Index trend
Previous Quarterly Editions
Expropriation Risk: 51 ▼ Political Violence Risk: 48 ► Terrorism Risk: 85 ► Exchange Transfer and Trade Sanction Risk: 44 ► Sovereign Default Risk: 47 ▼
Overall Risk Temperature: 58 (Significant -2) ▼
Special topic:
Political culture in the Philippines, which encourages personal rule and unchecked corruption, has historically encouraged political conflict, but the political system, which includes political parties, often dampens political polarization. That said, in early 2025 the prospects for political conflict and polarization point toward a significant increase in both. This is due to the spectacular breakup of the ’marriage of convenience’ of the Marcos and Duterte political dynasties, the critical midterm elections in May, and external pressures on the Philippines, particularly pertaining to relations with Washington, which complicate the country’s national security and its economic growth.
Although the formal political system, partially modeled after that of the U.S., is intended to create checks and balances between separate branches of government, disproportionate power almost always accumulates in the executive branch. That is still the case, but at present the executive is riddled with a feud between President Ferdinand (‘Bongbong’) Marcos Jr. and Vice President Sara Duterte, a split that carries into the other two branches of government as well as into Philippine society.
For the time being, Marcos has the upper hand as Duterte attempts to appeal her impeachment in Congress on corruption charges and as her father, former President Rodrigo Duterte, faces trial before the International Criminal Court for the extrajudicial killing of more than 6,000 people in an anti-drug campaign during his 2016–2022 term of office. These two legal proceedings have cast the Duterte dynasty as corrupt rulers and violators of human rights in the public mind, but they also evoke past practices of the Marcos family. Bongbong Marcos and Sara Duterte have traded charges that each was planning to assassinate the other. The midterm elections will intensify this conflict with an epidemic of ’fake news’ and a long-standing tradition of vote-buying.
This is a clear example of elite polarization, but it is wrapped more around personalities than political differences. The persistence of political dynasties — to date, three children of Philippine presidents have themselves been elected president — further encourages elite polarization. The primary constraint on more long-standing political polarization is the nature of Philippine political parties, which promote the interests of individual politicians and are for the most part lacking in ideology. As a result, parties tend to die when their leader leaves the political arena. Another factor is the limitation on presidential terms to a single, six-year term, which makes it difficult for parties to formulate policies that can be maintained beyond the short term.
Expropriation Risk 51 (Medium) TREND ▼
The risk of expropriation is significant and rising.
Worsening tensions with Beijing in the South China Sea keep the Philippines tied to its alliance with the U.S. In the second Trump administration, however, the price of that will be to maintain distance from China in diplomatic and economic relations. As a result, the Philippines will be more constrained than other Southeast Asian countries in its ability to negotiate infrastructure projects with China and develop its special economic zones, which have been laboratories for the liberalization of regulations that hamper foreign investment.
In the meantime, short-term foreign direct investment trends have been down in the wake of Trump’s election; a double-digit slump in November 2024 has carried through into the new year with no immediate signs of abating.
A loss of foreign direct investment, combined with higher tariffs from the U.S., could create a backlash that leads to selective tit-for-tat measures against foreign companies, particularly Western ones.
Political Violence Risk 48 (Medium) TREND ►
The risk of political violence is moderate and rising.
Elections in the Philippines, even midterm ones, are likely to raise political violence, but this is all the more likely as tensions between the Marcos and Duterte clans continue to rise. Two months ahead of the May 12 midterms, the Philippine National Police noted a rise in violence against Filipino politicians associated with the election, particularly in Mindanao, the Duterte political base. The Election Commission instituted a gun ban from January 12 to June 11 in a bid to lessen election-related violence, but violations of the ban are climbing, particularly in Manila.
A wildcard in the run-up to the election will be the impact on the Philippine economy of trade protectionism in the U.S. and the suspension of U.S. economic assistance, particularly to impoverished Filipinos. A notable blow to the country’s food security or the government’s inability to respond to a natural disaster could help ignite wider political violence beyond the usual targeting of individual political opponents.
Terrorism Risk 85 (Very high) TREND ►
The risk of terrorism is very high and rising.
Compared with most other Southeast Asian nations, the Philippines is particularly vulnerable to terrorism. It battles extremism within its own society and also sees a flow of foreign terrorist groups pass through the southern island of Mindanao. In addition, government officials often use laws that prohibit terrorist financing for political purposes, which creates confusion over the extent of the terrorist threat. That said, the Philippine government has recently received positive marks from the U.N. on its efforts to counter money laundering and terrorism financing and is on track to exit the Financial Action Task Force (FATF) ‘grey list’ this year.
However, in 2025 the Philippines will likely be at greater risk for terrorist activity because of heightened opposition among Southeast Asian Muslim extremists to Western support — and particularly that of the Trump administration — for Israel in the Israeli-Palestinian conflict. President Donald Trump’s proposal to clear Gaza of all Palestinians, however unfeasible, will likely increase recruitment for regional extremist groups, who will find it easier to congregate in Mindanao than in Indonesia or Malaysia.
Exchange Transfer and Trade Sanctions Risk 44 (Medium low) TREND ►
Exchange transfer and trade sanctions risk is moderate and rising.
Philippine GDP growth of 5.2% for 2024 was respectable but fell short of the 6% to 7% that the government and the Asian Development Bank had forecast at the beginning of the year. However, the economic uncertainty brought by Trump’s tariff policies will likely lower the Philippine growth rate further in 2025.
Like most Southeast Asian leaders, Marcos hopes to negotiate potential U.S. tariff increases down or to avoid them altogether in view of the growing importance of the Philippines to security in the South China Sea. There is some chance that Marcos could succeed, since the Trump administration has pointedly exempted the Philippines from a freeze on security assistance and plans to provide more than $5 billion in security and anti-narcotics assistance. However, even special treatment for a security ally will not protect the Philippines from the negative impact of a more protectionist U.S. on the world economy.
Sovereign Default Risk 47 (Medium) TREND ▼
The risk of sovereign default is significant and rising.
The Philippine national debt rose by 9.8% in 2024, pushed higher by government borrowing and a depreciation of the peso against the U.S. dollar. Domestic debt accounts for 68.1% of the total debt. The current debt-to-GDP ratio slightly exceeds the internationally used ‘high debt’ threshold of 60%. However, the government is fairly optimistic that it can reduce that ratio with economic growth that is expected to exceed the level of borrowing.
