Corruption seen dragging Phl growth in 2026

Concerns over corruption continue to cloud the Philippines’ long-term economic outlook, according to the ASEAN+3 Macroeconomic Research Office (AMRO) and global analytics firm BMI.

In two separate reports, the organizations outlined sustained financial and economic headwinds expected in 2026, driven in part by the ongoing investigation into alleged large-scale government corruption under the “floodgate” scandal.

Released on Monday, 24 November, AMRO’s Annual Consultation Report projected a continued contraction in public investment, particularly in infrastructure. “Despite the increase in infrastructure investment in recent years, the Philippines’ infrastructure development and quality continue to lag behind its regional peers,” the report said, noting that the country’s infrastructure deficiencies are often exposed during natural disasters.

The Philippines has been hit by more than 20 typhoons this year alone. Its location along the Pacific Ring of Fire also makes it vulnerable to earthquakes, such as the 6.9-magnitude tremor that struck Cebu in September and caused an estimated P2 billion in damage. An additional P26.7 billion had been earmarked for Cebu’s flood control projects, but widespread flooding following Typhoon Tino raised questions over the use and effectiveness of these funds.

“Indeed, the recent controversies surrounding flood control projects have raised concerns about the adequacy of oversight in infrastructure development,” AMRO said. Government construction spending fell 26.2 percent in the third quarter amid the investigations, shaving about 1.3 percentage points off GDP growth, according to BPI Lead Economist Jun Neri. AMRO expects the contraction in public infrastructure spending to persist into 2026, further weighing on economic growth.

The report also cited severe gaps in transport infrastructure. “Inadequate development in transport infrastructure restricts connectivity for the flow of tourists and goods, challenging growth potential in tourism and manufacturing exports, as well as reducing the country’s attractiveness to Foreign Direct Investments (FDI),” AMRO said — a concern BMI echoed in its own analysis.

Released Tuesday, 25 November, BMI projected that the corruption scandal will continue to dampen economic prospects by undermining foreign investor confidence. “The corruption scandal will dampen FDI inflows into 2026, adding to pressures from macroeconomic uncertainty and global trade tensions,” the firm said.

“President Ferdinand Marcos Jr. raised the issue of corruption in flood-control projects in his State of the Nation Address in July. This compounded investor concerns about the global trade uncertainty,” it added.

FDI net inflows fell sharply to $494 million in August, down 40.5 percent from $830 million a year earlier.

Both AMRO and BMI also linked the floodgate scandal to heightened pressure on the foreign exchange market.

“The graft scandal has also accelerated peso weakness, with the currency bucking regional trends to depreciate by 6.6% from its 27 May 2025 peak to P58.90/USD as of November 20,” BMI said.

The peso hit a record low of P59.17 per dollar on 12 November, surpassing the previous trough of P59.13 on 28 October. Analysts likewise attributed the currency slide to persistent corruption concerns.

“The currency initially appreciated through May, supported by broad U.S. dollar weakness, but subsequently reversed course as the U.S.–Philippines interest rate differential narrowed and investor sentiment deteriorated following allegations of corruption in the flood-control project,” AMRO said.

Both organizations expect the Bangko Sentral ng Pilipinas (BSP) to continue easing monetary policy to support economic growth.

“Further depreciatory pressures lie ahead as we expect Bangko Sentral ng Pilipinas to cut rates by 25 basis points in December meeting following slower growth in Q3 — bringing the US-Philippine policy rate differential back to the narrowest at 50 basis points,” BMI said.

AMRO also noted that low inflation provides the BSP with space to adjust policy. “The current low-inflation environment provides scope for a gradual normalization of the BSP’s policy rate to support economic growth amid heightened external uncertainties,” it said. AMRO projects inflation at 1.8 percent in 2025 and 3.2 percent in 2026 — both within the BSP’s 2–4 percent target range.

“This provides room for the BSP to gradually normalize monetary policy toward a more accommodative stance,” AMRO added, saying easier policy would improve private investment sentiment and help shield the economy from external shocks.