The ongoing turmoil in the Senate threatens institutional credibility and the overall stability of the Philippine economy, adding to an already risk-heavy outlook, according to former Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo.

In a 2 June commentary, the economist said markets closely monitor “political coherence, institutional credibility, and policy stability,” warning that a deteriorating political environment could push the country closer to stagflation.

“A Senate perceived as divided, reactive, and vulnerable to political pressure creates uncertainty precisely when the country faces elevated fiscal pressures, persistent inflation concerns, weak productivity growth, and growing external risks. Stagflation is increasingly becoming a likely scenario if these political dynamics further deteriorate,” he said.

The Upper House has become the focus of national attention in recent weeks following a series of political developments that have deepened divisions within the chamber. Guinigundo said the impeachment of Vice President Sara Duterte, the sudden reconfiguration of Senate leadership, reports of majority senators shifting to the minority bloc, the dramatic return of Ronald dela Rosa amid continued scrutiny from the International Criminal Court, and confusion surrounding the alleged “attack” on the Senate complex are “converging signals of institutional instability” that could undermine economic confidence.

“Citizens begin to doubt whether accountability mechanisms still function fairly. Investors begin to question institutional predictability. The business community becomes more cautious. Social cohesion deteriorates. Public policy loses legitimacy because the institutions crafting it no longer command broad trust. Unfortunately, the Philippine economy could become the largest collateral damage,” he said.

Data from the BSP has shown generally pessimistic sentiment among both businesses and consumers since October last year. Even before the onset of the Middle East conflict, BSP surveys indicated that business and consumer confidence remained subdued as concerns surrounding the flood control scandal continued to weigh on sentiment.

Foreign direct investments (FDIs), or investments made by foreign companies and individuals in Philippine businesses, fell to pandemic-era lows in 2025 amid governance concerns, reflecting growing investor caution.

Maharlika Investment Corp. Independent Director Stephen Cu-Unjieng likewise warned that the Senate’s ongoing turmoil could bring the economy closer to a metaphorical “red light” scenario, wherein mounting political and economic headwinds become severe enough to slow growth and require urgent policy action.

“I think the red light would be more antics like what happened in the Senate. Because, I mean, here we are in a time of political and economic difficulty,” he said in a television interview last week.

Meanwhile, global analytics firm BMI said the political headwinds facing the country—including the recent leadership shake-up in the Senate, with Duterte ally Alan Peter Cayetano assuming the Senate presidency—combined with a perceived lack of accountability for corruption cases, could fuel further political unrest and worsen the country’s already fragile economic outlook.

Guinigundo also underscored the difficulty of rebuilding public trust in government institutions, describing the recent refusal of the Cayetano-led bloc to appear before the chamber as “an assertion that numbers, alliances, and tactical withdrawal now matter more than institutional continuity and legislative responsibility.”

“[I]f political actors continue treating governance as a zero-sum struggle for survival, the eventual casualty may not simply be one Senate leadership, one political bloc, or one administration. It may be the country’s economic stability, democratic legitimacy, and long-term national cohesion itself. This should be enough warning to the Philippine Senate.”