Foreign investments plunge in 2019 as trade war, corporate tax bill spook investors

Metro Manila (CNN Philippines, March 10) — Foreign investments to the Philippines plunged in 2019 to a four-year low, with a global trade war and proposed changes to tax breaks for businesses triggering market jitters.

The Bangko Sentral ng Pilipinas said foreign direct investments (FDI) totaled $7.65 billion in 2019, down 23.1 percent from the $9.95 billion which entered the county the prior year. This is the lowest investment haul since 2015, when net inflows settled at $5.64 billion.

The amount, however, is still higher than the reduced FDI forecast of the BSP at $6.8 billion for 2019.

“Notwithstanding the country’s sound macroeconomic fundamentals, global uncertainties dampened investor sentiment during the year,” the central bank said in a statement on Tuesday.

Investments surged in December to $1.15 billion, the highest in more than a year as foreigners made huge bets on equities. However, this was not enough to lift the full-year figure.

Foreigners scaled down their investments in both debt and equity instruments during the year, data showed. Bets on equity dropped by 38 percent to net $1.45 billion, while debt instruments slipped by a fourth to $5.15 billion.

Meanwhile, more global companies opted to reinvest profits generated from Philippine operations, with the figure rising by 16.6 percent to $1.05 billion.

RCBC economist Michael Ricafort said the plunge in investments was likely due to the global economic slowdown brought about by the long-standing trade war between the United States and China. Phase one of the trade agreement was only signed in January.

RELATED: Breaking down the costs of Trump’s trade war with China

“Uncertainties on the proposed rationalization of fiscal incentives could have also caused some foreign investors to adopt a wait-and-see attitude/more cautious stance while wating for the implementation of the CITIRA bill,” Ricafort added, referring to a measure that trims the corporate income tax rate from 30 percent to 20 percent, but also comes with an overhaul of tax breaks and other incentives given to export-oriented businesses.

“The signing of the CITIRA Bill into law would help create greater certainty for foreign investors and help increase net FDIs, which entail the creation of more hobs,” he added.

The House of Representatives has approved its version of the bill, while the Senate measure is under plenary discussions. President Rodrigo Duterte has certified the measure as urgent, which will allow lawmakers to fast-track its approval. 

READ: Business groups call on Congress to pass corporate tax bill

Ricafort added that FDIs this year could suffer anew due to the novel coronavirus outbreak, which has triggered stock market selloffs and held back tourism gains.

The BSP expects investments to hit $8.8 billion this year.

Powered by WPeMatico