While economic reforms introduced since mid-2022 augur well for the second half of the Marcos Jr. administration, still-prevalent corruption and political noise—especially the conflict between the President and Vice President Sara Duterte—remain investor concerns, according to the think tank Capital Economics.

“Three years into his six-year term, President Ferdinand Marcos Jr. of the Philippines has passed key reforms to improve the country’s business environment and infrastructure. However, worries about corruption persist due to the abolition of a key national anti-corruption body, while political instability remains a concern for foreign investors,” Capital Economics senior Asia economist Gareth Leather said in an Aug. 12 report titled “The Philippines: Marcos Jr.’s midterm scorecard.”

On the plus side, Leather said that the President “has overseen steady management of the economy.”

He noted that the current administration has improved fiscal management by narrowing the budget deficit, which had been bloated by the Covid-19 pandemic, and appointing credible leaders to key economic positions, boosting investor confidence.

Leather also pointed to solid gross domestic product (GDP) growth, averaging 5.6 percent in the first two full years of the administration, and declining inflation, which has allowed for steady interest rate cuts.

The report also cited that Marcos has advanced long-term growth by sustaining a strong focus on infrastructure through the “Build Better More” (BBM) program, maintaining high spending levels since 2017, or since the time of his predecessor, former President Rodrigo Duterte.

These efforts have led to significant improvements in transport, internet access, and logistics, boosting the country’s global and regional competitiveness, the think tank said.

“At the same time, President Marcos Jr. has taken steps to improve the Philippines’ cumbersome business environment,” Leather said, specifically referring to the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act enacted last year, which reduces corporate taxes and dangles tax perks to lure investors.

But Leather lamented that “other developments have been less promising.”

While the Marcos Jr. administration has taken steps to fight corruption through reforms in the Bureau of Customs (BOC) and an improved procurement law, Leather said that the abolition of the Presidential Anti-Corruption Commission and the “lack of transparency” of the first-ever sovereign wealth fund, Maharlika Investment Corp. (MIC), “have raised fears about backsliding on efforts to fight corruption” in a country already ranked among the most corrupt in Asia.

“Meanwhile, political uncertainty remains a perennial concern as the high-profile spat between President Marcos and Vice President Sara Duterte underlines,” Leather added.

The think tank recalled that Vice President Duterte resigned from the Cabinet last year following serious allegations, including corruption and an assassination plot, and although the Supreme Court recently voided her impeachment, another attempt is expected next year.

“It is no surprise that the Philippines is rated as one of the least politically stable countries in Southeast Asia,” Leather said.

For Leather, “the progress that Marcos has made over the past three years is encouraging for the economic outlook.”

But he warned that “persistent concerns over corruption and political instability risk undermining this progress.”

“If these issues remain unresolved, the Philippines will find it difficult to keep pace with the region’s top-performing economies, particularly Vietnam and India. Moreover, it risks not fully capitalizing on the significant opportunities arising from the realignment of global supply chains driven by the United States (US)–China decoupling,” according to Leather.

(Ricardo M. Austria)