OVER the past several weeks, the government and every significant external institution that monitors such things have reduced economic growth forecasts for the Philippines for 2025 and 2026. This does not seem to have come as a surprise to policymakers and most of the public, and it should not. Unfortunately, there seems to be a troubling lack of recognition of the very obvious path the government should take to improve the disappointing outlook.
Shortly before the start of the Christmas holiday last month, the International Monetary Fund (IMF) lowered its projections for Philippine gross domestic product (GDP) growth from 5.4 percent to 5.1 percent for 2025, and from 5.6 to 5.7 percent for 2026. The Asian Development Bank, World Bank and the Asean Macroeconomic Research Office have recently made similar cuts to their forecasts for the country.
Just this week, Secretary Arsenio Balisacan of the Department of Economy, Planning and Development told a press conference that the full-year GDP growth target of 5.5 to 6.5 percent for 2025 is not attainable (fourth-quarter and full-year figures will be released on Jan. 29), and that the target for 2026 growth is just 5.0 to 6.0 percent, though it is expected to rise beginning in 2027. What is notable about these figures, particularly the target for 2025, is that these were already revisions from earlier forecasts, lowered during a meeting of the interagency Development Budget Coordination Committee only last month.
Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. had an even less encouraging outlook on Tuesday, telling reporters that 2025 growth may have fallen to as low as 4.6 percent, dragged down in part by the five-year low of 4.0 percent in the third quarter of this year. The significance of this to the BSP, Remolona explained, is that circumstances may compel monetary authorities to consider an early interest rate cut in February. That is something the Monetary Board had not planned on doing and would like to try to avoid, as it could be disruptive to the economy in other ways, such as pushing inflation higher.
These assessments all point to a number of similar factors to justify their predictions, but the one common denominator that stands out is the impact of the ongoing massive flood control corruption scandal. Every forecast, whether it is from the government itself, one of the multilateral institutions or from private-sector analysts, acknowledges the same three effects of the scandal.
First, it has had a significant impact in curbing government spending. Infrastructure spending has a knock-on effect bigger than most other forms of government spending because of the value chain of contractors and suppliers it supports, along with the people who are employed by them, so if that spending declines, the negative effect is amplified. Second, consumer and to some extent business spending are adversely affected by the uncertainty about government policy and stability that the corruption scandal has caused. Third, because of that uncertainty, and because the flood control scandal involves infrastructure, which is one of the more attractive investment segments for the country, both foreign and domestic investor activity and confidence has declined. Many have adopted a wait-and-see attitude, while others undoubtedly have already decided to look for calmer markets.
Government economic planners know this, and furthermore, our leadership is aware that public skepticism about the ongoing corruption scandal is growing. An unhappy population tends not to be economically productive compared to one that has more confidence in the government and the direction the country is taking. Yet, it does not seem that anyone in government has been able to put two and two together, and realize that addressing the corruption scandal in a swift and thorough manner is the best step it could take to improve the economic outlook. And it is not like any of our policymakers need to make a great leap of imagination to arrive at the realization; the IMF’s outlook, which was published around Dec. 15, plainly said that structural and governance reforms could recover investor confidence and lift economic growth.
We have said this before, and we are not the only ones: While everyone should appreciate that due process does take time, there needs to be tangible, clear progress toward resolution of the present scandal, and reforms to prevent its recurrence. So far, that is not the perception of the public or the investment sector; until it is, they are all going to keep their money in their pockets, and the economy is going to continue to lag.
