Japanese investment bank Nomura has slashed its economic growth forecast for the Philippines to 4.7 percent—far below the government’s target—citing major downside risks linked to the ongoing flood control scandal.

Nomura Global Markets Research, in a commentary published on Monday, Oct. 27, said it has significantly cut its gross domestic product (GDP) growth forecast to 4.7 percent from an already below-target 5.3 percent previously.

According to Nomura Economists Euben Paracuelles and Yiru Chen, the revision in the bank’s outlook is set against the backdrop of potentially slower output growth due to the drag from the corruption controversy involving flood control funds.

Meanwhile, Department of Budget and Management (DBM) Assistant Secretary Romeo Matthew T. Balanquit told reporters that the government remains on track to achieve the lowered growth goal of 5.5 percent to 6.5 percent despite the recent slowdown in government spending.

Balanquit is banking on private construction, a subdued inflation rate, and easing borrowing costs. Inflation stood at a six-month high of 1.7 percent in September, while the Bangko Sentral ng Pilipinas (BSP) reduced its key interest rate to 4.75 percent earlier this month.

“Despite that negative growth in public construction in the second quarter, we saw about a 16-percent increase in household and private construction, and around 6.5-percent growth in corporate construction,” Balanquit noted.

“So you see, the private sector really stepped up in the second quarter. That’s why we still managed to achieve a 5.5 percent GDP growth in that period,” he added.

For the third quarter, Balanquit believes public construction “will remain low because of the ₱157-billion underspending on the government’s part,” but he is crossing his fingers that the private sector will once again salvage growth.

Think tank Capital Economics, meanwhile, said the largest immediate risk to the economy is public unrest over the mounting corruption cases allegedly involving high-ranking government officials.

“Even if unrest is avoided, the economy could still be affected by the government’s efforts to root out corruption,” Capital Economics said in an Oct. 27 commentary.

It also warned that “a more concerted effort by the government to clamp down on graft could hurt investment as well as purchases of luxury goods and services.”

It said the impacts could escalate further if the government resorts to demonetizing the largest bills to address corruption. BSP Governor Eli M. Remolona Jr. earlier said that such a policy would not be effective in deterring corruption.