic activities to normalize,” S&P said.

The Bangko Sentral ng Pilipinas (BSP) sees net FDI inflow reaching $7.8 billion this year and $8.8 billion next year.

Last year, net inflow slumped by nearly 25 percent to hit a five-year low of $6.54 billion from $8.67 billion in 2019 due to uncertainties brought about by the pandemic.

The net FDI inflow into the country has steadily declined after hitting a record $10.3 billion in 2017.

Notwithstanding the decline in February, the cumulative net FDI inflow went up by 20.6 percent to $1.57 billion in the first two months from $1.3 billion in the same period last year.

S&P sees net FDI inflow to the Philippines rising steadily to 1.3 percent of gross domestic product in 2021, 1.4 percent of GDP in 2022, and 1.5 percent in 2023 and 2024 after declining to 0.8 percent of GDP in 2020 from 1.4 percent in 2019.

“Although global economic and financial volatility could lead to periods of acute risk aversion, we do not anticipate significant risks to the country’s external position from either a marked deterioration in FDI or portfolio investment,” it said.

S&P said other factors that mitigate risks associated with the Philippines’ international liabilities include a modest reliance on external savings by its banking and corporate sectors,

as well as the low and mainly long-term nature of the government’s external borrowings.

“Despite the pandemic and widespread economic disruptions, the government has continued to prioritize its infrastructure development program and fiscal reforms,” it said.

In particular, S&P said the enactment of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act would boost domestic business prospects.

“The adoption of the Act as a law concludes a period of some uncertainty, particularly for foreign investors, and should help to stabilize FDI over the coming years,” S&P said.

According to the debt watcher, the government has so far achieved moderate success with its comprehensive tax reform program which aims to ensure that public finances remain sustainable while addressing the country’s pressing infrastructure and social needs.

The tax reform program has helped fund the administration’s Build, Build, Build program through which the government has significantly increased infrastructure spending to address past chronic underinvestment.