Higher FDI, lower hot money outflow in 2018 – BSP

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) expects sustained growth in foreign direct investment (FDI) inflows as well as lower net outflow of foreign portfolio investments next year amid the country’s strong macroeconomic fundamentals and the ramp up of infrastructure investments.

Zeno Ronald Abenoja, director of the BSP’s Department of Economic Research, said the central bank sees FDI inflows inching up 2.5 percent to $8.2 billion in 2018 from the projected $8 billion this year.

“The expected increase in FDIs to $8.2 billion in 2018 is in line with the sustained positive developments in the domestic economy, the expected improvement in global economic conditions relative to 2017, as well as the continued thrust toward fast-tracking and modernizing the country’s infrastructure,” he said.

The Duterte administration intends to spend between $160- and $190-billion for much needed infrastructure projects under its Build Build Build program until 2022.

On the other hand, Abenoja said the net outflow of foreign portfolio investments or hot money is seen easing to $900 million next year from the projected $2.5 billion in 2017.

Foreign portfolio investments or hot money are referred to as speculative funds controlled by investors who actively seek short-term returns and high interest rate investment opportunities.

“The financial account in 2018 is seen to reverse to a small net inflow on account of increased FDIs as well as the anticipated lower net outflow in the foreign portfolio investments account,” he added.

Furthermore, he said the central bank sees the current account deficit widening to $700 million next year from the expected $100 million this year due mainly to the expected faster rate of growth in imports of goods compared to exports of goods, notwithstanding increases in the services and secondary income accounts.

However, Abenoja explained the current account deficit is deemed manageable, accounting for only 0.2 percent of the gross domestic product (GDP).

Export growth is seen easing to nine percent next year from the projected 11 percent this year due partly to some base effects and also taking into account the assessment that the pace of Chinese economic growth could moderate progressively in 2018 and beyond.

“Nonetheless, exports are seen to continue receiving a boost from broad-based economic recovery in both advanced and emerging market economies,” he said.

On the other hand, import growth would be sustained at 10 percent propelled by higher Philippine GDP growth prospects for 2018, likely rise in crude oil and commodity prices, and the expected increase in imports of raw materials and manufactured goods, with the latter gaining from increased government investments in infrastructure.

Remittances from Filipinos abroad would still grow at four percent to a record $29 billion, while revenues from the business process outsourcing (BPO) sector is seen posting a double-digit growth of 10 percent next year from eight percent this year.

“Inflows from of remittances, BPO and tourism receipts are seen to continue in 2018,” he said.

As a result, the Philippines is seen booking a lower balance of payments (BOP) deficit of $1 billion or 0.3 percent of GDP next year from the revised $1.4 billion or 0.5 percent of GDP this year.

The BOP shows the summary of the country’s transactions with the rest of the world. It includes trade, FDIs and hot money as well as remittances.

On the other hand the country’s foreign exchange buffer is expected to seen thinning further next year with the gross international reserves (GIR) declining to $80 billion or equivalents to 7.5 months worth of import cover from the projected $80.7 billion or 8.2 months worth of import cover.