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The Manila Times | English | News | Oct. 16, 2025 | UndeterminedEconomic Growth

Finance Secretary Ralph Recto has warned that the Philippines' economic growth is likely to slow down in the third and fourth quarters of 2025 and possibly continue into next year. This slowdown is attributed to reduced spending following a corruption scandal involving substandard and missing flood control projects, which Recto estimates caused losses of up to P118.5 billion. The government had hoped to boost growth through increased infrastructure expenditure after an election-related spending ban, but this effort has been hindered. Recto predicts 2025 GDP growth at 5.4 percent, down from 5.7 percent in 2024, and below the revised target range of 5.5 to 6.5 percent.

The scandal also resulted in missed revenue targets for the Bureau of Internal Revenue and the Bureau of Customs, though non-tax revenue collections are expected to compensate, allowing the government to still meet total revenue targets for the year. Recto revealed that the credit rating agency S&P Global Ratings deferred an anticipated upgrade for the Philippines due to the corruption issues, despite earlier signals of a near-term upgrade. S&P had affirmed a "BBB+" rating with a positive outlook last November, while Moody’s and Fitch maintain similar ratings with stable outlooks.

Recto emphasized that the corruption scandal itself is unlikely to cause a credit rating downgrade but warned that proposals to lower the value-added tax rate from 12 percent to 10 percent, which could reduce government revenue by approximately P300 billion annually, might prompt a downgrade. Finance Undersecretary Karlo Fermin Adriano echoed concerns that lowering the VAT would widen the deficit, impede fiscal consolidation, and potentially increase borrowing costs. Recto suggested that reducing the VAT rate should only be considered in the future when debt-to-GDP levels improve.