IN THE Philippine flood-control corruption scandal, the multibillion-dollar net losses are huge. But without adequate resolution, international pressures could multiply the damage.
What makes this scandal different is its magnitude and critical areas. According to international indicators, the Philippines is the world’s most disaster-prone country, plus highly vulnerable to extreme climate events.
Yet, billions of dollars from public funds that were supposed to protect communities from flooding and climate impacts have been plundered.
Officially, corruption has cost the Philippine economy up to $2 billion over two years through lost, substandard, or nonexistent projects. But the estimate is likely highly conservative.
Public trust has plummeted. At a historical low of 4.4%, economic growth in 2025 plunged. Talking heads speculate on the impeachment of President Marcos Jr. Political class is scrambling. After tanking, markets are ailing.
Meanwhile, the massive collateral damage and spillovers have gone international.
Perceived corruption and Illicit financial flows
In the 2024/25 Corruption Perceptions Index CPI, the country ranked 114th out of 180 countries and 3rd in ASEAN. In these rankings, the Philippines is behind Laos and barely ahead of Sierra Leone and Angola.
Let’s follow the money. In terms of illicit financial flows (IFFs), Manila is among the world leaders. In 1960-2011, $410+ billion was moved illegally in or out of the Philippines, as well as $5.1 billion flows in 2008-2017.
Risks are compounded by drug trafficking, scams, corruption, tax evasion, with medium-to-high risks in casinos, real estate, money services, virtual asset services, and medium risks in banking, securities, and trusts.
International investors and businesses have taken notice. Foreign investors and business groups like the European Chamber of Commerce in the Philippines say the scandal stains the country’s reputation as an investment destination.
Similarly, the Nordic Chamber of Commerce has stressed that the rule of law needs to be appropriately enforced in the country.
In international comparison, the ongoing corruption debacle reduces confidence, especially in infrastructure sectors where transparency and accountability are major determinants of investment.
Increasing international alarm
Foreign governments and diplomats have intensified their monitoring. Reports by the U.S. State Department have long highlighted “pervasive” corruption in Philippine governance.
Environmental and global climate advocacy groups (e.g., Greenpeace) have come forward to condemn the misuse of climate-tagged funds, framing the scandal as a betrayal of international climate finance commitments.
International media (e.g., TIME, New York Times, SCMP, and The Guardian) have reported the scandal globally, linking corruption with real human and environmental impacts.
The international reputational damage has harsh economic and financial consequences.
Credit ratings at risk
Sovereign credit ratings are tracked by international credit ratings agencies and include focus on governance and corruption risks. Before the onset of the corruption debacle, the Philippines had been poised for a credit rating upgrade (e.g., from BBB+ toward an “A” rating), but the debacle has likely blocked or slowed that progress.
Higher ratings reduce the required return that investors demand and lower borrowing costs for both the government and corporates. A lost upgrade means continuing higher interest costs.
The ongoing political instability and corruption controversies could imperil future credit ratings, as Fitch has cautioned, essentially threatening a future downgrade if the crisis remains unresolved, or it is resolved inadequately.
Government debt costs are likely to rise as investors will demand higher yields on Philippine government bonds to compensate for perceived governance risk. The government must pay more interest to borrow the same amount of money.
Higher yields crowd out public spending on infrastructure, health, and education, which are vital to economic development.
Corporate costs, FDI fall, peso pressures
Corporate and financial costs could also rise. Credit rating differentials and governance flags push investors to demand risk premiums – not just for governments, but for private credit backed by their operating environment.
In the Philippines, foreign direct investment (FDI) inflows have slowed significantly, falling well below historical averages and prior to the pandemic levels. Due in part to corruption concerns, the share of FDI has plunged 25% from the prior year. Foreign investors are shifting investment to other ASEAN markets with stronger governance.
Markets and currency have been penalized. The Philippine peso has coped with historical pressure and depreciation linked to investor risk aversion. Today it hovers around 59 pesos per US dollar – that’s 20% less relative to the Duterte years (2016-22).
In October 2025, the onset of the crisis wiped out 1.7 trillion pesos ($29 billion) of the market cap in local equities. Stock market volatility and loss of market value reflect shaken investor confidence.
Slower growth in FDI reduces job creation, technology transfer, and foreign capital inflows. Without sustained growth, Manila is sleepwalking into a middle-income trap.
Bilateral aid and multilateral financing under pressure
A loss of trust makes it likelier that foreign aid providers — especially those tied to anti-corruption and climate finance conditions — will attach stricter oversight, audits, or even freeze disbursements.
Multilateral development institutions, such as the World Bank and Asian Development Bank, and climate funds tend to integrate Environmental, Social & Governance (ESG) criteria into financing frameworks.
If governance standards are seen as insufficient, a pervasive corruption scandal, especially one tied to climate resilience projects, could jeopardize access to concessional loans, blended finance, and climate adaptation funds.
Even if loans are not cancelled outright, future agreements will likely include tighter conditionalities and more rigorous anti-fraud safeguards, slowing disbursement timelines and increasing implementation costs.
Worse, global investors using ESG screens may downgrade the Philippine risk profile, making the country less attractive for funds targeting responsible investment.
Three scenarios
What about the future? There are three scenarios. If the corruption is tackled with credible structural reforms, a “credible cleanup” is possible.
If real reforms are shunned, prosecutions prove selective and juridical processes partisan, the “managed damage” scenario will ensure that the crisis will further penalize the political class and foster greater economic erosion.
The third scenario is the darkest. A “governance breakdown” scenario could unleash major instability.
Whatever the decisions today, they will cast a long shadow over future decades.
Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net
