FDI drop temporary but reforms needed
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Wed, 13 Mar 2019 16:17:14 +0000
Last year’s net foreign direct investment (FDI) decline is a “temporary phenomenon” but reforms are crucial to keep the Philippines attractive, the Finance department said on Wednesday.
“The drop in 2018 FDI … [was] brought about by the uncertain world economic environment,” it said in an economic bulletin.
Net FDI inflows hit a two-year low in 2018. At $9.802 billion — short of the central bank’s $10.4-billion goal and the lowest since 2016’s $7.933 billion — net inflows were down 4.4 percent from 2017’s $10.256 billion.
The Finance department pointed out that the decline mirrored global developments.
“In 2017, it dropped 6.5 percent to $1.9 trillion. In the first half of 2018, it dropped by a heftier 44 percent to just $432 billion. This is due to slowdown in the world economy brought about by US-China trade war, Brexit, and slowdown in worldwide growth,” it said.
It added that analysis had shown that FDI flows were sensitive to world gross domestic product (GDP), Philippine real GDP growth and the real US Treasury Bond rate.
”The drop in world GDP by 13.8 bps (basis points) shaved Philippine FDI flows by 0.1 percent of GDP. Likewise, the 35 bp (basis point) increase in the US T-bond rate reduced Philippine FDI by 0.44 percent of GDP,” it added.
FDI would have grown by an estimated 0.24 percent of GDP (or $790 million) absent these two factors, the department continued.
Flows are expected to improve going forward but “meanwhile, the Philippines should implement reforms for a better investment environment,” it said.
The department noted that red tape would be drastically cut through the implementation of TradeNet.ph and other initiatives to facilitate exports. Foreign ownership restrictions should also be eased, it added.
“The Philippines has one of the most restrictive investment regimes in Asia. For example, the Public Service Act should be amended to redefine public utilities and enhance competition to bring down costs,” it said.
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