Political noise to weigh on economy – think tank

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June 2, 2026 | 12:00am

MANILA, Philippines — Political uncertainty and concerns over institutional credibility are emerging as bigger risks to the Philippine economy, with the fallout now being felt in investor sentiment, peso and monetary policy expectations.

In an interview with Money Talks, GlobalSource Partners country analyst and former Bangko Sentral ng Pilipinas (BSP) deputy governor Diwa Guinigundo said institutional issues and the credibility of the country’s political institutions have become among the most pressing concerns affecting the economy.

“With respect to external shocks, we have very little control, but with respect to domestic issues, particularly political issues, I think we have better latitude in terms of control and management,” he said.

Guinigundo said concerns over the credibility of the Senate could spill over to the broader economy by affecting governance perceptions, social cohesion and long-term investor confidence.

“The Philippine Senate is perceived to be a pillar of stability and strength of the political institutions,” he said. “However, when the Senate is perceived to be inconsistent with certain principles of the Constitution, issues about credibility would actually crop up.”

He said political uncertainty has become an important factor in the viability of the economy, creating systemic risks in the process.

“Investor sentiment is affected, social cohesion is also affected, and that is an important consideration in the calculus of our foreign investors as well as domestic investors,” Guinigundo said.

“When your political instability and uncertainty become an important factor in the viability of the economy itself, I think systemic risks are generated in the process,” he added.

According to Guinigundo, the link between politics and financial markets has become visible in the peso, which has come under pressure in recent weeks.

“Three weeks ago, when the Senate drama started, the peso was doing about 60 to 61 against the dollar, and as the drama unfolded in the next two weeks, we saw the significant depreciation of the peso,” Guinigundo said.

“On that basis alone, we see the strong correlation between politics and even the movement of the peso itself. You see that in terms of the risks assigned to Philippine global bonds, and that is shown in the international capital markets,” he said.

Guinigundo said the BSP’s job has become more difficult as it tries to keep inflation expectations anchored while markets also react to domestic political developments.

He said the BSP should continue to anchor expectations and boost public confidence in monetary policy, even if it has little control over political developments.

In terms of monetary policy, Guinigundo said the BSP should have tightened monetary policy earlier, noting that upside risks to inflation were already visible last year.

“BSP should have started doing it last year,” he said. “Even last year there were already signs of upside risks, particularly in the external markets. The policy rates could have been jacked up as early as last year.”

He said the central bank’s previous moves, including a reduction in policy rates, a pause and a later increase, may have complicated market expectations.

“As early as February, the forecast already shows that the average inflation for the year 2026 and 2027 are uncomfortably close to the target already,” Guinigundo said.

Guinigundo said monetary policy alone would not be enough, as fiscal conditions have also become tighter.