Previous Quarterly Editions
Expropriation Risk: 52 52 52 53 ► Political Violence Risk: 51 51 51 51 ► Terrorism Risk: 66 70 73 75 ▲ Exchange Transfer and Trade Sanction Risk: 55 55 55 55 ► Sovereign Default Risk: 47 47 57 37 ▼
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Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
With more than 300 climate-related natural disasters in this century alone, the Philippines is among the top three countries most affected by climate change. As an archipelago, rising seas are a threat and are already noted in coastal areas. The more immediate danger is the size and severity of typhoons and other disasters made worse by global warming and other aspects of climate change, which inflict costly damage to infrastructure as well as heavy loss of life. The damage caused by major typhoons now runs to billions of dollars per storm. Climate change is expected to have a major impact on food production, with the earliest and most severe damage to the poorer strata of the population. The strain on aquaculture from climate change is exacerbated by Chinese incursions into the Philippines’ exclusive economic zone, which prevent maximum activity during the fishing season.
Given its vulnerability to climate change, the Philippines was a pioneer in South-east Asia in developing a legal framework to address the threat of climate change. The 2009 Climate Change Act and the 2010 Philippine Disaster Risk Reduction and Management Act were intended to integrate climate policy into the bureaucracy. These laws have been implemented through the National Climate Change Action Plan 2011-2028, overseen by the Climate Change Commission. The primary bureaucratic actor in climate change policy is the Department of Energy. Although the government has taken steps to set up a bureaucratic framework, enforcement mechanisms are largely lacking.
Arguably, the Philippines has the most robust civil society in South-east Asia, and environmental advocacy groups have been a critical element in climate change issues. In response to public pressure, the 2009-10 laws included programmes for women and youth. Economic justice for the poor has been a strong theme in the public advocacy for decades, and this has been expanded to incorporate climate change issues. The Philippines is also the target for international climate non-governmental organisations, with Greenpeace, for example, frequently urging Manila to speed up its energy transition.
In the run-up to COP26 international climate meetings in 2021, the Philippines revised its commitment to cut greenhouse gas emissions by 75% by 2030, up from a previous plan of 70%. However, 72.29% of that figure is conditioned on the support of climate finance, technologies and capacity development provided by developed countries under the Paris Agreement, with only 2.71% of the target to come from domestic sources.
In principle, the Philippines is committed to a transition to greater use of renewable energy, codified by the Renewable Energy Act of 2008. The country presently utilises renewable energy sources including hydropower, geothermal and solar energy, wind power and biomass resources. The most economically feasible of these is geothermal, followed by hydropower. At present, renewable sources provide roughly 25% of electricity in the Philippines.
Former Senator Ferdinand ‘Bongbong’ Marcos, Jr., the front-runner for the May 2022 presidential election, has signalled that if he is elected, he will continue many of the policies of President Rodrigo Duterte. It is not clear whether he will follow Duterte’s interference with media companies, but the possibility elevates the risk of expropriation. More generally, there is some nervousness in the Philippine public and the international community that the return of the Marcos political dynasty to power could exacerbate two trends that characterised the previous Marcos era.
Regardless of the current Marcos’s economic intentions, growth tends to fall in a presidential election year in the Philippines. During the election campaign, public spending on new projects is prohibited and legislative action, including on draft bills that affect foreign investment, slows significantly. Investors are understandably reluctant to move forward in this interim period.
The Philippines will hold general elections in May 2022, and the results are likely to be contentious. President Rodrigo Duterte will leave office, as presidents serve only one six-year term, but his legacy of strongman rule will likely endure in a different form.
Two months before the polls, the leading candidate is Marcos, Jr., with Rodrigo’s daughter Sara Duterte as his vice-presidential running mate, a team that unites two powerful political dynasties. Public support for Duterte has fallen recently, because of the government’s handling of the COVID-19 pandemic and its China policy, but Marcos has signalled he intends to continue several of the current administration’s policies, including a close relationship with Beijing and an arms-length distance from Washington. If he wins, Marcos is likely to be a controversial leader throughout his tenure, and possibly the target of a ‘people’s power’ revolution, of the kind that drove his father from power.
A contentious campaign is only one of three factors that would raise the risk of political violence in the Philippines. A second is the basic nature of Philippine elections, which can spark violent clashes between political clans at the local level. Lastly, there is little to suggest China will moderate its actions in the South China Sea, which are often targeted at Filipino fishing boats, and public fear and discontent could translate into anti-government protests.
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The Philippines has a complex, active and high level of terrorism risk. Since the Taliban takeover of Afghanistan in August 2021, South-east Asia has seen a revival of jihadist groups affiliated with Al-Qaida and Islamic State in the region. These are concentrated in Indonesia and in Mindanao in the southern Philippines. As COVID-related restrictions in the region are relaxed, mobility of these extremists will increase, particularly across regional waterways that enable them to move back and forth between Sulawesi in Indonesia and Mindanao.
The terrorist risk in the Philippines could be affected by the outcome of the 2022 elections. If Marcos wins the presidential race, as expected, any internal opposition to his election that produces a significant degree of political instability could provide new openings for jihadist groups to plan and execute attacks in Mindanao. On the other hand, if Sara Duterte wins the vice-presidency, as expected, her family’s origins in Mindanao would help to keep a government focus on the province.
The relationship between Marcos and Washington would likely affect Manila’s ability to prevent or stem terrorist operations, since the Philippines armed forces depend upon the U.S. military for counterterrorism support as one aspect of the U.S.-Philippine defence alliance.
The peso was relatively stable in 2021, depreciating only 1% against the U.S. dollar. The central bank is pursuing a wait-and-see approach about the current global economic environment; in February 2022, bank officials indicated they would wait until the end of the year to raise interest rates, from the current low rate of 2% to 2.5%. However, this determination was made before the Russia/Ukraine crisis started; a severe energy crisis could cause the bank to rethink its current strategy.
The European Union is still contemplating sanctions on the Philippines for human rights violations and in February 2022 approved a fresh resolution condemning extra-judicial killings related to Duterte’s war against drug dealers. Marcos has stated he will continue Duterte’s anti-drug campaign if he becomes president. However, the European Union will likely wait until the dust has settled after the May elections before moving further on this issue.
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According to the Philippine Bureau of the Treasury, the national debt reached USD229 billion at the end of 2021, widening the debt-to-GDP (gross domestic product) ratio to 60.5%, up from 54.6% in 2020. However, the government maintains that the ratio is still manageable and within limits because the country is still in economic recovery from the pandemic. Central Bank Governor Benjamin Diokno maintains economic reopening will narrow the budget deficit. The bank forecasts the debt ratio to rise slightly in 2022, to 60.8% and then to begin a decline in 2023 at 60.7% and 59.7% in 2024.
