Behind the Retail Surge: Dissecting the PSE’s 2024 Investor Profile Amid Heightened Volatility and Economic Strain

  

The world has never been so awash in speculative finance, ensuring aberrant market behavior. Never has the global leveraged speculating community been as colossal and powerful. Egregious Treasury “basis trade” leveraging drives unprecedented overall hedge fund leverage. Household (loving dip buying) market participation is unparalleled, with the proliferation of online accounts, options trading, and herd-like speculation creating extraordinary market-moving power—Doug Noland 

In this issue

Behind the Retail Surge: Dissecting the PSE’s 2024 Investor Profile Amid Heightened Volatility and Economic Strain

I. Introduction: A Record-Breaking Year for Retail Accounts

II. The Retail Activity Paradox; The Real Drivers Behind the Surge: A PSEi 30 Bull Market?

III. Institutional Dominance, Trading Concentration and Market Manipulation

IV. Concentration Risks: National Team, Other Financial Corporations and Total Financial Resources

V. 2024’s Economic Operating Conditions, Financial Distress and Unintended Consequences

VI. The Savings Illusion and the Generational Shifts: Herding Among Youth, Decline Among Seniors

VII. The Digital Divide in Brokerage: Traditional Brokers Under Pressure

VIII. Conclusion: A Mirage of Growth 

Behind the Retail Surge: Dissecting the PSE’s 2024 Investor Profile Amid Heightened Volatility and Economic Strain 

What’s really driving the surge in Philippine retail investors? A closer look reveals economic desperation, distortion, and deepening divides beneath the surface of stock market optimism 

I. Introduction: A Record-Breaking Year for Retail Accounts 

The PSE reported on June 9, 2025: "The number of stock market accounts in the Philippine Stock Exchange reached 2.86 million in 2024, up by 50.1 percent from 1.91 million in 2023. This was fueled by a 62.0 percent surge in online accounts to 2.47 million from 1.53 million. “This 50 percent jump in number of accounts is the highest we have recorded since we started tracking the investor count and profile in 2008. This substantial growth was made possible by the enabling of digital platforms to connect to PSE”s trading engine, thereby facilitating the trading by investors in the market. PSE is committed to being true to its advocacy of promoting financial inclusion,” said PSE President and CEO Ramon S. Monzon. “More than the numbers, what is important is that retail investors are equipped with investment know-how to avoid investing pitfalls. We address this need for investor education through our various investing literacy initiatives. We also actively work with trading participants and government and private entities to spread the word about personal finance and stock market investing,” Mr. Monzon added." (bold added)

Figure 1

The PSE seems exhilarated by this unprecedented surge. Yet beneath the celebratory tone lies a paradox: they appear unsure why this spike occurred. Their attribution to the "enabling of digital platforms" seems insufficient, especially since such infrastructure has been in place since 2013. (Figure 1, topmost graph) 

This inability to explain the surge becomes more apparent when considering their bewilderment over the depressed number of active accounts. 

As the PSE acknowledged: "While growth in retail accounts has been remarkable, the real challenge is getting retail investors to participate more actively in our market as they only contribute 16 percent to total value turnover. We are optimistic that the upcoming reduction in stock transaction tax (STT) to 0.1 percent from 0.6 percent, along with the various investor education programs and upcoming pipeline of products of the Exchange, will encourage greater investor activity for the remainder of 2025," Mr. Monzon noted. (bold added) 

The low contribution of retail investors to market turnover—underscores the PSE’s challenge: Understanding the essence and the development of the capital markets in line with economic freedom, rather than using it as a covert political redistribution, which drives malinvestments and inequality.

II. The Retail Activity Paradox; The Real Drivers Behind the Surge: A PSEi 30 Bull Market?

Three critical questions emerge from this phenomenon: 

One, is the PSE experiencing a bull market, fueling frenzied retail participation? 

Two, could the torrent of enrollment reflect symptoms of economic desperation—people seeking to plug income gaps amid stagnant living standards?  Or, is this a case of instant gratification through asset speculation? 

Three, has a sudden boom in savings driven retail investors into stocks? 

"Is the PSE experiencing a bull market driving frenzied retail participation?" 

With the PSEi 30 returning just 1.22% in 2024, the surge in new participants seems disconnected from its performance. (Figure 1, middle window) 

However, breaking down this performance by quarters reveals important insights. 

While Q1 2024's 7.03% increase may have been a contributing factor, Q3's phenomenal 13.4% returns likely lured the bulk of these newcomers into stocks. (Figure 1, lowest chart) 

Of course, they were also likely swayed by the constant "propagandizing" or the bombardment by media and establishment "talking heads" of a "return of a bull market!" 

Even more, one critical aspect highlighted by the PSE deserves attention: retail investors "contribute 16 percent to total value turnover." This means retail trades represent a significant minority in the PSE’s turnover.

Figure 2

According to PSE infographics, retail active accounts represented 23.1% of total accounts and 24.5% of online accounts, totaling 660,714 retail accounts. The massive influx of new participants helped boost the active account ratio from an all-time low of 17.5% in 2023 to 23.1% in 2024. (Figure 2, topmost and middle images) 

Our underlying assumption is that the data reflects the ratio of active to total accounts, rather than the proportion of active accounts relative to total market turnover. 

As further proof of the PSE's lackadaisical activities, gross volume turnover rose by just 1.37% in 2024—the second lowest peso level since at least 2014. (Figure 2, lowest diagram) 

III. Institutional Dominance, Trading Concentration and Market Manipulation

Figure 3 

This raises a striking question about the remaining 84% share of total turnover. The answer lies with institutional investors—both local and foreign. Foreign money accounted for 48.8% of gross turnover, with foreigners selling local equities worth Php 25.253 billion in 2024. (Figure 3, topmost chart) 

Foreign investors represented 36% of active online activities, though the distribution between retail and institutional foreign activities remains unspecified. 

The data reveals a staggering concentration of trading activities in 2024:

• The top 10 brokers accounted for a daily average of 58.9% of mainboard turnover. (Figure 3, middle window)
• The top 10 and 20 most actively traded issues averaged 64% and 83% respectively, and
• The Sy Group (among the top 3 of the five biggest market capitalizations) averaged 21.19% of market activity.

The scale of concentrated activities also elucidates evidence of "coordinated price actions," such as the post-lunch recess "afternoon delight" and the 5-minute pre-closing "float pumps-and-dumps"—as demonstrated by some of the major activities in 2025. (Figure 3, lowest charts) 

Basically, the PSEi 30 has been "propped up" or "cushioned" by local institutional investors.

Figure 4

As a result, the share of the top five free-float heavyweights reached its highest level at 52% in December and averaged 50.3% in 2024—meaning their free-float share accounted for more than half of the index. SM, ICT, BDO, BPI, and SMPH delivered returns of 3.01%, 56.04%, 10.34%, 17.54%, and -23.6%, respectively, resulting in an average return of 12.76% in 2024—a clear sign of divergence from the rest of the PSEi 30. (Figure 4, upper pane) 

Furthermore, given that the aggregate advance-decline spread was generally negative, albeit better than in 2023, this shows why novice "traders" morphed into "investors." Or, the negative spread signifies that losses dominated the overall performance of listed firms at the PSE—a continuing trend since 2013. (Figure 4, lower visual) 

With the PSEi returning 1.22% in 2024, the asymmetric performance reinforces the massive divergence between the PSEi 30 and the broader PSE universe. 

Put simply, the synchronized and mostly coordinated pumps and dumps of the top five—or even the top ten—have fundamentally kept the PSEi 30 from a free fall. 

IV. Concentration Risks: National Team, Other Financial Corporations and Total Financial Resources

Figure 5

It is no coincidence that the ebbs and flows of the domestic private sector claims of Other Financial Corporations (OFCs) have dovetailed with the PSEi 30 level. (Figure 5, upper graph) 

In short, OFCs appear to have played a very substantial role in propping up the PSEi 30. 

Could they be part of the local version of the "national team" aimed at supporting price levels of the PSEi 30? 

It is also not a coincidence that banks have been deepening their hold on the nation’s total financial resources (assets), a trend that further reveals the depth of systemic concentration risks. 

Although the growth of Total Financial Resources has been slowing from its July 2024 peak of 11.23% to 5.06% in April 2025, the share of Philippine banks and universal banks in the total has been drifting at all-time highs of 82.64% and 77.08%, respectively. (Figure 5, middle diagram) 

Could all these actions have been designed to keep asset prices or "collateral values" afloat to stave off risks of credit deflation, which would imperil the banking system? 

V. 2024’s Economic Operating Conditions, Financial Distress and Unintended Consequences 

"Could the torrent of enrollment reflect symptoms of economic desperation?" 

Let us also not forget the operating conditions in 2024. The BSP initiated its easing cycle in the second half of 2024 (rate cuts and RRR cut), while public spending rose to a record high. 

The unintended consequences of the PSEi 30's 'Potemkin village' effect extend beyond price distortions—overvaluing capital goods and fostering spillover effects through excess capacity and malinvestments. More importantly, it redistributes wealth through zero-sum transactions, where institutions sell holdings at elevated prices while naive retail participants are 'left holding the bag.' 

Once again, downside volatility has 'emasculated' these neophytes, transforming their initial short-term trading positions into long-term or 'buy-and-hold investments.' More precisely, their failed attempts to generate short-term income resulted in a 'trading freeze.' 

That is to say, many novice traders were drawn in by the pursuit of short-term yield—whether to compensate for insufficient income, recover lost purchasing power, or escape excessive debt—by engaging in stocks, a true 'Hail Mary Pass!' 

It is no surprise that this period aligned with milestone highs in sentiment-driven surveys on self-rated poverty and hunger incidences. 

In essence, many newcomers likely perceived the PSE not as a structured investment market but as a high-stakes gamble—a 'lottery ticket' or a 'casino' offering a chance to escape financial hardship. 

VI. The Savings Illusion and the Generational Shifts: Herding Among Youth, Decline Among Seniors

"Has a sudden boom in savings driven retail investors into stocks?" 

Using the Philippine banking system's deposit liabilities and cash balances as proxies, the answer is definitively no. In 2024, despite record-high bank credit expansion, bank deposit liabilities reported their lowest growth rate of 7.04% since 2012, while PSE volume increased by only 1.4%. (Figure 5, lowest chart)

Figure 6

Next, bank cash and due balances fell to their lowest level since 2018, wiping out the historic liquidity injections by the BSP during the pandemic recession in 2020. (Figure 6, topmost pane) 

Circling back to retail accounts, distributed by generations, the accounts with the biggest gains emerged from Gen Y and Gen Z, posting 48.8% and 26.5% growth in 2024, respectively. (Figure 6, middle image) 

This category hints that with likely insufficient income, these age groups could have fallen prey to the ‘herding effects’ of the PSEi 30's Q1 and Q3 upside volatility. 

In contrast, seniors' growth fell sharply from 14.8% in 2023 to 7.3% in 2024. Seniors, likely with the most savings, topped in 2023, but they accounted for the least growth (3.7%) in online accounts in 2024. 

VII. The Digital Divide in Brokerage: Traditional Brokers Under Pressure 

The surge in online accounts, representing 86.42% of total accounts, has reduced traditional brick-and-mortar accounts to just 13.58%. However, non-online brokers still represent the vast majority of trading participants. 

According to PSE's 2024 infographics, there were 121 active trading participants, but only 37 offered online accounts—meaning 30% of brokers accounted for the bulk of total turnover. (Figure 6, lowest graph) 

This implies that brick-and-mortar brokers are fighting for a rapidly dwindling share of PSE volume, making many vulnerable to sustained low-volume conditions and an extension of the prevailing bear market. 

VIII. Conclusion: A Mirage of Growth 

The Philippine Stock Exchange's reported surge in new accounts in 2024, while seemingly a triumph of financial inclusion and capital market deepening, masks a more complex and potentially troubling reality. 

Our analysis suggests that this growth isn't primarily a result of a robust bull market or a sudden boom in savings. Instead, it reflects heightened volatility, a concentrated market, and a populace grappling with economic hardship. 

The significant disconnect between the dramatic increase in accounts and the persistently low level of active participation—coupled with the overwhelming dominance of institutional investors—paints a picture of a market, where retail investors, particularly younger generations, may be making a "Hail Mary Pass" amid limited economic opportunities. 

The “Potemkin village” nature of the PSEi 30’s performance—propped up by institutional activities and circumstantial signs of coordinated activity—raises deeper concerns: price distortions, misallocated capital, and the quiet transfer of wealth from uninformed and gullible retail players to more sophisticated institutions. 

Moving forward, it’s no longer enough for the PSE to simply lower transaction taxes, launch new products, or expand investor education programs. 

What’s truly needed is a political economy that fosters real economic freedom—grounded in long-term thinking or lower time preference—so savers can build genuine wealth by channeling their capital into productive enterprise and transparent capital markets. 

Above all, capital markets must operate with integrity: free from manipulation, insulated from rigged dynamics, and designed to protect—not exploit—retail investors from becoming cannon fodder in a system tilted toward institutional dominance. 

___

References 

Doug Noland, Uncertainty Squared, June 7, 2025, Credit Bubble Bulletin 

Philippine Stock Exchange, Stock market accounts breach 2M mark, June 9, 2025 pse.com.ph

 

Is the Philippine Peso’s Rise a Secret Bargaining Chip in Trump’s Trade War?

Devaluation is not a tool for exports. It is a tool for cronyism and always ends with the demise of the currency as a valuable reserve—Daniel Lacalle

In this issue

Is the Philippine Peso’s Rise a Secret Bargaining Chip in Trump’s Trade War?

I. BSP Denies Currency Manipulation Amid Trade Talks

II The Mar-a-Lago Framework: Dollar Devaluation as Trade Strategy

III. Asian Geopolitical Allies Lead Currency Appreciation Against USD

IV. Market Signals Point to Implicit Bilateral Deals

V. Taiwan’s Hedging Frenzy: Collateral Damage of FX Realignment?

VI Gross International Reserves Tell a Different Story

VII. Breaking Historical Patterns: GIR Decline Amid Peso Strength

VIII. Yield Spreads and Market Disruptions Signal Intervention

IX. Conclusion: The Hidden Costs of Currency Leverage; Intertemporal Risks and Economic Feedback Loops 

Is the Philippine Peso’s Rise a Secret Bargaining Chip in Trump’s Trade War? 

How the BSP's currency interventions may be hiding an implicit trade deal with Washington

I. BSP Denies Currency Manipulation Amid Trade Talks 

From a syndicated Reuters news, the Interaksyon reported May 20: "The Philippine central bank said there is no indication that its management of the peso’s exchange rate is part of trade negotiations with the U.S. government, as it signalled a preference for non-interest rate tools to manage capital inflows. The Bangko Sentral ng Pilipinas said while it expected to further ease monetary policy because of a favourable inflation outlook, it favoured a more nuanced approach to managing liquidity and exchange rate volatility. “The BSP does not normally respond to capital flow surges or outflows, or even volatility, using policy interest rate action,” the BSP said in an emailed response to questions from Reuters. Philippine officials met U.S. authorities on May 2 to discuss trade. Although not directly involved in the talks, the BSP said there was no indication foreign exchange considerations were explicitly part of the negotiations. The Philippines has not been spared from President Trump’s tariffs, although it faces a comparatively modest 17% tariff, lower than regional neighbours Malaysia, Thailand, Indonesia, and Vietnam. “The BSP adopts a pragmatic approach in managing capital flow volatility, combining FX interventions when necessary, the strategic use of the country’s foreign exchange reserve buffer, and macroprudential measures,” it said." (bold added)

II The Mar-a-Lago Framework: Dollar Devaluation as Trade Strategy 

Though the Mar-a-Lago Accord, coined by analysts like Zoltan Pozsar and popularized by Stephen Miran, is a speculative framework, it draws inspiration from the 1985 Plaza Accord, where G5 nations coordinated to depreciate the U.S. dollar to boost American exports. Stephen Miran, now Chairman of the White House Council of Economic Advisers, published a paper in November 2024 titled ‘A User’s Guide to Restructuring the Global Trading System.’ 

It argues that the U.S. dollar’s persistent overvaluation harms American manufacturing by making exports less competitive and imports cheaper, contributing to a $1.2 trillion trade deficit in 2024.

To address this, Miran proposed devaluing the dollar by encouraging foreign central banks to sell dollar assets or adjust monetary policies, while using tariffs as a ‘stick’ to pressure trading partners into currency adjustments or trade concessions.

While dedollarization—reducing reliance on the dollar in global trade and reserves—is often cited as the cause of recent dollar weakness, this may apply to countries with geopolitical tensions with the U.S., such as China or Russia or other members of the BRICs.

However, it doesn’t explain the currency strength among staunch U.S. allies like the Philippines, Japan, and South Korea, suggesting a different motive: implicit negotiations with the Trump administration.

III. Asian Geopolitical Allies Lead Currency Appreciation Against USD

Figure 1 

Year to June 13, 2025, the USD dropped against 8 of 10 Bloomberg-quoted Asian currencies, led by USDTWD (Taiwan dollar) -9.9%, USDKRW (Korean won) -7.8%, and USDJPY (Japanese yen) -8.35%. (Figure 1, topmost and middle charts) 

These countries, staunch U.S. allies that host American military bases, are the most likely to accommodate Washington’s demands. 

In ASEAN, major currencies appreciated more modestly: USDMYR (Malaysian ringgit) fell 5.05%, USDTHB (Thai baht) 5.49%, and USDPHP (Philippine peso) 2.8%. 

In contrast, USDIDR (Indonesian rupiah) rose 1.06%, indicating rupiah weakening—likely due to Indonesia's neutral stance, persistent fiscal concerns, and weaker ties to the U.S.

IV. Market Signals Point to Implicit Bilateral Deals 

On May 23, MUFG commented: "Markets have seemingly perceived that President Trump is looking for a weaker US dollar versus several Asian currencies as part of bilateral trade negotiations. Bloomberg News recently reported that the Taiwanese authorities had allowed the TWD to appreciate sharply earlier this month. The deputy governor of CBC has said that this strategic move is to allow market expectations for TWD gains to play out. But this is apparently at odds with the Taiwan central bank’s past preference to intervene in the FX market to smooth out volatility. The Korean won has also advanced sharply on the news that the US-South Korea finished the second technical discussions on 22 May." (bold added) (Figure 1, lowest graph) 

This MUFG insight—"A weaker US dollar versus several Asian currencies as part of bilateral trade negotiations"—suggests an implicit bilateral Mar-a-Lago deal.

V. Taiwan’s Hedging Frenzy: Collateral Damage of FX Realignment? 

Notably, Taiwan’s insurers recently suffered massive losses during the USD selloff and may have even contributed to it. Taiwan’s Financial Supervisory Commission (FSC) summoned insurers for reportedly “rushing to hedge their US bond holdings.” This could reflect unintended effects of TWD appreciation, potentially tied to an implicit Mar-a-Lago deal. 

In a nutshell, it’s likely no coincidence that currency appreciation aligns with the U.S.’s closest allies, suggesting implicit bilateral Mar-a-Lago deals driven by Trump’s tariff leverage, despite official denials. 

VI Gross International Reserves Tell a Different Story 

"Never believe anything in politics until it is officially denied"—Ottoman Bismark 

Taiwan’s central bank’s denial of involvement closely mirrors that of the Bangko Sentral ng Pilipinas (BSP). 

The BSP has washed its hands from using the peso as a tool for negotiation, despite the Philippines status as a client state in ASEAN, bound by the 1951 Mutual Defense Treaty and hosting U.S. military bases. 

Given the Mar-a-Lago framework of coupling dollar devaluation with tariffs, trade negotiations with the U.S. would likely involve the BSP, making its denial implausible. 

While no official agreement exists, the BSP noted it could use a combination of “FX interventions when necessary” and “the strategic use of the country’s foreign exchange reserve buffer” for capital flows management. 

This rhetoric suggests using the Philippine peso as strategic leverage for trade negotiations, aligning with the Mar-a-Lago goal of weakening the dollar to reduce the U.S.$1.2 trillion trade deficit, including the Philippines’ $5 billion surplus from $14.2 billion in exports.

VII. Breaking Historical Patterns: GIR Decline Amid Peso Strength

Figure 2 

Consider the evidence: When the USDPHP fell in 2012 and 2018, the increase BSP’s Gross International Reserves (GIR) accelerated, evidenced by aggregated monthly inflows. 

As a side note, May’s GIR saw a marginal increase, supported ironically by gold, which has served as an anchor. (Figure 2, topmost and middle images) 

Recall that last February, the BSP dismissed gold’s role, citing the "dead asset" logic: Gold prices can be volatile, earn little interest, and incur storage costs, so central banks prefer not to hold excessive amounts." Divine justice? 

Yet ironically, unlike past trends, the current USDPHP decline has led to a reduction in the GIR. (Figure 2, lowest visual) 

The BSP’s template, repeated in January, March, and April, states: "The month-on-month decrease in the GIR level reflected mainly the (1) national government’s (NG) drawdowns on its foreign currency deposits with the Bangko Sentral ng Pilipinas (BSP) to meet its external debt obligations and pay for its various expenditures, and (2) BSP’s net foreign exchange operations." 

The USDPHP remains far from the BSP’s ‘Maginot Line’ of Php 59—the upper band of its informal ‘soft-peg’ range—so why is its GIR eroding? 

While part of the decline may be due to ‘revaluation effects’ from rising long-term U.S. Treasury yields (falling bond prices) and a softer dollar, this insufficiently explains the GIR’s decline amid an appreciating peso, contrary to historical patterns.

Figure 3

BSP data shows its net foreign assets contracted year-on-year in April 2025, the first decline since July 2023. (Figure 3, topmost diagram) 

This partly reflects changes in the FX assets of Other Deposit Corporations (ODCs), but the primary driver has been the BSP’s dollar-denominated assets. (Figure 3, second to the highest pane) 

Either we are seeing 'revaluation effects' from a GIR heavily weighted in USD assets—given that the BSP was the largest central bank gold seller in 2024, reducing its gold holdings to bolster reserves—or the BSP has been offloading some of its FX holdings to weaken the USD, thereby supporting the peso’s rise. It could be both, distinguished by scale.

VIII. Yield Spreads and Market Disruptions Signal Intervention 

The spread between 10-year Philippine and U.S. Treasury yields has drifted to its widest since 2019, when BVAL rates replaced PDST in October 2018 as the benchmark for Philippine bonds. (Figure 3, second to the lowest and lowest graphs) 

Historically, this was linked to deeper USDPHP declines, but since the BSP adopted its ‘soft-peg’ regime in 2022, its interventions have significantly reshaped this correlation—altering market signals and shifting currency allocations within the financial system

Figure 4

Weak organic FX revenues—contracting FDIs (-45.24% YoY Jan-Mar 2025), tourism (-0.82% Jan-Apr, including overseas Filipino visitors), March 2025 remittances at a 9-month low, and volatile portfolio flows ($923 million Jan-Apr)—don’t support the peso’s strength, except for services exports (+7.2% Q1 GDP). (Figure 4) 

Insufficient FX flows explain the surge in external debt, as the Philippines borrows heavily to bridge the gap, with external debt increasing to support trade, fiscal needs, and the defense of the USDPHP soft peg.

Figure 5 

Philippine external debt surged by a staggering 14% in Q1 2025, driven by a 17.4% rise in public FX debt, which now accounts for approximately 59% of the total! 

The BSP calls a sustained spike in FX debt 'manageable'—color us amazed!

IX. Conclusion: The Hidden Costs of Currency Leverage; Intertemporal Risks and Economic Feedback Loops 

These factors strengthen the case that the BSP is using the peso as leverage for trade negotiations—an implicit bilateral Mar-a-Lago deal. 

These interventions have intertemporal effects—or unintended consequences from pursuing short-term goals—that will likely surface over time. 

The USD’s decline will likely accelerate FX-denominated borrowings, becoming more evident once the peso weakens—similar to the 2018 and 2022 episodes—amplifying currency, interest rate, and other risks through mismatches that could exacerbate market disruptions. 

This poses risks of dislocations in sectors reliant on merchandise trade, remittances, or FX or USD fund flows, potentially triggering feedback loops that could negatively impact the broader economy or lead to economic and financial instability. 

And with escalating risks of a fiscal shock—one that could trigger and amplify unforeseen ramifications—that would translate into a perfect storm, wouldn’t it?  

Is the Philippines on the Brink of a 2025 Fiscal Shock?

 

You should know that credit ratings understate credit risks because they only rate the risk of the government not paying its debt. They don’t include the greater risk that the countries in debt will print money to pay their debts, thus causing holders of the bonds to suffer losses from the decreased value of the money they’re getting (rather than from the decreased quantity of money they’re getting). Said differently, for those who care about the value of their money, the risks for U.S. government debt are greater than the rating agencies are conveying—Ray Dalio

In this issue

Is the Philippines on the Brink of a 2025 Fiscal Shock?

I. A Brewing Fiscal Storm?

II. April 2025 vs April 2024: A Sharp Deterioration

III. Four-Month Performance: Weak Revenue Momentum

IV. Weak Revenue Despite Loose Conditions: A Structural Problem?

V. Budget Math: A Deficit Blowout in the Making?

VI. Economic Fragility Threatens Further Revenue Weakness

A. Manufacturing: Price Softening Amid Trump Tariff Volatility

B. External Trade: Consumer Import Growth Sharply Slows

C. Headline and Core CPI: More Evidence of Demand Weakness

D. Labor Market Deterioration, Hidden Labor Market Realities

VII. The Conundrum of "Aggregate Demand" Policies and Consumer Strain

VIII. The Looming Debt Burden: Financing a Widening Deficit

A. April Financing Activities

B. Debt Payment Dynamics

IX. All-time High April Public Debt: Currency Effects Distorts Debt Composition

X. Crowding Out Effect and Interest Rate Pressures

XI. Crowding Out Effect and Policy Paralysis: The Limits of Monetary Easing

XII. The Inevitable Path: Debt, Inflation, and Future Taxation

XIII. Conclusion: Fiscal Shock Watch 2025 

Is the Philippines on the Brink of a 2025 Fiscal Shock? 

April's budget surplus masks a deeper fiscal crisis brewing beneath record-high deficits and weakening revenue collection

I. A Brewing Fiscal Storm? 

Is the Philippines teetering on the brink of a fiscal shock?  We are about to find out after eight months of government data. 

The Bureau of the Treasury’s April 2025 cash operations report confirms our suspicion that the government is struggling to meet critical fiscal targets, which should raise concerns about economic stability. 

As noted in early May: "A hypothetical Php 200 billion surplus in April would be required to partially offset Q1’s Php 478 billion fiscal gap and keep the official trajectory on track." (Prudent Investor, May 2025) 

The Inquirer.net reported on May 28, 2025: "The national government recorded a budget surplus of P67.3 billion in April, surging by 57.51 percent or P24.6 billion from a year ago, as tax revenues posted stronger growth and spending slowed for the month. However, for the January to April period, the cumulative budget deficit surged by 78.98 percent to P411.5 billion, as public spending rose by 13.57 percent to support economic activity and the priority programs of the Marcos administration." 

Media narratives either echoed the official line on tax revenue strength or highlighted spending restraint as causes for April’s surplus. But both perspectives overlook a critical detail: April’s surplus aligns not just with the 2023 VAT filing shift to a quarterly basis (previously discussed) but—more importantly—with the "annual tax filing deadline"—a period typically associated with a revenue spike. Yet, even this failed to close the fiscal gap. 

Additionally, the record-high deficits in Q1, persisting into the first four months, have gone largely unaddressed in mainstream discussions. 

To cut to the chase: April data signals a further weakening in the revenue base—right in the face of unrelenting public expenditure, pushing the deficit to historic levels. 

Let’s delve into the details to understand the scope of this fiscal challenge. 

II. April 2025 vs April 2024: A Sharp Deterioration 

In April 2025: 

• Revenues fell 2.82%
• Tax revenues grew 7.84%
• Non-tax revenues plunged 68.08%
• Bureau of Internal Revenue (BIR) growth of 11.1% boosted tax revenues
• Bureau of Customs (BoC) 7.5% declined, which weighed on overall performance

Compare that to April 2024: 

• Revenues soared 21.9%
• Tax revenues surged 13.9%
• Non-tax revenues rocketed 114%
• Tax revenues were anchored by BIR's 12.65% growth and the BoC delivered a strong 19.5%.

Clearly, April 2025 showed a sharp drop in performance despite the same structural advantages related to annual filings.

Figure 1       

The nominal (peso) figures show revenue collections falling significantly short of April 2024's all-time high. (Figure 1, topmost window)

Relative to the VAT’s quarterly cycle, note that the combined January and April 2025 surpluses (Php 135.66 billion) exceeded 2024’s (Php 130.7 billion) by just 3.8%—barely moving the needle against the Q1 fiscal gap. (Figure 1, second to the highest image) 

III. Four-Month Performance: Weak Revenue Momentum 

For January to April 2025: 

• Revenues grew a meager 3.3%.
• Tax revenues rose 11.5%, while non-tax revenues collapsed 51.94%.
• The BIR and BoC posted 14.5% and 2.16% growth, respectively.

In contrast, the first four months of 2024 showed:

• Revenues up 16.8%.
• Tax revenues up 13.22%.
• Non-tax revenues up 48.81%.
• The BIR and BoC grew by 15.35% and 6.47%, respectively. 

Clearly, April 2025 didn’t just underperform—it dragged down the already fragile broader four-month revenue trend. (Figure 1, second to the lowest visual) 

IV. Weak Revenue Despite Loose Conditions: A Structural Problem? 

Critically, Q1’s collection performance coincided with the full effects of the BSP’s first easing cycle in 2024, while April began reflecting partial effects of the second phase. 

Additionally, macro conditions were supportive:

• Bank credit growth was strong.
• Labor market conditions were reported as near full employment.
• Inflation slowed.

Universal-commercial bank loans jumped 11.85% in April to a record Php 12.931 trillion. Yet, public revenues stalled. (Figure 1, lowest graph) 

In short, despite historically loose financial conditions, the government has already been experiencing collection issues—a potential symptom of diminishing returns from BSP’s easy-money regime.

This suggests that further monetary stimulus yields progressively smaller positive impacts on revenue generation or economic growth, potentially reflecting inefficiencies in credit transmission due to mounting balance sheet problems. 

Which leads us to the trillion-peso question: What happens when financial conditions tighten? 

V. Budget Math: A Deficit Blowout in the Making?

From January to April, total revenues reached Php 1.520 trillion. Annualized, that projects Php 4.561 trillion—assuming average monthly intake of Php 380.06 billion. 

Compare that to the 2025 enacted budget of Php 6.326 trillion—already a base case considering six straight years of overspending. Authorities have already disbursed Php 1.932 trillion, implying a remaining monthly average of Php 549.28 billion. 

Bluntly put: At the current pace, 2025 could register a deficit of Php 1.765 trillion—5.7% higher than 2021’s all-time high of Php 1.67 trillion!

The key difference? 2021’s deficit was a deliberate fiscal stabilizer—alongside the BSP's unprecedented monetary and regulatory measures—in response to the pandemic. 

In 2025, no downturn has yet emerged—but the deficit itself threatens to trigger one.

VI. Economic Fragility Threatens Further Revenue Weakness 

A. Manufacturing: Price Softening Amid Trump Tariff Volatility

Figure 2

Since its peak in July 2024, manufacturing loans have been decelerating. March growth was just 2%. However, PPI rose only 0.06% in April YoY—barely moving. (Figure 2, topmost pane)

Though manufacturing volume/value both rose 4.2–4.3% inApril, this likely reflected distortions from new Trump tariffs effective that month.

The S&P PMI index showed a similar spike to 53 in April but slumped to 50 in May. (Figure 2, second to the highest chart)

B. External Trade: Consumer Import Growth Sharply Slows

April imports fell 7.2%, while exports rose 7%, compressing the trade deficit by 26%. (Figure 2, second to the lowest diagram)

But consumer goods imports slumped from 25.8% in March to just 2.83% in April. (Figure 2, lowest graph)

Agri-based products—led by coconut and sugar—boosted exports.

C. Headline and Core CPI: More Evidence of Demand Weakness

Headline CPI slipped from 1.4% in April to 1.3% in May, mainly due to quasi-price controls known as Maximum Suggested Retail Prices (MSRP) on rice and pork. The government also began rolling out Php 20 rice subsidies in select areas, distributing them among targeted groups.

Figure 3

However, Core CPI (non-food and non-energy) steadied at 2.2% for a third straight month, backed by a base-forming month-over-month rate of 0.16%—marking a second consecutive month. A soft CORE CPI reflects underlying weakness in demand. (Figure 3, topmost image)

D. Labor Market Deterioration, Hidden Labor Market Realities

Labor data reveals further vulnerabilities. The unemployment rate rose from 3.9% in March to 4.1% in April, but this excludes an estimated 24 million “functionally illiterate workers” (47% of the labor force or 30% of the population aged 15 and above). Many of these workers are likely employed in the informal sector or MSMEs (67% of employment in 2023, per DTI) or are underemployed, part-time, or not in the labor force. 

The “not in the labor force” population, defined by the PSA as those not seeking work due to reasons like housekeeping or schooling or permanent disability, has risen since November 2022, potentially masking the true unemployment rate and raises questions about the true extent of labor underutilization. (Figure 3, middle chart) 

The correlation between universal-commercial bank consumer salary loans and CPI trend since 2021 highlights consumer strain, further eroding aggregate demand. (Figure 3, lowest diagram) 

VII. The Conundrum of "Aggregate Demand" Policies and Consumer Strain 

Amidst all of this, we must ask: what has happened to "aggregate demand," particularly consumer demand? If consumers have shown worsening strains at the start of Q2, its continuity bodes ill for GDP growth and could likely be expressed in potential shortfalls in tax collections. 

So how will the government attempt to keep the GDP afloat? Given their top-down bias, the mechanical recourse would be to front-load public spending, thereby heightening the risks of a fiscal deficit blowout! 

Naturally, because the government is not a wealth generator but rather a redistributor and consumer, someone has to finance that swelling deficit. That "someone" is the individuals in the wealth-generating productive private sector. 

VIII. The Looming Debt Burden: Financing a Widening Deficit

A. April Financing Activities

Figure 4 

With the first four-month deficit at a record high of Php 411.5 billion, authorities raised Php 155.61 billion in April, leading to a 190% spike in financing of Php 799.73 billion in 2025. This effectively reversed the three-year (2021-2024) decline previously hailed by mainstream experts as prudential management. (Figure 4, topmost window)

The financing surge increased BTr's cash reserves to Php 1.205 trillion (Jan-Apr), though authorities held net cash reserves of only Php 188.9 billion in April. 

April's financing was mostly acquired through domestic issuance.

B. Debt Payment Dynamics 

April debt payments soared 73.72% to Php 280.898 billion, accruing to Php 622.921 billion in the first four months of 2025. (Figure 4, middle image) 

Total debt payments remained 45.7% below 2024's record levels. However, FX payments grew 17.3%, partly offsetting the 59.64% plunge in peso payments.

The FX share of debt servicing relative to the total has been rising since 2024. (Figure 4, lowest chart) 

The lag in payment data may be due to scheduling issues or information deliberately withheld for political reasons. 

While we find the preponderance of media announcements showing how debt payment has substantially slowed this year rather amusing, logic dictates that widening deficits will lead to a critical increase in debt that will have to be serviced over time. 

IX. All-time High April Public Debt: Currency Effects Distorts Debt Composition 

April debt hit a record Php 16.753 trillion. Thanks to a strong peso, FX-denominated loans fell 2.7% or Php 142.33 billion. 

Per Bureau of Treasury (BTr): "The reduction was primarily due to the P124.74 billion decrease in the peso value of external debt owing to peso appreciation." 

However, domestic debt grew 1.85% or Php 211 billion, resulting in a net increase of 0.41% or Php 68.690 billion. 

Reality Check: Philippine foreign debt did not actually shrink. The peso simply strengthened, lowering the debt's peso equivalent. Remember, FX liabilities still have to be repaid in dollars or other foreign currencies. In short, it's a revaluation trick—a statistical façade, not a real debt decrease. 

X. Crowding Out Effect and Interest Rate Pressures

Figure 5

In any case, the widening deficit, brought about by the mismatch between accelerating public spending and weakening revenue growth, underwrites the escalation of public debt. The rise in public debt has already been outpacing the growth trend of public spending, driven by the deficit and likely by amortization requirements. (Figure 5, topmost pane)

This escalating fiscal deficit means that competition for access to the public's diminishing savings will intensify, as government requirements will likely crowd out the domestic credit needs of banks and non-private sector firms, thereby putting pressure on interest rates. For businesses, this translates to higher borrowing costs and reduced access to credit, potentially stifling private sector investment and job creation. For ordinary citizens, it could mean higher interest rates on loans for homes, cars, or personal consumption. 

As an aside, the relentless rise in debt levels is not only a manifestation of the consequences of the government-BSP's "trickle-down" policies (debt-financed "savings-investment gap," "twin deficits," and "build and they will come" malinvestments); critically, they also signify the indirect ramifications of the Philippine social democratic system. In essence, this is what you have voted for! 

XI. Crowding Out Effect and Policy Paralysis: The Limits of Monetary Easing 

So, despite authorities' earnest attempts to push down the CPI—mainly via price controls or Maximum Suggested Retail Prices (MSRP) for rice and pork—to accommodate a desired easing cycle, T-bill rates have barely budged since 2022!  (Figure 5, middle chart) 

T-bills, the most sensitive to BSP's rate cuts, have remained unresponsive to April's CPI data! 

The widening spread between market (T-bills) and the CPI suggests that, aside from the crowding-out effect, Treasury markets view the present disinflation as "transitory," or they are hardly convinced of the integrity of the government's data. 

Consider this: The punditry consensus has been clamoring for lower rates on the back of a slumping CPI, but treasury dealers for their companies continue to price Treasuries as if the CPI remains inordinately high!

In short, the crowding out has rendered the government-BSP's easing cycle ineffective: Fiscal stimulus has hit a wall due to diminishing returns!

At worst, the mounting discrepancy could translate into increasing policy risks—or a potential blowback—that could be expressed through an inflation surge or a USD/PHP spike.

As seen in banks' balance sheets, this crowding out has led to a plunge in their liquidity positions (evidenced by falling cash-to-deposits and liquid assets-to-deposits ratios).

This increasing demand for public savings also applies to foreign exchange (FX) requirements. This means that to meet the economy's foreign exchange (FX) requirements and support the BSP's "soft peg" or foreign exchange policy, a surge in external debt can be expected. 

Evidently, public savings have not been sufficient. Authorities have increasingly relied on banks to finance public requirements via net claims on the central government (NCoCG), which have been rising in tandem with public debt. These assets have been siloed via banks' held-to-maturity (HTM) assets. The all-time high in public debt has been accompanied by a near-record NCoCG in April. (Figure 5, lowest diagram)

Figure 6

It is unsurprising that trades in government securities have been booming, even as 10-year yields have been on an uptrend. (Figure 6, topmost diagram) 

This phenomenon suggests two things: potential disguised losses in banks and financial institutions, and second, that these trades have crowded out trading activities in the Philippine Stock Exchange (PSE). 

In 2020, the BSP's historic Php 2.3 trillion intervention occurred partly via its own NCoCG, which is conventionally known as "quantitative easing." Although the present economy has supposedly ‘normalized,” the BSP's NCoCG remains at 2020 levels. This can be expected to surge when public savings and banks' capacity have reached their maximum. (Figure 6, middle image) 

Without a doubt, the BSP will likely rescue the banks and the government, perhaps using the pandemic template of forcing down rates, implementing reserve requirement ratio (RRR) cuts, massive injections (directly and through bank credit expansion), and expanding relief measures—though likely with limits this time. 

We doubt if they can maintain the USD/PHP peg or if they would accommodate a limited peso devaluation. 

XII. The Inevitable Path: Debt, Inflation, and Future Taxation

With this in mind, we can expect both public debt and debt servicing to experience an accelerated rise. Public debt to GDP could hit 2003-2004 levels, while debt servicing should see an equivalent uptrend over the coming years. (Figure 6, lowest chart) 

We should not forget: rising public debt inevitably leads to higher debt servicing, which in turn necessitates more public spending. 

As noted last May 

This trend suggests a potential roadmap for 2025, with foreign borrowing likely to rise significantly. The implications are multifaceted:

-Higher debt leads to higher debt servicing—and vice versa—in a vicious self-reinforcing feedback loop. 

-Increasing portions of the budget will be diverted toward debt repayment, crowding out other government spending priorities. In this case, crowding out applies not only to the private sector, but also to public expenditures. 

-Revenue gains may yield diminishing returns as debt servicing costs continue to spiral. 

-Inflation risks will heighten, driven by domestic credit expansion, and potential peso depreciation 

-Mounting pressure to raise taxes will emerge to bridge the fiscal gap and sustain government operations. (Prudent Investor, May 2025)

Following this, after grappling with debt and inflation, the government is bound to raise taxes. 

XIII. Conclusion: Fiscal Shock Watch 2025 

Unless BSP’s easing gains real economic traction, the first four months of 2025 point to a growing likelihood of a fiscal shock. 

• Revenue collection has deteriorated.
• Economic indicators signal fragility.
• Consumers are heavily indebted and weakening.
• External pressures—Trump's tariffs, deglobalization, and the re-emergence of "bond vigilantes" (investors who sell off government bonds when they believe fiscal policies are unsustainable, thus driving up borrowing costs for the government) could tighten external liquidity and worsen domestic financial conditions. 

Unless authorities rein in spending—which would drag GDP, risking a recession—a fiscal shock could emerge as early as 2H 2025 or by 2026. 

If so, expect magnified volatility across stocks, bonds, and the USDPHP exchange rate.

___

References 

Prudent Investor Newsletter, Liquidity Under Pressure: Philippine Banks Struggle in Q1 2025 Amid a Looming Fiscal Storm, May 18, 2025 

Prudent Investor Newsletter, Philippine Fiscal Performance in Q1 2025: Record Deficit Amid Centralizing Power, May 4, 2025