Numbers no longer whisper. They scream.
Last Wednesday's broadsheet carried a sobering headline: Foreign direct investment (FDI) has declined sharply, driven by a more than 50% decline in net investment by non-residents in debt instruments such as intercompany loans and related financing. Under normal circumstances, such a pullback could be attributed to global headwinds, tight financial conditions or deteriorating macroeconomic fundamentals. But this time, the explanation hits too close to home, and it's very inconvenient.
As we noted in our GlobalSource Partners commentary released the same day, the decline in FDI reflects “recent governance developments”. Simply put, it is about corruption. The flood control scandal, along with long-standing concerns about weak public accountability and selective justice, have poisoned investor confidence. The year-on-year decline in FDI in October is no statistical accident. This is a decision.
The data reinforces what investors have been quietly signaling for months. Trust in the Philippine administration is eroding and patience is at an end.
This is not an isolated incident.
Even before the October decline, FDI inflows had already weakened in August and September. This pattern points to a sustained decline in sentiment, not a temporary market overreaction. Modest gains in equity investment and reinvested earnings were not enough to offset the chilling impact of policy uncertainty, institutional weakness and governance risks. Momentum now works against the country and once credibility is lost, it is exceptionally difficult to recover.
To be clear, the Philippines is not devoid of talent or institutional foundation. He is a capable and principled public servant. There are laws on the books, agencies with mandates, and policy frameworks that can function if untouched by politics and rent-seeking, especially on the fiscal side. But these forces are being overwhelmed by a far more powerful signal that accountability for the powerful is optional, and justice non-negotiable.
Investors are not confused. They are responding logically.
Weak governance is now colliding with weak investment fundamentals. Despite the large economy and growing population, gross capital formation is extremely low, reaching only 23% of GDP. This places the Philippines at the bottom of investment performance in the region. Thailand, Malaysia and Singapore are in the same category today, but they posted much higher investment shares when they were growing at high single-digit rates. Meanwhile, Indonesia, Vietnam and Cambodia consistently invest in the mid-20s and more than 30% of GDP.
This difference matters.
Countries that invest more build faster, learn faster and compete better. Vietnam has already gone ahead of us. Cambodia is not far behind with an investment ratio of over 30%. An economy that fails to invest is condemned to slow growth, weak productivity and declining relevance.
And yet, as the country grapples with low physical investment, it faces an even more daunting challenge. It is preparing people for an economy being reshaped by artificial intelligence (AI) and innovation.
IMF Managing Director Kristalina Georgieva has clearly stated that countries that fail to prepare workers and firms for the AI transition will fall behind quickly and decisively. For the Philippines, this means equipping youth with cognitive, creative and technological skills that complement rather than compete with AI. This means reskilling displaced workers before pushing them into permanent redundancies.
But the starting point is deeply troubling. Philippine students continue to perform poorly in reading, science and mathematics. Creative thinking scores are worryingly low. These are not abstract indicators – they are early warnings of a workforce inadequately prepared for the demands of a high-productivity, innovation-driven modern economy.
The IMF's new skills imbalance index makes the global stakes even clearer. Countries that successfully align skills with future demand will enjoy labor mobility, adaptability and growth. Those who fail will face stagnation, inequality and social tension. This reality demands not only education reform, but also stronger competition policy, easier entry for new companies, and stronger social security systems to support job transitions.
And this is where corruption inflicts its deepest damage.
Every peso lost to corruption is a peso stolen from classrooms, laboratories, digital infrastructure and public health. With the national budget leaked and public confidence eroded, hopes for a turning point towards human capital development remain the same. Expectations. Public discourse is still stuck in the language of minimum sufficiency, while the future demands excellence.
Yes, the National Budget 2026 emphasizes on human capital, digital transformation and infrastructure. There has been increased funding for science and technology, digital connectivity, education and innovation. These are welcome steps. But incremental progress will never be enough if systemic corruption continues to undermine performance. If the governance system remains weak then there is no point in having a big budget.
The contradiction is clearly visible to investors. They value Filipinos' English proficiency, work ethic, and adaptability. Additionally, they mark weak digital skills, narrow technical competencies, and low productivity. Domestic companies consistently reiterate these concerns, pointing to skills mismatch and the urgent need for education reforms and more flexible labor policies. Unless these structural issues are decisively addressed, capital flows will remain volatile and scarce.
Some would argue that the Philippines is improving its competitiveness. The data supports modest progress. Rankings in global competitiveness and digital readiness have moved up. But this is faint praise. Improving from a low base does not change the fact that we lag far behind our ASEAN peers – and are lagging even further behind those who are decisively leading the way.
What is even more damaging is that whatever gains we make are being destroyed due to the perception and reality of poor governance. Philippines ranked 114th in Transparency International's 2024 Corruption Perceptions Indexth Out of 180 countries, with a score of 33. This puts us well below the global and regional average, and behind every major ASEAN competitor. Singapore, Malaysia, Vietnam, Indonesia and Thailand all, to name a few, dramatically outperform us.
These rankings reflect what investors already believe: transparency is weak, enforcement is selective, and accountability is uncertain. With the flood control scandal in the headlines, there is every reason to expect further reputational damage.
Then again, it should be no puzzle that October FDI inflows collapsed. One headline said it clearly: “Corruption puts investors at risk.” The country's largest business group warned that investment sentiment will continue to deteriorate unless those implicated in the multibillion-peso scandal are held accountable, even at the highest levels. The Philippine Chamber of Commerce and Industry was right in saying that the patience of foreign investors is “at very low.”
This warning should not be ignored. While global shocks matter, corruption has become a decisive factor in the country's investment decline. The call to strengthen safeguards in the 2026 Budget is necessary – but they are not a substitute for credible enforcement and visible accountability.
The fiscal consequences are already dire. The national government debt has more than doubled in six years, from P7.7 trillion before the pandemic to an estimated P17.6 trillion, or more than 63% of GDP. Debt servicing now costs about P2 trillion per year – resources that should have gone to infrastructure, education and innovation. Due to low revenue and high expenditure, the pressure to borrow remains constant.
Under these circumstances, sustained development is not only impossible but unimaginable.
So if we ask why the economy refuses to grow, we might remember James Carville's blunt advice: “It's the economy, stupid.” But in the Philippines today, the diagnosis is more intense and more uncomfortable.
This is corruption sir.
Diwa C. Guingundo is the former Deputy Governor for Monetary and Economics Sector, Bangko Sentral ng Pilipinas (BSP). He served BSP for 41 years. In 2001–2003, he was Alternate Executive Director at the International Monetary Fund in Washington, DC. He is the senior pastor of Fullness of Christ International Ministries in Mandaluyong.