Index Trend Previous Quarterly Editions
Expropriation Risk: 54 ► Political Violence Risk: 51 ► Terrorism Risk: 78 ► Exchange Transfer and Trade Sanction Risk: 44 ► Sovereign Default Risk: 65 ▲
Overall Risk Temperature TREND ▲
Special topic: Protest intensity in 2022 and Q1 2023* 2022 Q1 2023 Low Low All protest: Low Low
Cost-of-living protest risk in 2023* Low Medium
*Note: Protest intensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
In 2022, the Philippines had its highest growth rate in 40 years at 7.6%, the third highest in South-east Asia after Malaysia and Vietnam. This was largely due to strong domestic demand – particularly ‘revenge spending’ after all restrictions from the COVID-19 pandemic were lifted in the last quarter of the year – and a rise in employment.
As with other countries in the region, growth is expected to moderate in 2023 in reaction of economic headwinds in the global economy. However, in early April, the Asian Development Bank forecast GDP growth for the Philippines this year at 6%, a more modest decline than those predicted for the Philippines’ neighbours. Moreover, China’s re-opening to international travel and trade is expected to strengthen Philippine food security, which depends in part on seasonal imports, and bump up its tourism sector.
But although the Philippines is one of the fastest-growing economies in the world at present, it has been particularly hard hit by rising inflation, exacerbated by its need for imported food and energy. Moreover, the country’s short-term performance is overshadowed by questions of whether it can attract sufficient investment to meet its profound infrastructure needs and, as a related issue, whether regulatory frameworks can be strengthened, including control of corruption.
President Ferdinand “Bongbong” Marcos, Jr based his election campaign on promises he would meet both these challenges in his six-year term (he is limited to one six-year term under the current constitution). To that end, in the second half of 2022, Marcos proposed the Maharlika Investment Fund (MIF), a sovereign wealth fund for the Philippines, which he maintained would attract funds from foreign companies and serve as the engine for funding the country’s most critical infrastructure projects. Seed funding would initially be drawn from central bank dividends and investment proceeds from the country’s Land Bank and Development Bank.
In December, the MIF bill was passed by the Philippines House of Representatives, whose speaker is Marcos’s cousin, Martin Romualdez. Ninety percent of House members signed on as co-sponsors of the bill. The Senate, which was expected to act on the bill by February, has delayed a formal vote as public debate has fanned controversy over the fund. Although Marcos points to the successful launch of sovereign wealth funds in Singapore and Indonesia, the bill’s detractors focus on the disastrous 1MDB fund in Malaysia which, among other scandals, has landed former Prime Minister Najib Razak in prison. Opponents fear that gains that the
MIF may produce will be recycled into bonuses for Marcos’s public and private sector allies, while losses will be paid from government coffers.
The MIF is a high-stakes gamble for Marcos, who is staking his legacy on a single initiative. Although it has not been fully and officially approved, Marcos claims to have obtained 194 ‘flagship’ donations worth USD2 billion, including from three Japanese companies he recruited when he made a state visit to Japan in February. However, the high-profile MIF has also brought back into public debate the legacy of his father’s administration, which many older Filipinos view as a kleptocracy, an image which his son has tried to bury.
Expropriation Risk 54 (Medium) TREND ►
One advantage of the MIF, assuming it is approved, is to put the Philippines’ policies relating to foreign investment more under international scrutiny and therefore decrease the likelihood of expropriation. Another positive pressure will be the conclusion of the U.S.-led Indo-Pacific Economic Framework in late 2023 and, more generally, a more positive attitude towards the Philippines in the U.S. Congress since the departure of former President Rodrigo Duterte – who often antagonised Washington – which could lead to more favourable bilateral trade terms.
Political Violence Risk 51 (Medium) TREND ►
In a public opinion poll conducted by Publicus Asia in the first quarter of 2023, Marcos’s approval rating for his performance as president was 60%, down from 64% in the first quarter of 2022 when the presidential election campaign was launched. His trust rating was at 57%. Notably, the lowest scores were logged in Metro Manila and Luzon, long known as the political base of the Marcos family, and in Mindanao as well, an area that is widely considered the territory of the Duterte family. By contrast, Vice President Sara Duterte’s approval rating was 67%, a slight rise from her campaign numbers.
These numbers are not necessarily the harbingers of a sharp plummet in public support for Marcos. The transition from an election campaign to a government administration is usually a downward adjustment in public expectations, and Marcos’s ratings are still well within positive territory. Moreover, he is mindful of his family’s dramatic downfall in 1986 and will likely make course corrections to avoid the same fate for his administration.
In the near-term, Marcos is likely to emphasise the potential benefits of his policies to the lower-income levels of Philippines society – he has agreed that 25% of all profits from the MIF will be dedicated to poverty alleviation programmes. In addition, his strong rhetoric about the growing threat to Philippines’ security in the South China Sea aligns with public concern over this issue. However, Marcos has not abandoned his claim he will improve Philippines-China economic relations to fund for a large share of much-needed infrastructure, although a plausible path is not yet clear.
Terrorism Risk 74 (Medium-High) TREND ►
Islamic militants continue to pose a security threat in Mindanao, although they were in visible decline in 2020 and 2021, when the Philippines’ military overran several militant strongholds and the COVID-19 pandemic more generally curtailed insurgency and counter-insurgency movement.
In 2022, however, the military detected new leadership trends among the Islamic State-sponsored jihadist groups, including Abu Sayyaf Group. They anticipate these groups will attempt another action similar to the five-month siege in Marawi City (on Mindanao) in 2017.
Like other aspects of the re-opening after the pandemic, a return to the battlefield in Mindanao is expected. However, the expansion of the U.S.-Philippines Visiting Forces Agreement, which applies to counterterrorism as well as maritime security, will enable the Philippines armed forces to mount a response in quick order.
Exchange Transfer and Trade Sanctions Risk 44 (Medium-Low) TREND ►
Dependent as it is on imports for food and energy, the Philippines has one of the highest inflation rates in South-east Asia; by February 2023 the rate had reached 8.7%. The peso has remained at weak levels consistently through 2023 to date, which will increase the country’s trade deficits as interest rates increase.
Marcos has chosen to battle the International Criminal Court over its investigation into human rights violations in the anti-drug campaign of former President Duterte and has threatened to withdraw the Philippines from the Court if it does not suspend the inquiry. However, with Marcos’s declarations on the importance of the U.S.-Philippines alliance in the context of rising tensions in the Taiwan Strait, this is not likely to cause the United States or other Western nations to impose sanctions on Manila at present.
Sovereign Default Risk 65 (Medium-High) TREND ►
The pandemic forced the Philippines to borrow at historic levels, but brisk economic growth in 2022 enabled Manila to walk debt-to-GDP levels of 63.7% at one point – the highest in 17 years – to 60.4% at year’s end. Moody’s projects continued high growth will enable the Philippines to stave off a rise in debt beyond 60% in 2023 and could even trim a few points. The Bangko Sentral ng Pilipinas, the central bank, maintains the country’s debt burden is manageable compared to the Philippines’ neighbours, including Indonesia, Thailand, and Malaysia.
