Japanese financial giant MUFG Bank Ltd. said the unearthing of flood control scandals has started to weigh on the Philippine peso, which weakened through last week and lagged behind other Asian currencies.

While the peso traded against the United States (US) dollar “within a reasonable range,” it still “underperformed regional Asian currencies to some extent,” MUFG Global Markets Research senior currency analyst Michael Wan said in a Sept. 12 report.

In particular, the local currency closed at ₱57.1:$1 on the last trading day of last week, but it still slipped about 0.4 percent against the greenback over the course of the week.

“This contrasts with many other Asian currencies which strengthened against the dollar on the back of a weaker dollar and improved sentiment towards China’s risk assets,” Wan said.

“While we don’t think this is a key driver right now, one key domestic factor to watch for in the Philippines now is the recent corruption issues around flood control projects,” Wan added. As such, political risks from these issues need monitoring for possible shifts, he said.

Reports indicate that the Marcos Jr. administration has earmarked nearly ₱545 billion for flood mitigation infrastructure projects since the President assumed power in 2022. It was only recently exposed that several of these projects have been non-existent or were completed with poor quality.

Investigations into anomalous flood control projects are now being conducted alongside congressional hearings on the proposed ₱6.793-trillion 2026 national budget.

As what has been unfolding since the probe began, contractors, lawmakers, and Department of Public Works and Highways (DPWH) officials have allegedly come up with a collaborative scheme where project costs are being inflated and large amounts of kickbacks are being pocketed.

Finance Secretary Ralph G. Recto reported earlier that flood control projects hijacked by sticky fingers have taken away as much as ₱119 billion from the country’s economic output. His report cited that the extent of corruption in DPWH flood control projects stretched up to 70 percent of the total project cost.

Wan said this controversy could hurt public investment in the short term since the government has already hinted at delaying or cutting new flood control projects in 2026. This may slow down construction and affect related industries.

“More fundamentally, the scandal undermines confidence in the efficiency of public spending at a time when the Philippines urgently needs resilient infrastructure to address climate and disaster risks,” Wan stressed.

“For markets, this raises questions about governance, fiscal credibility, and the long-term productivity of capital spending,” he further said.

Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., also said this talk of the town is “a credibility hit. It signals weak governance, and that spooks investors.” Other local economists also warned that this congressional spectacle could be seen as a red flag for foreign investors, signaling the risks of investing in the Philippines.

“If not addressed fast, it could drag the peso—because trust, not just trade, drives currency strength,” Ravelas said.

Marcos, admitting the serious scale of the issue, ordered the release of a full list of flood control projects from the past three years and opened a public reporting portal for citizens to report irregularities.

Since then, the DPWH secretary was replaced, engineers were dismissed, and suspected contractors were blacklisted.

Marcos also set up an independent body to review infrastructure projects across the country, alongside probes by Congress and the Office of the Ombudsman. To strengthen accountability, the Bureau of Internal Revenue (BIR) is also doing audits and lifestyle checks.

Wan said there are potential benefits should these reforms continue and emerge successful.

“A serious effort to root out corruption and improve project oversight could strengthen investor confidence, reduce wasteful leakages, and free up resources for priority programs in health, education, and climate adaptation,” he concluded.