Casualties of corruption

What is economic growth to us, the everyday Filipino? In other words, when the Philippine Statistics Authority (PSA) released the Gross Domestic Product (GDP) growth for the fourth quarter of 2025 last week at 3.0 percent, the lowest growth rate since 2009 (excluding the Covid-19 window), what does that mean?

GDP is a measurement of the value of what was produced or consumed here in the Philippines. As an accounting measurement, it should help policymakers gauge the impact of policy or strategy and enable them to set targets with respect to improving the incomes or spending capacity of Filipinos. If the ability of the government to improve incomes was the main metric by which Filipinos would rate the performance of the administration, then GDP would be one of the top indicators behind voter decision-making.

While incomes are a top issue for voters based on previous surveys, this is not directly expressed in GDP growth statistics. After all, GDP is an aggregate measure, and chief economic concerns of the nation, namely inflation, more pay, poverty reduction, and job creation, are not fully captured. These factors partially get lost in translating economic conditions or performance.

What makes the fourth-quarter GDP growth special, however, is that it does capture the effects of issues that are primary and growing in the voters’ collective consciousness. In the Pulse Asia surveys, fighting graft and corruption has been making its way through the rankings, from a number four issue in June 2024 to number three by March 2025, and now number two as of December 2025.

The rapid deceleration of the economy in the fourth quarter was due to the pullback of public infrastructure spending as an effect of the ongoing flood control scandal. Public construction contracted by 42 percent year-on-year in the fourth quarter. We also note a deceleration in personal consumption and government spending to 3.8 percent and 3.7 percent in the fourth quarter from 4.1 percent and 5.8 percent in the third quarter, respectively. This reflects two points: first, that the government has been subsidizing growth via infrastructure spending; and second, this subsidy filters into personal consumption via construction jobs and government services. Taking the subsidy away reveals the underlying growth of the economy.

More importantly, this subsidy has been feeding corruption and effectively creating a productivity loss. The intention of high public infrastructure spending is to enhance what we call total factor productivity (TFP), where the mix of labor and fixed capital optimizes economic output. This takes me back to my classes with the distinguished Dr. Delano S. Villanueva during his discussions on economic growth theory and the Solow-Swan and Harrod-Domar growth models.

There are two hypotheses on the impact of corruption on economic growth. There is the “grease the wheels” hypothesis, wherein bribing officials allows a business to become more efficient by bypassing red tape. The second one is the “sand the wheels” theory, which means corruption decreases economic growth by limiting innovation, investment spending, governance and production.

Although it may seem obvious, the slowdown in GDP growth in the fourth quarter provides evidence that corruption decreases economic growth. The flood control scandal, which prompted the pullback in public infrastructure spending, reveals that our “true” or “core” economic growth is below our baseline level. There are many reforms on the governance side for the government to bring us back to where our economic growth needs to be. It may be slow, but Department of Economy, Planning and Development (DepDev) Secretary Arsenio Balisacan assured during the PSA briefing on GDP that reforms are taking place.

Fighting corruption in government is a necessary condition to address economic growth. Without an acceptable resolution, our TFP will continue to be suboptimal, which means that addressing the other national issues of pay increase, job creation, and reduction of poverty will become even more challenging.

GDP may just seem like an ordinary number for the average Filipino citizen, but it tells the story of how our actions have consequences. The way to recovery is to make everyone, particularly the guilty, face the consequences.