Slowing economic growth and weakening investor confidence, driven by governance issues, have broader social consequences, including a rise in crime, particularly property-related offenses, according to a Filipino-Canadian economist.

Dr. Michael Batu, an economist and associate professor at the University of the Fraser Valley in British Columbia, Canada, said the recent actions by international credit rating agencies reflect the Philippines’ weakening economic outlook.

He noted that both Fitch Ratings and Moody’s Investors Service have revised their outlook on the country from “stable” to “negative,” citing concerns over its economic performance.

Batu urged President Ferdinand Marcos Jr. to consider reshuffling his economic team, arguing that existing policies have failed to deliver the desired results.

He said, however, that replacing Cabinet officials alone would not be enough unless the administration also adopts a new economic direction and governance strategy.

According to Batu, these downgrades are particularly damaging because they reverse years of progress in improving the country’s credit reputation.

He said it took several administrations to steadily improve the Philippines’ credit standing but the current administration squandered those gains.

The immediate consequence, he said, is that the government will continue to have access to foreign loans but will have to pay higher interest rates because lenders now view the Philippines as a riskier borrower.

Beyond rising borrowing costs, Batu said a weaker credit rating discourages foreign investors from investing in the country, creating what he called a “vicious cycle.”

Reduced investment leads to slower economic growth, which in turn further weakens investor confidence and may trigger additional credit downgrades unless the government takes corrective action.

The softening economy is triggering declines in consumer and business confidence. He pointed to reports of major companies shutting down because consumers have become more cautious about spending amid the economic uncertainty.

Since household consumption accounts for more than 70 percent of gross domestic product (GDP), weaker consumer spending directly slows growth, discouraging businesses from expanding and hiring.

Domino effect triggered

Batu explained that declining foreign investments reduces dollar inflows, weakening the peso against the US dollar and making imports, including fuel and food, more expensive, and increasing inflation.

The Philippines has become increasingly dependent on overseas Filipino workers’ remittances as a source of foreign exchange because investment inflows have weakened considerably, he explained.

While acknowledging that labor migration generates valuable remittances, Batu warned it also accelerates the country’s brain drain, with skilled Filipinos leaving for better opportunities abroad.

He added that prolonged economic weakness can contribute to a higher crime rate, particularly theft and robbery, as more people struggle financially.

Batu said the reduced government spending is the Marcos administration’s direct contribution to the slowing economy, particularly on infrastructure which was likely the effect of the massive corruption scandal.

Delays in public works projects following the scrutiny into flood control expenditures contributed to the slower GDP growth.

Although increasing infrastructure spending could provide some short-term support to the economy, he argued it would not be enough to restore investor confidence unless the government addresses the corruption and holds those responsible accountable.

According to Batu, investors look for governance reforms, not merely higher spending, as a sign that a country’s economic prospects are improving.