PHL FDI ‘growth’ in 2020 reflects different UNCTAD methodology


By Jenina P. Ibanez, Reporter

THE Philippines’ foreign direct investment (FDI) performance in 2020 has become the subject of contention after the United Nations Conference on Trade and Development (UNCTAD) projected that the country “bucked the trend” in Southeast Asia with a gain of 29% to $6.4 billion.

The UNCTAD estimate diverges sharply from the official statistics put out by the Bangko Sentral ng Pilipinas (BSP), which reported FDI to have fallen 10.8% to $5.8 billion as of the first 11 months of 2020.

“The discrepancy is so large that I find it difficult to believe. One is negative; the other is positive,” George N. Manzano, University of Asia and the Pacific economist and former tariff commissioner, said in a phone interview.

An UNCTAD official, Astrit Sulstarova, who heads the UN agency’s FDI and Trends Data section, said in an e-mail that the difference is down to how funds flows are measured, with the central bank basing its FDI assessment on “assets and liabilities” moving in and out of the country, and UNCTAD using a “directional” approach.


This means that a Philippine-resident firm’s lending to its foreign affiliate, for example, would be classified as an asset in favor of the Philippines under one approach and an outward flow from the Philippines in another.

Under the central bank’s accounting, equity and lending of Philippine-resident firms in foreign affiliates would be considered assets for the Philippines. According to a paper from the Organisation for Economic Co-operation and Development, this accounting approach takes the view that “those investments are claims they have on assets in foreign countries.”

On the other hand, UNCTAD’s directional method would classify equity and lending of Philippine-resident firms to their foreign affiliates as outward flows, not assets.

The approaches are different because the BSP has been using a newer version of an international investment manual since 2013, a bank representative said in a mobile message.

UNCTAD uses the older version of the manual, Mr. Manzano said, to consistently assess data across various countries using the same methodology.

Although domestic economists believe both methodologies are sound, they are inclined to believe that FDI to the Philippines fell last year.

A definitive investigation into the divergence of the results from the two organizations, Mr. Manzano said, would require a detailed accounting of all FDI data added and subtracted under each method.

“I tend to believe BSP’s negative more than the positive,” he said. “I don’t have any evidence. Just like a hunch — if I had to make a bet, I’d bet in BSP because how can foreign direct investment increase when everyone’s locked down?”

Asian Institute of Management Economist John Paolo R. Rivera said he prefers information from the BSP, which he believes more credibly reflects the country’s economic situation.

“Intuitively speaking, I would surmise that FDIs in the Philippines declined, consistent with the data from BSP. It is a pandemic and most businesses (both foreign and local) are holding on to cash because we do not know when everything will normalize,” he said in an e-mail.

Countries that were relatively quicker to contain the pandemic, he said, secure more FDI from investors directing money to a foreseeably stable economy.

Ser Percival K. Pena-Reyes, an economist at Ateneo de Manila University, said in an e-mail that he is inclined to follow BSP data, the official source from which international groups like UNCTAD base their own studies.

BSP measures both the influx of new FDI and the reinvestment of existing capital or intercompany lending. The latter, or the decline in FDI created by previous investment in the country, he noted, pulled down the overall FDI total in the Philippines last year.

“The Philippines should also work to ensure that it keeps its existing FDI,” he said.

The decline in investment generated by existing FDI, he added, “might indicate a decline in foreign investors’ confidence in our COVID-19 crisis management, which, of course, would have implications on our growth prospects.”

Although the Philippines did not post the largest contraction in Southeast Asia in the first nine months last year, Mr. Pena-Reyes said, Thailand and Vietnam returned positive growth rates, which he attributed to the economic confidence brought on by their management of the crisis.

“I think our dismal economic performance and our poor handling of the COVID-19 crisis will make it difficult for us to attract FDI. Our main concern should be how to restore confidence in our economy,” he said.


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