Political uncertainty in the Philippines could intensify as former President Rodrigo Duterte’s influence on voters grows, potentially diverting attention from tax reforms and the proposed ₱200 wage increase.
According to the Dutch financial giant ING, midterm elections usually have no significant impact on policies, but the upcoming May 12 polls “could heighten political uncertainty,” which has been fueled by the recent International Criminal Court (ICC) arrest of Duterte.
Deepali Bhargava, Asia-Pacific research head at ING, said the arrest of the strongman on “alleged crimes against humanity has sparked concerns about its potential impact on the upcoming midterm elections in the Philippines.”
According to ING’s March 16 report, the forthcoming elections are critical, as Vice President Sara Duterte-Carpio—Duterte’s daughter—faces an impeachment trial soon after the vote. “To avoid her removal as vice president and maintain her eligibility to run for president in 2028, the Duterte family needs their allies to secure seats in the Senate.”
“This suggests that political unrest might continue, as the outcome of Sara Duterte’s impeachment trial and the potential shifts in Senate power will keep both the public and the media intensely focused on the unfolding drama,” ING explained.
Given this attention-stealing development, some recently passed reforms may face delays in implementation.
The Senate recently approved bills to lower stock transaction tax to 0.1 percent from 0.6 percent and revamp the mining fiscal regime.
“These bills were seen to be financial market-friendly but could be delayed with the renewed focus on politics,” ING said.
“Moreover, the proposed daily minimum wage hike of ₱200—which sparked significant debate around how the wage hikes could work to the detriment of businesses and consumers—could be pushed to the back burner as well,” it also noted.
ING expects local economic stability to hold despite political uncertainties, as its forecasts point to controlled inflation and a narrowing fiscal deficit. February inflation surprisingly dropped to 2.1 percent, the lowest in five months, and a hairline below the central bank’s forecast of 2.2 percent to three percent.
According to ING, inflation remains a major consideration in the monetary policy decisions of the Bangko Sentral ng Pilipinas (BSP).
75 bps cut
Given subdued inflation, alongside a stable peso, and sluggish movement in the components of the country’s gross domestic product (GDP), ING sees the central bank further easing key interest rates.
It expects the BSP to proceed with three 25-basis point (bp) cuts this year, bringing the benchmark rate to five percent. The BSP kept the key borrowing rate unchanged at 5.75 percent last month, a move that surprised the markets.
“The substantial decline in global rice prices has not yet been fully reflected in local rice prices in the Philippines, suggesting further potential for food price corrections,” ING said, noting that its expectations point to inflation staying within the BSP’s target range.
ING also noted that a stable dollar-peso exchange rate should help limit the risk of imported inflation. Meanwhile, real policy rates remain near record highs and among the highest in the region, thus a need for additional cuts.
Ultimately, “considering the sluggish trends in private consumption, investment, and export growth, it is even more likely that the BSP’s rate cutting cycle is far from over,” ING said.
“We anticipate a strong likelihood of rate cuts by the Fed [US Federal Reserve] in September and December, which should offer the BSP reassurance in reducing local rates.”
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