Time for ‘wait-and-see;’ possible turnaround in Q2 — analysts
Net foreign direct investment (FDI) in the Philippines plunged 85.19 percent to $110 million in December 2024 from a year earlier, the Bangko Sentral ng Pilipinas (BSP) said in a statement on Monday.
That is the lowest net inflow level in 11 years, or since December 2013, when the net inflows hit $102 million, an analyst said.
The December 2024 net FDI fell from the year-earlier $743 million largely due to increased debt repayments by resident corporations to their non-resident direct investors, the BSP said.
The comparative November 2024 net FDI stood at $0.9 billion, down 19.8 percent year-on-year.
Investors will now be opting to wait and see how the global reactions to US President Donald Trump’s tariff policy and the expected policy rate cuts of the BSP will pan out, analysts said.
For the entire January-December 2024 period, the BSP pointed out that the FDI net inflows remained on the positive side and settled at $8.93 billion, or up 0.1 percent from the $8.925 billion net inflows recorded in the prior year.
Behind the plunge
“While non-residents’ net equity capital investments rose, the FDI declined due to increased debt repayments by resident corporations to their nonresident direct investors,” the BSP said.
As a result of these higher debt repayments, net foreign investment in debt instruments shifted to net outflows of $19 million in December 2024 from net inflows of $618 million in December 2023.
Reinvestment of earnings fell 14.7 percent to $80 million from $94 million, the BSP said.
Meanwhile, non-residents’ net investments in equity capital rose 58 percent, reaching $49 million, compared with $31 million in December 2023.
Sources of capital
The BSP said equity capital placements in December 2024 came primarily from Singapore, Japan, the United States and South Korea.
“These investments were mostly directed toward information and communication; manufacturing; financial and insurance; construction; and real estate industries,” the BSP said.
FDI, a measure of actual capital that entered the Philippines, refers to investment by a non-resident direct investor in a domestic enterprise, where the equity capital in the latter is at least 10 percent.
FDI also includes investment made by a non-resident subsidiary or associate in its resident direct investor.
Time for ‘wait-and-see’
Jonathan Ravelas, BDO lead strategist, said in a Viber message the decline could be “a good wait-and-see” amid Trump’s victory.
“(FDIs) could recover in the second half as uncertainty subsides,” Ravelas said.
Michael Ricafort, RCBC chief economist, said the sharply lower net FDI data for the month of December 2024 might be attributed in part to the CREATE MORE IRR awaited but already released on Feb 17, 2025.
Signed into law on Nov 11, 2024, the CREATE MORE Act offers tax incentives to foreign investors in a bid to make the country competitive, investment-friendly, predictable and accountable.
“For the coming months, the release of the CREATE MORE IRR could make foreign investors/FDIs to become more decisive in locating in the country amid enhanced incentives for foreign investors,” Ricafort said.
Ricafort added that uncertainty related to possible protectionist policies by Trump that encourage more investments and jobs in the US rather than outside the US could have reduced FDIs.
“Offsetting risk factors that could continue to weigh on FDIs include Trump’s threats of higher US import tariffs, reciprocal tariffs, and other protectionist measures, all of which could encourage foreign investors to locate in the US to avert higher import tariffs and create more jobs in the US as part of Trump’s America-first policy,” Ricafort said.
“Some foreign investors could have also waited for BSP rates to go down further before becoming more aggressive to finance more FDIs, amid still relatively higher interest rates since 2022,” he added.
He said further rate cuts by the BSP in the coming months would also make borrowing costs (more acceptable) from the point of view of foreign investors. This would help increase demand for loans to finance more FDIs into the country, both new and expansion projects.
The BSP explained that its FDI statistics are different from the investment data of other government sources.
“BSP’s FDI covers actual investment inflows. In contrast, the approved foreign investment data published by the Philippine Statistics Authority (PSA) are sourced from Investment Promotion Agencies (IPAs). These represent investment commitments, which may not necessarily be fully realized in a given period,” BSP said.
“The PSA data are not based on the 10-percent foreign ownership criterion as defined by the BSP. The PSA’s foreign investment data do not account for equity withdrawals,” the BSP said.***
