Nomura slashes Philippine growth forecast amid graft scandal

PHILIPPINE ECONOMIC GROWTH may slow to 4.7% this year, as government spending is expected to further decline amid the corruption investigation in infrastructure projects, Nomura Global Markets Research said.

- - K.K.Chan

In a report dated Oct. 27, Nomura Chief ASEAN (Association of Southeast Asian Nations) Economist Euben Paracuelles and Macroeconomic Research Analyst Yiru Chen said the gross domestic product (GDP) forecast was slashed to 4.7% this year from 5.3% previously as downside risks increased due to the corruption scandal involving flood control projects.

"This pencils in GDP growth slowing to just 4% in the second half from 5.4% in the first half and is based on the assumption that the decline in government expenditures in September will worsen in the next 3-4 months," they said.

Nomura's latest forecast is below the government's 5.5-6.5% GDP growth target for the year and is slower than the 5.7% growth in 2024.

"Taking into account the sharp drop in fiscal spending in September, we think the 'bad scenario' on the growth impact of the ongoing corruption scandal is materializing," they said.

Third-quarter GDP data will be released on Nov. 7.

President Ferdinand R. Marcos, Jr. had flagged anomalous flood control projects during his State of the Nation Address in late July. This sparked several investigations into alleged corruption involving lawmakers, government officials, and private contractors.

Latest Treasury data showed government expenditures declined by 7.53% in September, worsening from the 0.7% drop in August, mainly due to lower spending by the Department of Public Works and Highways. Nomura also noted that government spending declined by 2.8% in the third quarter, a reversal of 1.6% growth in the second quarter.

"Excluding interest payments and debt servicing, expenditure growth slumped even more to -10.2% yo-y (year on year) in September from -3.5% in August, the weakest since 2020. This suggests a relatively rapid deterioration in the pace of budget disbursements after President Marcos brought to light the corruption scandal of flood control projects," they said.