MONDAY MACRO: Philippines’ FDI net inflows hit a record high in 2021. What does this mean for economic recovery?
In 2021, the Philippines’ foreign direct investment (FDI) net inflows hit a record high of $10.5 billion.
With the country recovering from the adverse effects of the COVID-19 pandemic, will the FDI net inflows serve as a driver for economic recovery?
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The FDI net inflows indicate a country’s external financing resources from foreign investors through direct investments. Foreign investments are expected to drive economic growth as the Philippines work toward economic recovery.
Prior to the pandemic, the country recorded its highest FDI net inflows of $10.3 billion. However, it has since then been on a downward trend. The FDI net inflows plunged by 24.6% at the onset of the pandemic in 2020, due to global supply chain issues.
In order to help the Philippine economy recover faster, the national government amended the foreign investment acts to encourage more foreign investments. One of the changes made enables foreigners to fully own domestic enterprises.
Aside from the amendments in the foreign investment acts, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act was passed. This aims to encourage foreign investors through lowering corporate income tax to 25%.
So even with continued movement restrictions imposed, the Philippines ended 2021 with a record high of $10.5 billion FDI net inflows—the highest since 2017.
This growth can be attributed mainly to the 80.4% increase in net investments in debt instruments. This is a welcome development as the country recovers from the economic impact of one of the longest COVID-19 lockdowns in the world.
The Bangko Sentral ng Pilipinas (BSP) believes that the 54.2% increase in the FDI net inflows from 2020 to 2021 indicates a positive foreign investor sentiment brought about by the declining number of COVID-19 cases, and the strengthening of the global economy.
In December 2021, equity capital placements were mostly from Singapore, Japan, and the Netherlands. This was a major contribution to the growth of FDI net inflows during the year.
Looking forward, the BSP forecasts an $8.5 billion FDI net inflow this year. However, this may be challenged by the ongoing war between Ukraine and Russia; as well as a new COVID-19 variant that may force the country to enforce lockdowns again.
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