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Sam Beltran

An investigation into allegedly corrupt flood-control projects worth billions of pesos is beginning to ripple through the Philippines’ public finances, slowing infrastructure spending and adding uncertainty to the government’s investment-driven growth strategy.
The budget deficit widened 4.68 per cent to 1.58 trillion pesos (US$26.5 billion) in 2025, Treasury Bureau data showed, surpassing 2024’s record of 1.51 trillion pesos.
Despite slowing disbursements amid tighter scrutiny of public works projects, the deficit still breached the government’s 1.56 trillion-peso ceiling.
At 5.63 per cent of gross domestic product by year-end, the deficit was an improvement on 2024’s 5.7 per cent but remained above the government’s 5.5 per cent target.

This shows the corruption investigation is already taking its toll on government spending and investor confidence, analysts say.
Total revenue reached 4.45 trillion pesos, rising 0.78 per cent from 2024 but falling almost 2 per cent short of the annual goal, which the treasury attributed to weaker tax collections.
Tax revenues totalled 4.08 trillion pesos, missing the target by 130 billion pesos, “partly due to a pause in payments for infrastructure-related government contracts amid investigations into flood control projects, which affected withholding taxes, as well as a temporary suspension of audit operations”, the treasury said.
The flood-control investigation centres on allegations that billions of pesos in public works funding went to substandard or non-existent projects linked to lawmakers, public officials and contractors.
‘Direct, quantifiable effects’
Analysts say the revenue shortfall points to a direct link with the months-long flood-control investigations as investors pull back.
On February 10, the Philippines slipped six places to 120th among 182 countries on Transparency International’s global corruption index.
The watchdog’s 2025 Corruption Perceptions Index gave the country a score of 32 on a scale of zero (“highly corrupt”) to 100 (“very clean”) – its lowest since 2012.
The report also warned of a “worrying global trend” of worsening perceived corruption among democracies.
“The 2025 fiscal outturn shows direct, quantifiable effects from the flood-control investigations,” said Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines.
He said paused payments for infrastructure-linked contracts, alongside weaker imports and stricter oversight of project disbursements, had contributed to the deficit – adding that the ceiling-breaching deficit confirmed “the scandal’s measurable fiscal drag”.


One of the clearest indicators of this impact is the 51.9 billion-peso gap between actual disbursements and the 6.08 trillion-peso projection.
“The treasury directly attributes part of this underspending to stricter oversight of infrastructure projects linked to corruption, which slowed releases. Audit findings – documenting ghost projects, unauthorised relocations, and missing documentation – confirm that project validation requirements created genuine bottlenecks during implementation,” Asuncion said.
“While there is no official project-level peso attribution, the available evidence allows a defensible conclusion that a meaningful portion of the shortfall stems from investigation-driven scrutiny.”
He said corruption was already weakening investor confidence, citing the central bank’s outlook report as “reflecting how corruption-related uncertainty affects perceptions of execution risk”.
“Growth is already being affected in the near term as public investment delays and governance concerns have led to weakened momentum,” Asuncion said.
Tougher oversight
He said one way to address this was through tougher oversight measures that “improve the quality and credibility of infrastructure spending, reducing leakages and raising the effectiveness of every peso spent”.
“The IMF reinforces this point, stressing that stronger governance and structural reforms enhance investor confidence and raise fiscal multipliers, suggesting that while the immediate slowdown is a headwind, the long-run payoff is stronger institutional credibility and better project execution,” Asuncion said.
Michael Ricafort, chief economist of the Rizal Commercial Banking Corporation, said that while the 313.2 billion-peso budget deficit recorded in December was the widest since March, it was still lower than the 329.5-billion shortfall recorded in December 2024, “which could suggest some improvement in fiscal performance”.
“This was largely attributed to lower government expenditure … That may indicate some degree of government underspending or more disciplined spending,” Ricafort said.
Part of this was likely a result of the government’s response to the anomalous flood-control projects – including anti-corruption measures and governance reforms, he said. “As an immediate reaction, this may have reduced some spending to minimise corruption risks.”

Slower revenue growth was also driven by external factors, Ricafort said, among them adverse weather affecting economic activity, as well as US President Donald Trump’s tariffs and protectionist trade policies.
While the deficit slightly exceeded official targets, Ricafort said that it would likely have been wider had the government not slowed spending in the latter half of the year.
Fiscal measures such as tax reforms and anti-corruption initiatives “could help strengthen the structural sources of government revenue and reduce leakages and wastage on the expenditure side”, he added.
Asuncion said consistent and credible governance reforms, from swift prosecutions to improved oversight and a transparent restart of projects, could help reinforce fiscal credibility.
“If reforms continue consistently, the narrative can shift from ‘corruption shock’ to ‘institutional strengthening’, which would support funding costs, capital flows and medium-term fiscal sustainability,” he said.


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A widening deficit and falling revenue are ‘direct, quantifiable effects’ of an investigation into the flood-control scandal, economists say


A widening deficit and falling revenue are ‘direct, quantifiable effects’ of an investigation into the flood-control scandal, economists say.


Philippines budget deficit hits record US$26.5 billion as corruption probe bites

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}A widening deficit and falling revenue are ‘direct, quantifiable effects’ of an investigation into the flood-control scandal, economists say

A widening deficit and falling revenue are ‘direct, quantifiable effects’ of an investigation into the flood-control scandal, economists say