FATF Concerns Blamed For Net Outflows In Investment

The Philippines experienced a significant shift in foreign investment flows in October 2024, as data from the Bangko Sentral ng Pilipinas (BSP) revealed a reversal from net inflows to net outflows.

While some experts suggest this could be a temporary dip or a seasonal anomaly, others fear it signals a more profound structural shift in investor behavior. I Photo: FATF

Foreign investments registered a net outflow of $529.68 million, a stark contrast to the $1.025 billion net inflows recorded in September 2024.

This reversal was driven by gross outflows of $2.009 billion, which far exceeded the gross inflows of $1.479 billion for the month. The 41.5% decline in investment inflows compared to September reflects growing concerns among investors.

While the October inflows were 55.1% higher year-on-year, increasing by $525.49 million from the $954.38 million recorded in October 2023, gross outflows also surged.

The 33.4% rise in outflows, up from $1.506 billion in September to $2.009 billion in October, further exacerbated the net outflows. The United States accounted for the largest share of these outflows, with $889.06 million (44.2% of the total) transferred overseas.

FATF Grey List Impact

The Philippines remains on the grey list of the Financial Action Task Force (FATF), the global anti-money laundering watchdog. This status is perceived as a significant barrier to foreign investment, contributing to the outflow of capital.

The country’s continued inclusion in the grey list stems from its failure to address bank secrecy laws, which FATF deems incompatible with global anti-money laundering standards.

Despite progress in the Lower House, where laws to address these gaps have been transmitted, the Senate has yet to pass its counterpart measures.

Until these legislative reforms are enacted, the Philippines is unlikely to exit the grey list—a situation that complicates foreign remittances for Overseas Filipino Workers (OFWs) and dampens investor confidence.

Investor Concerns and Market Reactions

One legislator remarked, “Can we truly call it growth if capital is fleeing as fast as it arrives?” The growing disparity between inflows and outflows raises questions about the sustainability of foreign investment in the country.

Market analysts have pointed out that the $529.68 million net outflows, a 61.4% increase compared to the same period in 2023, reflect a growing unease among investors.

Many appear to be moving their capital to safer markets offering more stable returns. While some experts suggest this could be a temporary dip or a seasonal anomaly, others fear it signals a more profound structural shift in investor behavior.

This shift, they argue, may be rooted in the government’s failure to close legislative gaps in its anti-money laundering protocols.

A market analyst interviewed by the TFD noted, “The situation calls for urgent action. Without legislative reforms, the Philippines risks further alienating foreign investors, jeopardizing economic growth, and exacerbating the challenges faced by OFWs and local businesses reliant on foreign capital.”