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October 01, 2022

Fleeing “hot” money in 2021 seen returning this year

Volatile portfolio investments, more known as “hot” or speculative money, were to flow inward this year but at a level lower than originally projected.

According to the Bangko Sentral ng Pilipinas (BSP), “hot” money flowing inward initially estimated to hit $5.7 billion this year should instead aggregate lower to more or less $4 billion.

The recalculated “hot” money inflows now reflect the BSP’s guarded optimism as consequence of the ongoing Russia-Ukraine conflict that has magnified the disruption and uncertainties created by the ongoing COVID-19 pandemic.

The BSP initially reported hot money aggregating $1.4 billion fleeing the country in 2021 on net basis, a sharp turnaround from 2020 when hot money flowed inward totaling $8.2 billion.

As a matter of policy, the government encourages the flow of foreign direct investments (FDI) that remain invested for the long haul and not only create jobs for Filipinos but generate tax for the nation’s coffers as well.

Portfolio or “hot” money flows, on the other hand, are generally invested in the local equity and debt markets and quickly withdrawn at the merest sign of trouble or promise of higher earnings elsewhere.

Portfolio flows in 2020 aggregated $8.2 billion, based on BSP data.

Foreign direct investments that have moderated since the start of the pandemic were seen strengthening to $11 billion this year under the new forecast, instead of only $8.5 billion in simulations done last December.

Foreign direct investments totaled $10.5 billion last year, sharply up 54 percent from only $6.8 billion in 2020.

This should climb more or less to $11 billion next year and still higher the year after to $11.6 billion, the BSP said.

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