Philippine Political Stability and the Implications of the Sara Duterte Impeachment Ruling

The Philippine Supreme Court's July 25, 2025, ruling on the impeachment of Vice President Sara Duterte-Carpio has sent shockwaves through the country's political and economic landscape. By voiding the impeachment complaint on constitutional and procedural grounds, the Court has not only reshaped the narrative around accountability in the Philippines but also introduced a layer of uncertainty that investors must grapple with. This decision, while technically sound, underscores the fragility of governance in a nation where political dynasties and institutional checks often collide.

The FDI Fallout: A Tale of Two Quarters

Foreign direct investment (FDI) in the Philippines hit a grim low in Q1 2025, plummeting by 82% year-on-year to $510 million—the weakest level since Q3 2023. This collapse reflects the immediate spillover from the impeachment saga, which has left investors questioning the predictability of governance. The Supreme Court's ruling, though framed as a defense of constitutional principles, has deepened concerns about the potential for political actors to weaponize legal technicalities. For context, the ruling emphasized the “one-year bar rule,” which prohibits multiple impeachment cases within a 12-month window. While this is a technicality, its application here has created a vacuum of trust, with global investors recalibrating their risk assessments.

However, the story isn't entirely bleak. Q2 2025 saw a rebound, with FDI pledges reaching ₱189.5 billion ($3.3 billion), driven by Swiss and Japanese investments in green energy and infrastructure. This resilience highlights the Philippines' enduring appeal as a strategic growth market, particularly in sectors like renewable energy and climate-focused projects. Yet, the recovery is fragile, hinging on the assumption that political stability can be restored without further shocks.

Market Sentiment: A Split Personality

The Philippine Stock Market Index (PSEi) has shown remarkable resilience, rising to 6,462 on July 23, 2025, from 6,355 just a week earlier. This uptick suggests that investors are betting on the country's long-term fundamentals, including a 5.4% GDP growth rate in Q1 2025 and accommodative monetary policy. The Bangko Sentral ng Pilipinas (BSP) has kept interest rates at 5.5%, signaling a commitment to supporting consumption and corporate borrowing.

Yet, business confidence surveys tell a different story. The Business Confidence Index (BCI) dipped to 28.82 in Q2 2025, down from 31.17 in Q1. This decline underscores the caution among local businesses, who are wary of the political climate and its potential to disrupt policy continuity. The Supreme Court's ruling, which left the door open for a refiling of the impeachment complaint in February 2026, has created a “wait-and-see” environment. Investors are advised to watch the Senate's handling of the impeachment process closely, as any perceived politicization could trigger a sell-off.

Policy Continuity: A High-Stakes Chess Game

The Supreme Court's decision has also raised critical questions about the future of institutional behavior in the Philippines. By invalidating the impeachment process on procedural grounds, the Court has set a precedent that could make it harder to hold high-ranking officials accountable. While this may protect the rule of law in theory, it risks emboldening political actors to exploit loopholes. The ruling also highlights the judiciary's growing role in shaping political outcomes—a trend that could either stabilize or destabilize the system, depending on how it's applied.

For the long-term investor, the key takeaway is that policy continuity in the Philippines remains contingent on the balance of power between the Duterte and Marcos political clans. The May 2025 midterm elections will be pivotal, as they will determine the Senate's composition and its ability to manage the impeachment process. A transparent, fair trial could reinforce institutional credibility and restore investor confidence. Conversely, a protracted or partisan trial could deepen polarization and deter long-term investments.

Investment Advice: Navigating the Storm

Given the current climate, investors should adopt a dual strategy. First, prioritize sectors less sensitive to political cycles, such as technology, renewable energy, and logistics. These industries are already attracting capital, as evidenced by the Q2 FDI surge in green energy projects. Second, hedge against short-term volatility by diversifying portfolios and avoiding overexposure to sectors tied to public sector dynamics, such as infrastructure tied to politically charged projects.

For those with a longer time horizon, the Philippines' strategic alignment with the U.S. and its role in countering China's influence in the South China Sea remain compelling. However, patience will be key. The Supreme Court's ruling has bought the country a year of political reprieve, but the clock is ticking. Investors must stay nimble, ready to adjust their strategies as the impeachment saga unfolds.

In conclusion, the Philippines remains a paradox—a nation with robust economic fundamentals but a political landscape prone to turbulence. The Sara Duterte impeachment ruling has amplified this duality, creating both risks and opportunities. For the savvy investor, the path forward lies in balancing optimism with caution, leveraging the country's growth potential while mitigating the risks of its political theater.