BMI flags elevated political risks in Philippine

MANILA, Philippines — Political risks in the Philippines are expected to remain elevated amid rising costs of basic goods and concerns on accountability linked to the impeachment case against Vice President Sara Duterte, according to research and analysis firm BMI.

In a report, the Fitch Solutions unit said that rising costs and their impact on economic growth, as well as the perceived lack of accountability are expected to keep political risks elevated.

“The cost-of-living crisis stemming from the US-Iran war is emerging as the primary driver of rising social and political risk in the Philippines,” BMI said.

As a net importer of energy, the Philippines is vulnerable to higher global energy prices. 

The Middle East conflict has pushed up prices in the Philippines, with inflation accelerating to 7.2 percent in April, the fastest since March 2023. 

Fuel prices have also risen sharply since pre-conflict, with gasoline and diesel prices up by 65.3 percent and 58.4 percent, respectively. 

This situation has led to tightened household budgets and also affected livelihoods, particularly of those in fuel-intensive sectors like transport.

While the government has declared a national energy emergency and introduced targeted relief measures, policy support remains constrained by limited fiscal space.

As a result, transport workers and labor groups have staged strikes to show their frustration on the perceived government inaction over rising fuel costs.

“Given limited government support, under a prolonged US-Iran conflict where oil prices remain higher for longer, further protests and strikes are a clear risk,” BMI said.

It also said that the political divisions in relation to Duterte’s impeachment risk amplifying the underlying social discontent. 

While the House of Representatives voted to impeach Duterte in a landslide vote, the Senate saw a change in leadership, with the then minority bloc, mostly aligned with the Vice President, installing Sen. Alan Cayetano as the new Senate president. 

“As a key ally of Sara, his accession significantly reduces the already narrow path to conviction. Indeed, Duterte allies can now shape the pace and narrative of the trial,” BMI said.

“If the Senate overreaches by either stonewalling proceedings or dispensing with a proper trial, this will likely prove divisive given mounting clamor for a proper trial, raising political risks in the Philippines,” it said further.

BMI also flagged lingering concerns over the flood control corruption controversy, which continue to weigh on consumer and investor sentiment.

Since the unveiling of the flood corruption issues last year, BMI noted that Philippine economic growth averaged 3.3 percent, a stark contrast to the 5.4 percent growth in the first semester of last year.

Public spending also remained subdued in the first quarter, with government construction down by 31.5 percent year-on-year.

“We expect the government to continue underspending on public infrastructure at least through H1 (first half), further dragging on growth,” BMI said.

In the first quarter, the Philippine economy grew by only 2.8 percent, its weakest performance in five years.

The first quarter growth outturn was also slower than the previous quarter’s three percent growth.