Slower economic growth as gov’t deals with flood control scandal - Recto

Metro Manila, Philippines - Finance Secretary Ralph Recto aired what economic managers are seeing as a potential economic slowdown from the third quarter until early next year because of lower spending as the government responds to the flood control corruption scandal.

“Posibleng magkaroon ng slowdown in growth itong third quarter because of all the reforms being initiated by our president na siguraduhin na magastos nang tama ang taxpayers’ money, in executing the budget as well,” Recto said in a Senate hearing on Tuesday, Oct. 14.

[Translation: There may be a slowdown in growth this third quarter because of all the reforms being initiated by our President to ensure taxpayers’ money is spent properly and in executing the budget as well.]

“Dahil pag nag-slow down ang gobyerno sa paggastos, posibleng tamaan ang ekonomiya natin [Because when the government slows down on spending, the economy could be affected],” he added.

Recto called this the “biggest threat” to the economy. Despite the short-term impact, he said the economy will eventually reach its full growth potential once the reforms take effect.

“The good news is that moving forward, lahat iyan upside na kasi maaayos natin yung problema [it’s all upside since we’re fixing the problem],” he said.

At a Senate hearing in September, Recto estimated economic losses of up to P118.5 billion due to “ghost” flood control projects, or those that were declared completed and paid but were inexistent. Some fear total losses over the years could reach trillions of pesos due to widespread corruption, with officials and contractors allegedly manipulating the budget and projects for kickbacks.

In defending his agency’s proposed P37.8-billion budget for 2026, Recto said the country has been missing potential revenue targets due to corruption.

“Dahil napunta ang parte ng capital outlay doon sa ghost projects or substandard projects - halimbawa sa flood control - ay apektado ang growth natin,” he said.

[Translation: Because part of the capital outlay went to ghost or substandard projects - for example, in flood control - our growth was affected.]

“Ibig sabihin, kung hindi napunta sa corruption ang parte ng budget na yan ay siguro ang ekonomiya natin would have been growing by 6 to 6.2 percent at mas malaki ang koleksyon ng BIR [Bureau of Internal Revenue] at BOC [Bureau of Customs],” he added.

[Translation: This means that if that portion of the budget hadn’t gone to corruption, our economy could have been growing by 6 to 6.2 percent, and the BIR [Bureau of Internal Revenue] and BOC [Bureau of Customs] collections would have been higher.]

Economic expansion - as measured in the gross domestic product or the sum of goods and services that the country produces in a year - was at 5.5% in the second quarter.

Earlier, Bangko Sentral ng Pilipinas Governor Eli M. Remolona Jr. said the country may fall short of its 5.5% to 6.5% economic growth target, citing the negative impact of alleged anomalous infrastructure spending on business sentiment.

Senator Win Gatchalian, chairman of the committee on finance, pointed out that the scandal could also erode public trust in government - a situation that has affected tax payments.

“Yes, nararamdaman na ng BIR yan. Medyo yung growth rate ng koleksyon nila ay nababawasan nang kaunti, but so far manageable naman lahat,” Recto replied.

[Translation: Yes, the BIR is already feeling the impact. The growth rate of their collections has slightly declined, but so far, everything remains manageable.]