Understanding Philippine corruption and government finances

THE HUNDREDS of billions of pesos that were stolen from flood control projects have robbed the Philippine economy of protection and productivity, But to say, as many Filipinos do, that they have been robbed of their taxes betrays a misunderstanding of how government finances actually work.

- By Jesus Felipe and Gerardo Largoza

Correcting such misconceptions is crucial because Philippine development has been held back by decades of public underinvestment and self-imposed austerity, possibly even more than it has by decades of corruption.

People are spilling onto major streets and gathering around public monuments to protest corruption scandals. This time it’s about flood control. President Ferdinand Marcos, Jr. first dropped hints as to the scale of malversation in his State of the Nation Address last July. Since then, events have taken on a life of their own. After three months of Senate hearings, the public has been able to confirm what it has long suspected: hundreds of billions of pesos salted away from thousands of overpriced, substandard, or nonexistent (“ghost”) projects. Nearly every level of government has been implicated, from district engineers to managers of government banks, to mayors, provincial governors, members of Congress, senators, including the Speaker of the House who has had to step down.

Estimates on theextentof graft in flood control vary; at present, official figures range from P42 billion ($715 million) to P118.5 billion ($2 billion) misappropriated since 2023, according to the Department of Finance. Greenpeace extrapolates a much larger figure of P1.089 trillion ($18.5 billion) over the same period, based on the total allocation for “climatetagged” expenditures, with P560 billion ($9.5 billion) lost to corruption in 2025 alone.

If it’s true that over a trillion pesos have been plundered since 2023 (and more dating back to 2016), then why hasn’t the Philippine economy collapsed the way it did in 1983 when President Ferdinand Marcos, Sr. and his cronies set the Guinness World Record for “largest ever theft from a government”?

To explain why some episodes of corruption destabilize economies while others don’t, we make two claims about how monetary systems work.