Key reform opening up to FDI signed into law

PHILIPPINES - In Brief 22 Mar 2022 by Romeo Bernardo

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Yesterday, President Rodrigo Duterte signed the last of three new laws liberalizing foreign entry into domestic industries. The latest, amending the 85-year old Public Service Act (PSA), is perhaps the most significant as it opens up vital infrastructure services including telecommunications, air carriers, domestic shipping, railways and subways, to foreign ownership. Previously, foreigners could only own up to 40% of such enterprises. Given the sizeable investment capital needed in these sectors, the removal of ownership cap is meant to create more competitive pressures and innovation, reduce the costs of these services and improve services for users. From a macroeconomic standpoint, the PSA together with the amendments to the Foreign Investments Act and the Retail Trade Liberalization Act, are vital in addressing expected financing constraints moving forward.Already, forward-looking financial markets have zeroed in on expectations that the country’s twin deficits, i.e., government budget and external accounts, are likely to grow. Last week, the BSP bared its new set of BOP projections showing a substantial widening of its forecast of the current account deficit this year from 2.3% of GDP to 3.8%, due mainly to the impact of higher oil prices.The wider current account deficit would translate into a deficit in the overall BOP, equivalent to 1% of GDP, from expectations of a modest surplus previously. On the part of government, the conflict in Ukraine is putting already strained public finances under more pressure. Although economic managers have so far been able to shield the budget from more harmful proposals, e.g., suspending oil taxes, cash drains are expected to ri...