July 24, 2024


World Business Inquiries

As pandemic hits dollar inflow, BSP chief says PH can benefit from investment shifts

3 min read

The country’s top monetary authority is reexamining its forecasts for the movement of foreign funds into or out of the country this year — a key determinant of the peso’s relative strength against other currencies as well as the pace of price increases across the economy.

In a statement, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the forecast revisions will include estimates for the balance of payments position and foreign direct investments for 2020.

“With the unprecedented coronavirus pandemic and its adverse impact on global outlook and investor confidence, we recognize that any projection on external account performance would only be tentative and would have a high level of uncertainty,” he said.

His statement came a day after the central bank reported that foreign direct investment net inflows grew by 12.1 percent in January 2020 to reach $657 million from $586 million in January 2019, with a caveat that these figures were reported before the onset of the ongoing pandemic.

“By necessity, forecasts will be based on some scenario assumptions and estimates which would tend to have considerable uncertainty as they impact on baseline projection prior to the coronavirus outbreak,” Diokno said.

The central bank chief said the new external account forecasts — widely expected to be substantially lower — will be released once approved by the policy-making Monetary Board.

Diokno explained that the COVID-19 pandemic is expected to have “a huge adverse impact” on investment flows globally in 2020 as a result of the projected global contraction, disruption of world value chains and the consequent effect on investment decisions and plans.

“The Philippines is no exception,” he said, but added that this negative impact “can be temporary.”

“On the positive side, we see an opportunity for countries, such as the Philippines, to gain from recent experience,” he said.

In particular, Diokno explained that — as a result of the global “demand shock”, combined with the worsening US-China trade war — the Philippines could benefit from the likely redirection or redistribution of foreign direct investment flows, as multinational corporations take steps to better hedge against supply chain disruptions in the future.

Foreign direct investments, he said, “could move into economies with strong macroeconomic fundamentals and commitment for reforms.”

“In the Philippines, the latter will include efforts to lower corporate income tax, rationalize fiscal incentives, and ease limits on foreign ownership.”

The central bank had earlier projected total foreign direct investment net inflows of $8.8 billion for 2020, but this goal was set before the pandemic and will likely be revised downward substantially.

For 2019, the BSP said the country got $7.6 billion in net inflows of foreign direct investments.

This represented a 23.1-percent decrease from the $9.9 billion net inflow in 2018, and marked the second consecutive year of decline for this key economic indicator.

Edited by TSB

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