Philippine finance chief vows economic rebound after corruption scandal

PHILIPPINE economic growth will return to 5.5 per cent as early as next quarter as government spending bounces back to levels seen before a corruption scandal stalled project rollouts, the nation’s new finance chief said.

A state spending pause should be expected given the scale of corruption uncovered in flood control programmes, Finance Secretary Frederick Go said on Thursday, in his first interview since his appointment last week by President Ferdinand Marcos Jr.

He said the halt was a necessary sacrifice to plug leaks in the billions of dollars the government invests in infrastructure.

“It’s short-term pain,” Go said. “But we believe in the first quarter of next year, and more so in the second and third quarters of next year, we’ll resume that growth that we’ve become accustomed to.”

Go’s predecessor, Ralph Recto, had previously estimated that 25 per cent to 70 per cent of the budget for flood control projects was lost to corruption, costing the economy up to US$2 billion annually from 2023 to 2025. Recto was named Marcos’ executive secretary during the cabinet reshuffle last week.

Contractors allegedly cut corners by building substandard projects, if they were even built at all. Worsening floods have routinely destroyed homes, disrupted business and killed hundreds in the Philippines, one of the world’s most disaster-prone nations.

Marcos has tried to stay ahead of the corruption crisis and the public anger that it’s triggered. Two cabinet ministers were forced to resign to distance his administration from allegations of wrongdoing and negligence, which his vice-president and top rival, Sara Duterte, has tried to capitalise on. 

Go said he believes prosecuting officials involved in corruption, recouping funds they stole and implementing “genuine reforms” in state spending will put the economy back on the path of faster growth.

The external environment is also improving, with the US-China trade truce and greater clarity around reciprocal tariffs.

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He nodded to several investors that have recently signed deals in the Philippines, including Samsung Electro-Mechanics’ US$860-million factory expansion.

Go will need to steady one of Asia’s fastest-growing economies after the widespread corruption allegations also damped investment and consumer confidence. Economic growth in the third quarter slumped sharply to 4 per cent, its weakest since the pandemic.

The central bank, which is weighing a rate cut next month, sees the corruption fallout dragging on through next year, with economic growth only returning to the 6 to 7 per cent target in 2027.

Go will gather the public works, transport, energy, agriculture and tourism departments next week to identify projects that are easy to deploy or are near completion. “They will make up for what they underspent,” he said.

Government expenditures account for nearly 17 per cent of GDP, higher than the average in South-east Asia, he said.

However, there are no plans to dramatically increase spending through a stimulus programme. Go said he would prioritise fiscal discipline and reaffirmed the government’s target to bring the budget deficit to 5.5 per cent of gross domestic product this year and 5.3 per cent in 2026.

While neighbouring Thailand and Indonesia have put together billions of dollars worth of stimulus this year to spur domestic consumption and offset the blow of the global trade war, the Philippines has limited room to manoeuvre. Its budget deficit was on a trajectory of roughly 3 per cent before the pandemic.

“Our goal really is to keep that fiscal consolidation going. That number should keep going down,” Go said. BLOOMBERG