BSP sees lower foreign investments this year amid trade war woes

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Metro Manila (CNN Philippines, June 14) — Foreign investment inflows are likely to drop this year, the Bangko Sentral ng Pilipinas (BSP) said, as escalating trade tensions send market jitters.

From an expected $10.2-billion haul, the central bank has slashed its forecast for foreign direct investments (FDI) to $9 billion for 2019, it announced Friday.

If realized, this will be lower than 2018's $9.8 billion FDI tally and would be the smallest haul since 2016.

"The increased uncertainty derives from a number of factors: of course, one is the uncertainty with respect to the trade tensions between the United States and China," BSP Deputy Governor Diwa Guinigundo said in a media briefing.

The Duterte administration is actively wooing foreign companies to infuse more capital to the Philippines in order to fuel business expansions and create more jobs for Filipinos. However, foreign business chambers have long lamented key issues hampering increased investments, among them ownership restrictions as well as bureaucratic red tape.

The first quarter FDI tally stands at $1.941 billion, 15 percent lower than the $2.287 billion which the Philippines received during the same period in 2018, according to latest available data. 

Washington and Beijing unleashed even higher tariffs against each other in May. China slapped additional duties on $60 billion worth of American goods to retaliate against the US for raising the duties on $200 billion Chinese exports to 25 percent. 

Guinigundo also pointed to uncertainties drawn from the four-month delay in passing the 2019 national budget, which has also been the culprit behind the four-year growth slump of 5.6 percent in the first quarter.

"When you see the flexibility of the national government to spend more and sustain the level of expenditure on infrastructure is uncertain..., then that is something that foreign direct investors are aware of and to them, that's a risk going forward," the BSP official added.

The budget was only signed into law on April 15. The government had to operate under a reenacted budget, which left new and continuing state projects unfunded.

Guinigundo also stressed policy uncertainty among monetary officials, who set the benchmark interest rates in their respective economies.

Dennis Lapid, BSP Department of Economic research director, said investors might have also held back earlier this year with the May 13 senatorial and local elections in mind, but that investments could bounced back now that the polls are over.

"The key reason for the lower FDI projection is to take into account the increased uncertainty in the external environment, which is also pushing down on investment activity," Lapid said.

"Some of it also has to do, particularly in the first half, the wait and see attitude adopted by foreign investors in the run up to the May 2019 elections. Now that the administration has received a mandate from the electorate, there should be a pickup in the coming months," he added.

Candidates endorsed by President Rodrigo Duterte dominated the 12 seats for the senatorial race. Bulk of the members of the new House of Representatives who will craft laws for the next three years are also administration allies.

Despite the lower FDI projection, Guinigundo said the haul is still "sizeable" and will help finance the country's external trade gap.

Flighty capital called foreign portfolio investments are seen netting a $400-million surplus this year, according to the BSP's latest estimates.

Cash remittances from overseas Filipino workers are expected to grow by another three percent, while the rise in business outsourcing revenues is seen to slow to 5 percent for 8 percent previously, the BSP said.

The Philippines' current account deficit, which measures the country's goods trading flows with the rest of the world, is seen to widen to a $10.1-billion deficit coming from 2018's $7.9 billion gap. The balance of payments, or the sum of the country's entire global trade, is expected to rebound to a $3.7 billion surplus from last year's $2.3-billion deficit.