Net inflows of foreign direct investments or FDI to the country declined by 6.6 percent last year compared to the level in 2022, the Bangko Sentral ng Pilipinas reported Monday.

This means that FDI net inflows decreased from $9.5 billion to $8.9 billion.

Last year’s FDI net inflows is the second time that it decreased after 2021 when the BSP recorded $11.98 billion, leading to a 20.8 percent drop in 2022.

Slow growth, geopolitical risks

“Notwithstanding the country’s sound macroeconomic fundamentals, concerns over subdued global economic growth and geopolitical risks continued to weigh on investors’ investment plans,” BSP said.

FDI net inflows in December last year contributed $826 million, higher by 29.9 percent compared to the same month in 2022.

BSP noted the growth was mainly driven by investments in debt instruments amounting to $527 million or an 86-percent jump from $283 million.

Meanwhile, reinvestment of earnings also increased by 4.1 percent to $91 million.

However, non-residents’ net investments in equity capital, which exclude reinvestment of earnings, declined by 21.7 percent to $208 million.

Top FDI source

The top source of FDI for the entire 2023 was Japan with a 51 percent share, followed by the United States (13 percent), Singapore (12 percent) and Germany (8 percent).

Most of the total amount of FDIs last year was directed to the manufacturing sector with 53 percent share, while real estate accounted for 13 percent, and financial and insurance for 10 percent.

Grace Lim, economist of UBS, a multinational bank, said the Philippines might see more FDIs this year as many Filipinos will likely continue to spend on goods and services amid lowered inflation rates.

“Inflation is likely to fall. We see that because right now the only pocket of price pressures we’re seeing is in terms of rice. Everything else seems to be easing quite nicely,” she said.

Due to lower inflation, Lim said the BSP might lower its policy rates by 100 basis points this year, enabling more affordable loans for various purchases among consumers.

Lim added that the government’s aggressive campaign for public-private partnerships for projects in multiple industries indicates a need for more capital for firms to carry out their projects.

Michael Ricafort, chief economist of Rizal Commercial Banking Corporation, said a higher FDI to the Philippines will also be driven by high credit ratings from global institutions which suggest a robust local economy.

Investment ratings

“There has been continued affirmation of the country’s investment grade ratings for the third straight year since the Covid-19 pandemic at one to three notches above the minimum investment grade,” he said.

Ricafort said production and consumption activities might also increase as more firms operate in the country due to trade agreements like the one with South Korea and the Regional Comprehensive Economic Partnership or RCEP.