Philippine Infrastructure Resilience and Governance Reform: A Strategic Investment Opportunity Amid Sovereign Risk Mitigation

The Philippines stands at a pivotal juncture in its economic trajectory, balancing the challenges of high public debt and climate vulnerability with transformative governance reforms and infrastructure investments. As sovereign risk ratings remain stable at Baa2 (Moody’s) with a “stable” outlook, the country’s strategic reforms and public-private partnerships are reshaping its investment landscape, particularly in the construction sector. This article examines how governance reforms, such as the CREATE MORE Act, and flagship infrastructure projects like the Subic-Clark-Manila-Batangas (SCMB) Railway, are mitigating sovereign risk while unlocking long-term investment potential.

Sovereign Risk and Structural Reforms: A Delicate Balance

The Philippines’ sovereign risk profile is underpinned by its 5.5% GDP growth projection for 2025–2026, driven by private consumption and public investment [1]. However, structural vulnerabilities—such as a public debt-to-GDP ratio exceeding 60% and exposure to climate-related disruptions—remain critical concerns [4]. To address these, the government has prioritized fiscal discipline, targeting a 3% fiscal deficit by 2028 through austerity measures and revenue diversification [1].

Governance reforms, including the CREATE MORE Act (2024), have introduced a 20% corporate income tax rate for registered business enterprises (RBEs), extended tax incentives up to 27 years, and streamlined VAT refunds [2]. These measures aim to attract foreign direct investment (FDI) by reducing operational costs and enhancing predictability for investors. The Act also expands eligibility for incentives to labor-intensive industries, aligning with the government’s “Build, Better, More” infrastructure agenda [2].

Infrastructure as a Catalyst for Resilience

The SCMB Railway project, a $3.2 billion initiative backed by the U.S. Trade and Development Agency (USTDA) and Japan, exemplifies the Philippines’ commitment to infrastructure-driven growth. This 132-mile rail line, connecting Subic Bay, Clark Freeport Zone, and Batangas, is designed to decentralize port activity, reduce freight congestion, and integrate the Luzon Economic Corridor [4]. By 2027, the project is expected to catalyze $69 billion in economic value and create 150,000 jobs, according to USTDA estimates [6].

Complementing such projects, the CREATE MORE Act has spurred a 7.5% growth in the construction sector in 2024, with public and private investments rising by 12.3% and 9.2%, respectively [1]. The sector is projected to grow 8.4% in 2025, reaching ₱1.94 trillion, driven by demand for residential housing and provincial development [3].

FDI Trends and Governance Efficiency

FDI inflows into the Philippines’ infrastructure sector have shown mixed trends post-CREATE MORE Act implementation. While 2023 FDI fell to $8.9 billion (a 6.6% decline from 2022), Q1 2025 saw a surge to $1.8 billion, with real estate and renewable energy projects accounting for 38.5% and 34.1% of inflows, respectively [1]. The CREATE MORE Act’s 5% special corporate income tax option and 27-year tax incentives have particularly attracted U.S. and Japanese investors, who now dominate infrastructure financing [2].

Governance reforms have also improved project execution efficiency. The New Government Procurement Act (NGPA), enacted in July 2024, introduced open contracting standards and a public beneficial ownership registry, reducing bureaucratic silos and enhancing transparency [3]. These measures, coupled with the Open Government Partnership (OGP)’s 6th National Action Plan, have streamlined procurement timelines by 15–20%, according to the Department of Budget and Management [3].

Challenges and the Path Forward

Despite progress, challenges persist. The Philippines ranks 88th in the Heritage Foundation’s Index of Economic Freedom, with judicial effectiveness and government integrity remaining weak [1]. Climate risks, such as typhoon-related disruptions, could delay infrastructure projects by 6–12 months, according to Asian Development Bank (ADB) models [4]. Additionally, political tensions between the Duterte and Marcos factions risk stalling reforms [1].

To mitigate these risks, the government must accelerate Right of Way (ROW) Act amendments to reduce land acquisition costs and expedite the Metro Manila subway project, which has faced delays due to high ROW expenses [5]. Meanwhile, the E-Governance Act’s digitization of public services could reduce red tape by 30%, further enhancing the ease of doing business [5].

Conclusion: A Strategic Investment Horizon

The Philippines’ infrastructure sector offers a compelling investment case, supported by sovereign risk stability, FDI-friendly reforms, and strategic projects like the SCMB Railway. While challenges such as debt and climate risks persist, governance reforms are creating a more predictable and efficient environment for investors. For those willing to navigate the complexities, the Philippines represents a high-growth opportunity in Southeast Asia’s evolving economic landscape.

Source:
[1] Country Risk Report Philippines [https://www.allianz.com/en/economic_research/country-and-sector-risk/country-risk/philippines.html]
[2] Philippines Refines Tax Policies with CREATE MORE Act [https://www.aseanbriefing.com/news/philippines-refines-tax-policies-with-create-more-act/]
[3] THE PHILIPPINE OPEN GOVERNMENT PARTNERSHIP'S... [https://www.dbm.gov.ph/index.php/the-secretary-2/speeches/3207-a-commitment-to-transformative-governance-the-philippine-open-government-partnership-s-journey]
[4] Moody's flags debt, climate risks in Philippines credit review [https://www.philstar.com/business/2025/08/31/2469251/moodys-flags-debt-climate-risks-philippines-credit-review]
[5] Game-changing economic reforms: Philippine Daily Inquirer [https://asianews.network/game-changing-economic-reforms-philippine-daily-inquirer/]