By Lee C. Chipongian
Before the virus pandemic, the central bank was expecting this year’s net foreign direct investments (FDIs) inflows to reach $8.8 billion but due to the global economy’s high level of uncertainty, the Bangko Sentral ng Pilipinas (BSP) cut its forecast by half to $4.1 billion.
The BSP’s Monetary Board, according to BSP Governor Benjamin E. Diokno, however expects net FDI to recover in 2021 to $6.5 billion.
The previous forecast of $8.8 billion was announced in November 2019 while the revised 2020 outlook and next year’s forecast was approved in May, when the country has been in COVID-19 lockdown for two months.
Diokno also disclosed that the BSP’s net foreign portfolio investments estimate for this year is also reduced from $8.2 billion (previous 2020 forecast) to $2.4 billion for 2020 and $3.4 billion for 2021.
Diokno said that the unprecedented global health crisis have adversely impacted the global outlook and investor confidence, and that “any projection (would) only be tentative and would have a high level of uncertainty.
“There’s a high degree of uncertainty in one’s forecast given what we don’t know yet about the depth and duration of the pandemic and the behavior of consumers (travelers, tourists, businessmen) and firms moving forward,” the BSP chief said.
The BSP’s current external account assumptions are however based on “firmer market indications.”
The BSP has been continuously reviewing and assessing external account numbers such as the balance of payments (BOP) and the gross international reserves. FDIs, remittances, and foreign portfolio inflows are components of the BOP under its current and financial accounts.
The Monetary Board, not surprisingly, is eyeing a huge decline in travel exports growth of -56.9 percent this year versus its previous forecast (November 2019) of 12 percent. For 2021, travel exports growth is seen to bounce back by 15 percent.
According to Diokno, “the plunge in tourism receipts in the Philippines pales in comparison with other countries that are heavily dependent on tourism receipts, such as Thailand, Hong Kong, and some European countries.”
Business process outsourcing (BPO) receipts is still expected to grow this year by two percent, although a lower forecast than previous estimate of five percent. For next year, BPO receipt is projected to grow by four percent.
In general, the Monetary Board still projects a BOP surplus for 2020 but lower at $600 million from previous forecast of $2.9 billion. For 2021, the BOP is expected to remain in surplus of $2.4 billion.
The current account deficit, earlier projected at $8.4 billion, was lowered to $1.9 billion in 2020 but will rise to $4.4 billion deficit in 2021. Also part of BOP, the financial account, is also expected to still be in shortfall of $1.2 billion for 2020, but less than previously thought of $9.8 billion. For 2021, the financial account is projected to still be in deficit of $4.8 billion. The capital account’s estimates are unchanged at $100 million surplus.
As of end-February, net FDI inflows amounted to $1.2 billion, down 12.2 percent from $1.3 billion same time in 2019. FDIs are not only equity capital and reinvestment of earnings, but are also borrowings.
Last year, net FDIs amounted to $7.6 billion, lower by 23.1 percent from 2018’s $9.9 billion.