Philippines' Political and Governance Risks: Impact on Foreign Investment and Market Stability

The Philippines, long touted as Southeast Asia's economic bright spot, now faces a confluence of political and governance risks that threaten to undermine its growth trajectory. The deepening rift between President . and Vice President , coupled with widespread anti-graft protests, has created a volatile environment for foreign investors. As political infighting and corruption scandals erode public trust, the country's economic policy credibility and market stability hang in the balance.

The Marcos-Duterte Split: A Fracture in Leadership

The political dynamics between the Marcos and Duterte families have deteriorated sharply in 2025. According to Bloomberg, Vice President Duterte has publicly criticized Marcos for the government's handling of a corruption scandal involving the misuse of state funds, labeling it a "crisis of confidence." This rift is not merely symbolic; it reflects a broader erosion of Marcos's political capital. survey , with his performance rating at 54%-a significant decline from earlier in the year. In Mindanao, a Duterte family stronghold, Marcos's trust rating has dropped to a historic low of 43%. Analysts attribute this to governance challenges and scandals, while Duterte-Carpio's camp appears to consolidate influence, particularly in regions critical to the 2028 election cycle.

The implications for investor sentiment are clear. Political instability breeds uncertainty, and the lack of a unified executive branch has delayed key policy initiatives. has attempted to frame the infighting as "government reforming itself from within," but investors remain skeptical. The stock market and peso have both weakened in the third quarter of 2025, with the Philippines Stock Exchange Composite Index (PSEi) reflecting heightened volatility.

Anti-Graft Protests and the Erosion of Policy Credibility

Compounding these challenges are mass anti-graft protests that have drawn students, labor unions, and civil society groups. These demonstrations, held on the anniversary of martial law, highlight public frustration with systemic corruption in infrastructure projects, particularly flood control initiatives that drained billions of pesos. While the Marcos administration has launched investigations, analysts warn that without tangible outcomes-such as prosecutions and convictions-the anti-graft drive risks being perceived as political theater.

This credibility gap has direct consequences for foreign investment. According to a report by , foreign investment pledges in the Philippines fell by 48.7% in the third quarter of 2025, attributed to "shaken investor confidence." The country's GDP growth slowed to 4% year-on-year, the weakest since 2021, as corruption scandals disrupted public spending and dampened economic activity. While President Marcos has claimed business confidence is "restored," (FOBAP) argue the nation remains "in the process" of regaining trust.

The Path Forward: Reforms or Recession?

For the Philippines to attract sustained foreign investment, it must address both political and institutional weaknesses. Economists emphasize the need for transparent governance and swift judicial action to resolve corruption cases. However, the current political climate complicates such efforts. The intensifying rift between Marcos and Duterte-Carpio has created a leadership vacuum, with neither side demonstrating the capacity to unify the administration.

The government's ability to stabilize investor sentiment will depend on its response to the anti-graft protests and its capacity to depoliticize the anti-corruption agenda. If reforms are perceived as half-hearted or partisan, the Philippines risks further capital flight and a prolonged slowdown. Conversely, decisive action-such as prosecuting high-profile cases and implementing structural reforms-could restore confidence and position the country as a regional investment hub.

Conclusion

The Philippines stands at a crossroads. The fallout from the Marcos-Duterte split and anti-graft protests has already dented investor confidence and economic policy credibility. While the country's demographic dividend and strategic location remain attractive, political instability and governance risks now pose a significant headwind. For foreign investors, the key question is whether the administration can transcend factionalism and deliver on its reform promises. Until then, the Philippines' economic prospects will remain clouded by uncertainty.