IMF: FDI peaks in emerging markets amid high U.S. rate
The International Monetary Fund (IMF) has seen inflows of foreign direct investment (FDI) to emerging markets reach the highest level last year despite the high interest rate in the US.
The IMF reported emerging markets posted net inflows of $110 billion or 0.6 percent of gross domestic product last year, marking its peak since pre-pandemic in 2018.
“This is partly because of stronger fundamentals. Indeed, many countries are now benefiting from more robust fiscal, monetary, and financial policy frameworks, as well as more effective implementation of policies and tools,” IMF said.
The IMF shared that the US Federal Reserve’s rates climbed to their highest in 20 years, attracting higher FDI and strengthening the US dollar against all other currencies.
FDI in emerging markets stable
As expected, the IMF said emerging markets experienced some slowdown in inflows of volatile FDI like equities. In general, however, it said FDI in emerging markets remained “stable.”
The IMF report included data from Asian countries: Philippines, India, Bangladesh, Thailand, Malaysia, Indonesia and Vietnam.
Moving forward, the global institution said emerging markets must refine macroeconomic frameworks and strengthen financial and development institutions to cope with the effects of the Federal Reserve’s rate movements.
Amid its high rate, the IMF said global gross inflows declined from 5.8 to 4.4 percent of global gross domestic product from 2020 to 2023.
The IMF said even the US saw some FDI outflows which accounted for 21 percent of the global outflows from 14 percent during that period.
FDI net inflows from January to April grew by 18.7 percent to $3.5 billion from $3 billion registered in the same period in 2023; most investments came from The Netherlands with 63 percent share, Japan with 22 percent, and the US, six percent.
Increased financial fragmentation
“This may be evidence of increased financial fragmentation but could also partly reflect an unwinding of some tax or regulatory strategies by large multinational corporations in financial centers, whose share of global flows has declined drastically,” IMF said.
In the Philippines, the Bangko Sentral ng Pilipinas (BSP) mainly adjusts its rate to stabilize inflation.
Meanwhile, the Department of Finance proposes a mining tax regime which it said requires simpler auditing and supports tax incentives to more industries under the CREATE MORE bill.
The BSP reported the country’s FDI net inflows from January to April grew by 18.7 percent to $3.5 billion from $3 billion registered in the same period in 2023.
Most investments came from The Netherlands with 63 percent share, Japan with 22 percent, and the US with 6 percent.
The FDI mostly went to manufacturing with 36 percent share, followed by real estate with 26 percent, and wholesale and retail trade with 13 percent.