Philippines: Mindanao to remain terrorism hotspot

03 October 2018

The number of terrorist attacks in the Philippines increased in 2017 and Mindanao will remain a hotspot. Government investment in major infrastructure projects will drive high levels of economic growth in the Philippines, but inflation is rising and the peso continues to depreciate.

Security Environment

The risk of terrorism in the Philippines remains elevated. The number of recorded terrorist attacks in 2017 reached 692, an increase of almost 10% over the previous year. The southern region of Mindanao is a hotspot for terrorist activity and the government has decreed martial law on the island. The communist New People’s Army (NPA) operates across the country but particularly in Mindanao, where it is likely to continue to target commercial assets such as telecommunications towers and power infrastructure. Over the coming months, the terrorism risk is likely to increase in Mindanao in response to the security forces’ offensives against Islamist groups.

Islamic State (IS)-linked militants seized the city of Marawi in Mindanao in May 2017, and more than 1,100 people were killed before government troops managed to retake the city in October 2017. While the defeat degraded the capability of IS forces in the region, Islamist groups are likely to continue to benefit from the propaganda value generated from the high-profile battle.

The risk of terrorism is lower in Manila, but the city remains an aspirational target. Protests are common in Manila but are usually peaceful, although they are likely to cause ground cargo disruption. Kidnapping gangs operate in Manila and pose a risk to tourists and expatriates, while the risk of kidnap for ransom is particularly high in Mindanao and the Sulu islands.

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Trading Environment

The Philippines remain one of Asia’s fastest growing economies, driven by robust domestic demand and government investment in infrastructure projects. However, real GDP growth is forecasted to moderate slightly from 6.5% in 2017 to 6.3% in 2018, as the Philippine central bank is likely to continue to tighten monetary policy. The central bank has raised interest rates on three occasions by a total of 100 basis points this year, but inflation remains on an upward trajectory and reached 6.4% in August 2018.

Inflationary pressure combined with global trade headwinds and rising US interest rates will sustain the depreciation of the peso, which is expected to remain below PHP 53.00/USD in the near-term. However, general government debt-to- GDP is relatively low and stable at an estimated 38.4% of GDP in 2017, while foreign exchange reserves of USD 77.5 billion are adequate, at around 7 months of current external payments. Revenue generation remains relatively weak but has been strengthened by tax reforms, and central government revenues are expected to rise from 15.6% of GDP in 2017 to 16.7% in 2019.

Investment Environment

President Rodrigo Duterte’s is seeking to accelerate infrastructure development as part of the USD 180 billion ‘Build Build Build’ programme. Between 2018 and 2022, the Philippine construction industry is forecasted to expand by an annual average of 9.7% in real terms. Road and railway infrastructure is expected to grow particularly rapidly over the coming years. However, the business environment is weakening. Corruption is widespread, the judiciary is politicised and contract enforcement can be highly protracted. Expropriation of foreign assets is unusual, but strict environmental standards raise contractual risks in the mining and tourism sectors. In April 2018, for instance, Duterte closed Boracay Island to tourists for 6 months in order to protect the environment, and threatened to ban open pit mining unless firms plant more trees at extractive sites.

Philippines Pricing Outlook

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Lebanon. Philippines, Bangladesh and Mali all of which have been the subject of recent enquiries from JLT's client base.

World Risk Review Rating October 2018

The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

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For further information, please contact Eleanor Smith, Senior Political Risk Analyst on +44 (0)121 626 7837 or email