A temporary economic slowdown is feared as an indirect consequence of the government’s intensive probe into the substandard flood control projects which were a feature of the yearly budget since 2022.

The effects of the actions taken on the scandal will lead to a restraint in public spending, which the economy heavily relies on for growth, according to Rizal Commercial Banking Corp. chief economist Michael Ricafort.

Infrastructure spending, particularly through the Department of Public Works and Highways (DPWH), has been a key driver of economic growth. However, it is projected to potentially contract by 25 percent in the short term due to the heightened scrutiny of budget allocations and flood control projects.

Revelations of systemic corruption in flood control projects, where out of P545 billion spent since 2022, thousands of initiatives were substandard, poorly documented, or non-existent, led to probes by the Senate, the House of Representatives, the Commission on Audit, and lately the Independent Commission for Infrastructure (ICI).

Contractors linked to politicians cornered up to 20 percent of the budgets, with “ghost” projects and fund diversions estimated at P118.5 billion since 2023.

This has resulted in a “cleanup” phase, with DPWH leadership shakeups, courtesy resignations, and tighter due diligence, causing disbursements to slump 25 percent in July.

The 2026 National Expenditure Program already reflected the reduced spending with a proposal slashing the DPWH’s budget from P881 billion to P625.8 billion, including scrapping P252 billion for locally funded flood control projects and trimming P255 billion overall.

President Ferdinand Marcos Jr. vetoed P16.72 billion in 2025 flood control funds and ordered reviews of “bicam insertions,” or last-minute congressional additions, totaling P142.7 billion, which are often fragmented and unscrutinized.

Overseas Development Assistance (ODA) funds for flood control lost P40.2 billion to “diversions,” while “shadow” projects, or hidden allocations outside the main flood management program, reached P115 billion in 2025, prompting further audits.

ODA programs were displaced by legislators’ pet projects, which were inserted into the regular budgets of agencies, primarily in the DPWH.

Only projects over P2.5 billion now require Investment Coordination Committee (ICC) evaluation to prevent disaggregation and overlooked impacts.

Economic managers fear the imbroglio could heavily dampen gross domestic product (GDP) growth in the third quarter that will continue into the first quarter of next year. However,this is viewed as a temporary “shadow” for long-term efficiency.

They anticipate a growth slowdown until early 2026 but expect recovery through high-impact, fast-disbursing projects to meet Development Budget Coordination Committee targets.

Despite the P1.2 trillion spent on flood control since 2009 (rising from P42 billion in 2015 to P254 billion in 2025), fragmented efforts have yielded limited results, underscoring the need for integrated master plans over piecemeal allocations.

Worse, the controversy included official development projects that faced delays because funding was placed in the contingency fund or the unprogrammed allocations.

Ricafort recalled that during the term of the late President Ninoy Aquino, a chilling effect occurred, resulting in massive budget underspending following the P10-billion Priority Development Assistance Fund scam.

With a much bigger scandal, the restraint on spending will be stronger as the potential public backlash on corrupt practices grows.