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The Finance Chief on Tuesday said the multibillion-peso flood control scandal prevented the Philippines from getting a credit rating upgrade from S&P Global Ratings.

“If [only] we did not have the flood control issue,” Finance Secretary Ralph G. Recto told reporters on the sidelines of a Senate budget hearing. “We met with S&P, and they were ready to give us a credit rating upgrade this year.”

The controversy, which involves “ghost” projects and fund misuse in government flood control programs, has triggered investigations by Congress, the Commission on Audit, the Ombudsman, and the Independent Commission for Infrastructure.

The Marcos administration is facing increasing scrutiny over flood control projects, where billions of pesos in public funds were diverted through padded contracts and shell companies.

The scandal highlighted spending inefficiencies and governance lapses that credit agencies closely monitor when evaluating institutional credibility and fiscal management.

Asked whether the Philippines can achieve an “A” credit rating in the next two years, Mr. Recto said: “I hope so.”

He said the government wants to maintain its current credit rating, despite the multibillion-peso corruption scandal.

“There is a big chance they will maintain it, but there was a bigger chance for a credit rating upgrade,” he added.

In November 2024, S&P affirmed its “BBB+” long-term credit rating for the Philippines, which is a notch below the “A” level grade targeted by the government.

S&P had also raised its rating outlook to “positive” from “stable.” A positive outlook means the Philippines’ credit rating could be raised over the next two years if improvements are sustained.

Mr. Recto said the government needs to improve its governance and resolve the flood control mess.

“We have to improve on that,” he added. “I’m convinced that we will be able to resolve this, it will take us a few months to make this all right.”

Additionally, Mr. Recto said that a potential reduction in the value-added tax (VAT) rate may also risk the country’s credit rating.

“A reduction will surely impact your credit rating, for sure. I leave that up to Congress,” he added.

Several lawmakers have filed bills seeking to either scrap or cut the 12% VAT rate. VAT collections account for about a fifth of the Bureau of Internal Revenue’s total revenues.

John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said that the flood control scandal may have delayed the Philippines’ credit rating upgrade due to governance risks.

“While it does not automatically derail the country’s trajectory toward an ‘A’ rating, it delays the momentum,” he said via Viber message.

Mr. Rivera said the government should improve accountability, demonstrate sustained improvement in public financial management, and ensure that infrastructure spending is both transparent and efficient.

“Investor and creditor confidence hinges not just on growth numbers but on how cleanly public funds are spent,” Mr. Rivera said.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said governance issues and perceived corruption significantly weigh on credit ratings.

“The recent flood control scandal certainly adds a negative perception risk, which could delay progress toward an upgrade,” Mr. Asuncion said in a Viber message.

He added that the government must address the issue and exhibit stronger transparency and accountability.

“The Philippines can still preserve its credibility and keep the path toward an eventual ‘A’ rating,” Mr. Asuncion said. “Ultimately, the signal that reforms are being implemented and governance strengthened will matter most to rating agencies.”

Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said that a credit rating upgrade may still be achievable if the government implements strong reforms that would regain public trust.

“We need to show strong reforms that would bring back public trust (transparency, accountability, and governance), credible fiscal discipline, and a clear break from corruption. If we clean the house and stay the course, the ‘A’ rating is still within reach,” he said in a Viber message. —Adrian H. Halili, Reporter

The House of Representatives on Monday passed on final reading the proposed PHP 6.793-trillion national budget for 2026, concluding 62 days of deliberations marked by heightened scrutiny over a widening corruption scandal involving flood control projects.

Majority or 287 congressmen approved the revised budget bill that rechanneled the bulk of funding from numerous flood control projects under the Public Works department to priority sectors such as education, in a move aimed at strengthening human capital development.

Twelve congressmen voted against the measure, while two opted to abstain from voting.

“This budget cycle is unprecedented,” Nueva Ecija Rep. Mikaela Angela B. Suansing, who heads the House Appropriations Committee, told the floor. “We needed to navigate through complexities while implementing sweeping reforms in long-standing budget processes and traditions.”

Lawmakers deliberated on House Bill No. 4058 or the 2026 General Appropriations Act against the backdrop of the multibillion-peso flood control controversy, drawing in closer-than-normal scrutiny amid calls to make the budget process more transparent.

The 2026 spending plan, which was 7.4% higher than this year’s national budget, saw a select committee of lawmakers redirecting PHP 201.1 billion or 78.86% of the PHP 255 billion worth of funding originally intended for flood control infrastructure primarily towards education, food and healthcare sectors.

The House sub-committee on Budget Amendments Review last week finalized a PHP 56.6-billion increase in education sector funding under the proposed budget, bringing total allocations to a record PHP 1.28 trillion, Ms. Suansing said.

This includes a hike in allocation for the Education department’s new classroom funding by PHP 35.09 billion. “[This] will translate to around 25,200 new and rehabilitated classrooms,” said Ms. Suansing.

The sub-panel rechanneled about PHP 90.7 billion to the health sector, with the bulk of the funding going to the Philippine Health Insurance Corp. (PhilHealth) subsidy at PHP 60 billion, following last year’s controversy over the government’s pullout of funds from the state health insurer.

It also raised total health allocations by 28.3% to PHP 411.2 billion from the PHP 320.5 billion initially proposed by the Budget department. This includes a PHP 26.73-billion increase for medical assistance to indigent Filipinos.

Lawmakers increased agriculture sector funding by 22.46% to PHP 292.94 billion next year, as they sought to boost food security and improve programs aimed at helping local producers.

Changes include increased funding for the Agriculture department’s farm-to-market road projects by PHP 16.78 billion under the spending plan. Congressmen also raised allocations for financial aid to farmers to PHP 10 billion from the initial PHP 7 billion, which will benefit 1.43 million farmers, Ms. Suansing said.

Lawmakers also included a PHP 10-billion hike for the Labor department’s displaced-worker program, increasing it by 88.2% to PHP 22.14 billion next year.

Unprogrammed funds

At the same time, the lower chamber scrapped PHP 35 billion in unprogrammed appropriations intended for infrastructure programs, leaving only PHP 45 billion out of the PHP 80 billion originally allocated under the budget bill. This is under the bill’s Strengthening Assistance for Government Infrastructure and Social Programs.

“Congress has removed infrastructure from the list of allowable uses for unprogrammed appropriations… a move aimed at preventing potential misuse of these funds,” said Ms. Suansing.

She said foreign-funded infrastructure projects would only be eligible for standby funding, since the government must provide counterpart funding to support them.

“We cannot remove unprogrammed funding under foreign assisted projects because we cannot turn on our agreements at the international level,” she added.

Congressmen also adopted a proposal last week by Deputy Minority Leader and Mamamayang Liberal Rep. Leila M. de Lima to reduce Vice-President Sara Duterte-Carpio’s budget to PHP 733.2 million from the initial PHP 902 million, mirroring a cut made during last year’s deliberations.

“It seems that the rechanneling of the PHP 255 billion only reinforced ‘pork barrel’ politics,” AJ A. Montesa, an advisor at budget watchdog People’s Budget Coalition, said in a Viber message before the spending plan’s approval.

Mr. Montesa said the prioritization of funding for the government’s assistance programs for indigent Filipinos indicates that lawmakers are still intent on perpetuating patronage politics.

“While these programs are branded as ‘assistance’ for people in need, we must also confront the fact that they are largely driven by patronage and clientelism,” Mr. Montesa said.

“Congress should prioritize programs which are rules-based and rights-based, not those which are subject to the discretion of lawmakers and local politicians… these only serve to further entrench poverty and inequality,” he added.

While the reallocations signal a shift towards human capital development and are “commendable in principle,” much depends on whether the funds are spent efficiently and free from corruption, John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said in a Viber message.

IBON Foundation Executive Director Jose Enrique “Sonny” A. Africa said the spending plan fails to provide sufficient funding for critical sectors, warning that it falls short of addressing economic challenges amid slowing growth.

“The budgets for education, health, housing and social protection are hyped as big, but are still very far below what the poor and middle-class need,” Mr. Africa said in a Viber message before the budget bill’s approval. “Agriculture, and especially small Filipino firms, are also left far behind.”

The government is targeting economic growth of 5.5-6.5% this year and 6-7% in 2026.

President Ferdinand R. Marcos, Jr.’s allies in the lower chamber likely moved to boost funding in education, health and agriculture as the government sought to ease discontent over the scandal involving infrastructure spending, said Arjan P. Aguirre, who teaches political science at the Ateneo de Manila University.

“These moves are just meant to ease the tension, meant to please the already disgruntled people,” he said in a Facebook messenger chat.

The budget bill still needs the Senate’s approval before heading to the bicameral conference committee, where conflicting provisions of both House and Senate versions will be reconciled. Once the final budget bill is ratified by Congress, it will be transmitted to Malacañang for signing by the President.

Majority Leader and Ilocos Norte Rep. Ferdinand Alexander “Sandro” A. Marcos III said the lower chamber will act on a proposal seeking to open the bicameral conference committee talks on the proposed budget to the public “as soon as possible.”

“Given the fact that the House has been prioritizing… the passage of the budget, we will make sure that once the… House has more time, we will be able to address the said resolution,” he told the House floor.

Budget watchdogs have urged lawmakers to open the joint congressional committee to public scrutiny, as the traditionally closed-door process has kept people in the dark about last-minute changes to the national budget. — Kenneth Christiane L. Basilio, Reporter

The Bangko Sentral ng Pilipinas (BSP) will likely deliver three more rate cuts until 2026 to support the economy amid an anticipated slowdown, Fitch Solutions’ unit BMI said.

“(T)he BSP is poised to frontload easing to support the economy,” BMI said in an Oct. 10 note. “As such, we now expect BSP to cut by 25 basis points (bps) at its final meeting in 2025 in December to 4.5% and by another 50 bps in 2026.”

The Monetary Board on Thursday delivered a surprise 25-bp cut, bringing the target reserve repurchase rate to 4.75%, the lowest in over three years.

BSP Governor Eli M. Remolona, Jr. had said weakening business sentiment and investor confidence amid the ongoing flood control corruption scandal led to the Monetary Board’s decision.

BMI said it expects the Philippine economy to grow by 5.4% this year, before slowing to 5.2% in 2026, citing weak business sentiment due to the corruption mess and trade uncertainty.

This is below the government’s 5.5-6.5% gross domestic product (GDP) growth target for this year and the 6-7% goal for 2026.

“Our 5.2% growth forecast for 2026 is well below the government’s target of 6-7%. For one, the US-Philippines trade deal, which leaves 19% tariffs on Philippine goods in exchange for none on American ones, will weigh on the trade balance in 2026,” BMI said.

“For another, business confidence is likely to remain weak amid graft concerns and unpredictable US trade policy.”

BMI said its projection of 50-bp rate cuts in 2026 “may seem a meek response to what will be two consecutive years of growth underperforming the pre-pandemic trend.” This would bring the policy rate to 4% in 2026.

“However, we note that the BSP has already cut interest rates by a total of 175 bps since the current easing cycle began in (August) 2024,” it said. “We therefore expect the BSP to ease at a more measured pace while allowing more time for the easing thus far to feed through.”

Mr. Remolona had also given clear signals that the BSP’s policy easing could continue in December and until next year. 

“Risks to our forecast are skewed towards further rate cuts in 2026. Further unravelling of the corruption scandal across other infrastructure projects beyond flood control projects could dampen business sentiment and widen the output gap,” BMI said.

“With inflation expectations remaining well-anchored, the BSP could prioritize the economy and implement more policy rate cuts in 2026.”

BMI expects inflation to end at 1.6% this year, slightly below the central bank’s 1.7% forecast.

For 2026, BMI sees inflation picking up to 3.5%, faster than the 3.1% projected by the BSP.

Meanwhile, BMI said the central bank has ample reserves to defend the peso, which saw a weak performance after the surprise cut on Thursday.

“The BSP has sufficient reserves to defend the currency,” BMI said.

Gross international reserves jumped to an 11-month high of USD 108.805 billion at end-September, from USD 107.1 billion in August. It is also equivalent to 7.3 months’ worth of imports of goods and payments of services and primary income, well above the three-month standard.

“Besides, there probably will not be more selling pressure on the peso due to a 25-bp cut in December,” it added, referring to the Monetary Board’s Dec. 11 meeting.

Last week, Mr. Remolona said they will only defend the local currency if its depreciation becomes inflationary.

The Philippine peso on Monday closed at PHP 58.245 versus the US dollar, slipping by half a centavo from its PHP 58.24 finish on Friday, Bankers Association of the Philippines data showed. — K.K.Chan

The Bangko ng Pilipinas (BSP) is expected to deliver two more 25-basis-point (bp) cuts until early next year following the central bank chief’s dovish comments, analysts said.

This came after the Monetary Board last week unexpectedly trimmed the key policy rate by 25 bps to a three-year low of 4.75%, a move that BSP Governor Eli M. Remolona, Jr. attributed to weakening business sentiment amid the widening flood control corruption mess.   

“We never bought into Mr. Remolona’s talk of a ‘sweet spot’ in August and, with corporate sentiment going from underwhelming to outright miserable, we reckon more monetary easing is in the pipeline until early next year,” Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco and Asia Economist Meekita Gupta said in a report.

“We still see a 25-bp cut in December and we’ve added an additional reduction in (the first quarter next year), taking the TRR (target reverse repurchase) rate to a terminal of 4.25%,” they added.

If realized, the policy rate of 4.25% would be the lowest in over three years or since August 2022 and would match the rate in September 2022.

Mr. Remolona had also signaled at least two more cuts at its December meeting and by next year, noting the BSP now sees the neutral nominal policy rate to be closer to 4% than their earlier projection of 5%. 

“BSP’s tone was decisively more dovish by suggesting that it sees scope for a more accommodative stance and that the output gap may be larger,” Nomura Global Markets Research analysts Euben Paracuelles and Yiru Chen said in a note.

Nomura likewise expects the BSP to bring borrowing costs to a terminal rate of 4.25% by the first quarter next year, but noted that they see “risks of more cuts next year if adverse scenarios play out.”

Meanwhile, Bank of the Philippine Islands (BPI) and MUFG Global Markets Research see the central bank’s policy easing potentially stretching until the first half of 2026.

“Further easing could be supported by several factors, including expectations that the (United States) Federal Reserve will also deliver additional rate cuts amid a more dovish composition of the FOMC (Federal Open Market Committee) once Chair (Jerome) Powell steps down in May 2026,” BPI Lead Economist Emilio S. Neri, Jr. said in a note.

Slower Philippine economic growth amid growing concerns over public infrastructure spending and disinflationary risks from China’s potential dumping could likewise give the BSP more room to cut, he added.

Last week, the Trade department warned China, which is facing high US tariff rates, might start diverting its goods to the Philippines. This move could lead to foregone revenues and slower inflation.

Mr. Neri expects the BSP to end its current easing cycle once the policy rate hits 4% next year.

“However, such aggressive easing could prove to be an overshoot, raising the risk of a sharp policy reversal later on once inflation accelerates,” he said.

“The possible continuation of BSP rate cuts could drive a rally in government bonds, led by the short end of the yield curve,” he added.

Meanwhile, MUFG Senior Currency Analyst Michael Wan said the central bank might also bring its reserve requirement ratio (RRR) to 4% from 5% by 2026. 

The BSP last reduced the RRR in February by 200 bps to 5%. RRR refers to the portion of a bank’s deposits held as reserves and cannot be lent out and is used to manage the banking system’s liquidity.

MUFG also noted that the Philippine central bank governor’s sentiments in the latest meeting reflect “somewhat less support” for the peso.

Mr. Remolona on Thursday said they will only defend the peso if it depreciates sharply to a point that it could become inflationary.

“For the PHP, these changes in forecasts imply somewhat less support for PHP from (a foreign exchange) perspective, but what will also matter for FX (foreign exchange) is the extent of growth slowdown, and also the resultant impact on key flow dynamics such as the current account deficit, FDI (foreign direct investment) inflows, and to a smaller extent portfolio flows,” MUFG’s Mr. Wan said. — Katherine K. Chan