The Confidence Illusion: BSP’s Property Index Statistical Playbook to Reflate Property Bubble and Conceal Financial Fragility

 

Fake numbers lead to a phony economy, with fraudulent policies, chasing a mirage—Bill Bonner 

In this issue 

The Confidence Illusion: BSP’s Property Index Statistical Playbook to Reflate Property Bubble and Conceal Financial Fragility

Part I. The BSP’s Statistical Magic: From Crisis to Boom Overnight

I. A. Statistics as Spectacle — The Real Estate Index Makeover

I. B. The Tale of Two Indices: Deflation and Vacancies Erased: RPPI’s Parallel Universe of Price Optimism

I. C. Multiverse Economic Logic, Pandemic Pricing Without Mobility

I. D. BSP’s Statistical Signaling as Policy: Reflation by Design

Part II: The Confidence Transmission Loop and Liquidity Fragility

II. A. Confidence as Catalyst: BSP’s Keynesian Animal Spirits Playbook

II. B. Benchmark Rate Cuts and the Wealth Effect Mirage

II. C. Developer Euphoria: Liquidity, Debt, and Overreach

II. D. Affordability Fallout: Mispricing New Entrants

II. E. Vacancy vs. Real Demand: The Phantom of Occupancy, Market Hoarding and the Developer Divide

II. F. The Squeeze on Small Property Owners: Valuation Taxes and Hidden Costs

II. G. Sentiment Engineering: Policy Windfalls, Redistribution, Inequality

Part III: Policy Transmission: Consumer Debt, Market Dispersion, and the Mounting Fragility

III. A. Capital Market Transmission: Where Confidence Becomes Signal

III. B. Price Divergences and Latent Losses: Fort Bonifacio & Rockwell

III. C. Liquidity Spiral: From Losses to Liquidation Risk

III. D. Concentration Risk in Consumer Lending

III. E. Credit-Led Growth: Ideology and Fragility

III F. Employment Paradox and Inflation Disconnect

III G. Fragile Banking System: Liquidity Warnings Flashing

IV. Conclusion: The Dangerous Game of Inflating Asset Bubbles 

The Confidence Illusion: BSP’s Statistical Playbook to Reflate Property Bubble and Conceal Financial Fragility 

How benchmark-ism and sentiment engineering are used to buoy real estate and stock prices to back banks amid deepening stress. 

Part I. The BSP’s Statistical Magic: From Crisis to Boom Overnight 

I. A. Statistics as Spectacle — The Real Estate Index Makeover 

In a fell swoop, the real estate industry’s record vacancy dilemma has been vanquished by the BSP. 

All it took was for the monetary agency to overhaul its benchmark—replacing the Residential Real Estate Price Index (RREPI) with the Residential Property Price Index (RPPI). (BSP, July 2025) 

And voilà, prices have been perpetually booming, and there was never an oversupply to begin with! 

Regardless of the supposed “methodological upgrade”—anchored in hedonic regression and presented as aligned with global best practices—the index is built on assumptions and econometric modeling vulnerable to error or deliberate manipulation. 

Let us not forget: the BSP is a political agency. Its goals are shaped by institutional motives, and there’s no third-party audit of its inputs or underlying calculations. The only true litmus test for the data? Economic logic. 

I. B. The Tale of Two Indices: Deflation and Vacancies Erased: RPPI’s Parallel Universe of Price Optimism

Figure 1

Under the original RREPI, national price deflation was recorded during the pandemic recession: Q3 2020 (-0.4%), Q1 2021 (-4.2%), Q2 2021 (-9.4%). Deflation returned in Q3 2024 at -2.3%. (Figure 1, upper visual) 

But under RPPI? No deflation at all. 

Instead, the same quarters posted gains: Q3 2020 (6.3%), Q1 2021 (4.1%), Q2 2021 (2.4%), and Q3 2024 (7.6%). Not even a once-in-a-century health and mobility crisis could dent the official boom narrative. 

The new RPPI also shows a material deviation from the year-on-year (YoY) price changes in residential and commercial prices in Makati reported by the Bank for International Settlements (BIS). Figure 1, lower pane) 

The BSP’s narrative: “Property prices rise in Q1 2025, highest in the NCR.” 

Yet media sources paint a starkly different picture—perhaps reporting from another universe—or even permanently bullish analysts observed that the vacancy woes were intensifying. 

Just last April 29th, BusinessWorld noted: 

"The vacancy rate for residential property in Metro Manila will likely hit 26% by the end of this year, with condominium developers reining in their launches to dispose of inventory, according to property consultant Colliers Philippines." (italics added) 

On April 8th, GMA News also reported: 

"The oversupply of condominium units in Metro Manila is now estimated to be worth 38 months, as the available supply has continued to increase while there have been 9,000 cancellations, a report released by Leechiu Property Consultants (LPC)." (italics added) 

LPC reported last week that due to prevailing ‘soft demand,’ the NCR condominium oversupply slightly decreased to 37 months in Q2 2025. 

And in a more sobering global perspective, on July 10 BusinessWorld cited findings from the 2025 ULI Asia-Pacific Home Attainability Index: 

"The Philippine capital was identified as one of the most expensive livable cities in the Asia-Pacific region. Condominium prices in Metro Manila are now 19.8 times the median annual household income, far exceeding affordable levels. Townhouses are even more unattainable at 33.4 times the average income." (bold added) 

More striking still, price inflation has persisted amid record oversupply. 

I. C. Multiverse Economic Logic, Pandemic Pricing Without Mobility

Figure 2

The old RREPI captured the downturn in NCR condo units—four straight quarters of deflation in 2020–2021 and again in Q3 2024. But the new RPPI virtually erased this distress. According to its logic, speculative frenzy thrived even during ECQ lockdowns. (Figure 2, topmost graph) 

But real estate isn’t like equities. Its transactions require physical inspection, legal documentation, and bureaucratic transfer procedures. To suggest booming prices during lockdowns implies buyers magically toured properties, exchanged notarized documents, and signed title transfers—while under mobility restrictions. 

Only statistics can conjure such phenomena. 

When vacancies surged again in Q3 2024, RPPI recorded a +5.3% gain. One quarter of mild contraction in Q4 2023 (-4.8%) is the lone blemish on its multiverse logic. 

RPPI now behaves as if oversupply has nothing to do with prices—either the law of supply and demand has inverted, or RPPI reflects a speculative parallel reality 

I. D. BSP’s Statistical Signaling as Policy: Reflation by Design 

This isn’t just mismeasurement. It’s perceptional distortion. 

The BSP’s policy appears aimed at hitting “two birds with one stone”: rescue the real estate sector—and by extension, shore up bank balance sheets. 

Via rate cuts, RRR adjustments, market interventions, and benchmark-ism, statistics have been conscripted into policy signaling. 

Part II: The Confidence Transmission Loop and Liquidity Fragility 

II. A. Confidence as Catalyst: BSP’s Keynesian Animal Spirits Playbook 

Steeped in Keynesian orthodoxy, the BSP continues to lean on “animal spirits” to animate growth. Confidence—organic or manufactured—is viewed as a tool to boost consumption, inflate GDP, and quietly ease the government’s debt burden. 

Having redefined its benchmark index, the BSP now uses RPPI not just as data, but as a signaling instrument. 

It projects housing resilience at a time of monetary easing, giving shape to a narrative of strength amid systemic stress. RPPI becomes a cornerstone of "benchmark-ism"—targeting real estate equity holders, property developers, and households alike. 

II. B. Benchmark Rate Cuts and the Wealth Effect Mirage 

The timing is telling. 

This narrative engineering coincides with the underperformance of real estate equities. With property stocks dragging the Philippine Stock Exchange, "benchmark-ism" functions as a tactical lifeline to inflate valuations, revive confidence, and activate the so-called "wealth effect." 

Rising property prices are meant to induce consumption—not only among equity holders but among homeowners who perceive themselves as wealthier. But this is stimulus by optics, not fundamentals. 

II. C. Developer Euphoria: Liquidity, Debt, and Overreach 

This ideological windfall extends to property developers. Easier financial conditions could boost demand, sales, and liquidity—justifying their ballooning debt loads and encouraging further capital spending. 

Or, developers, emboldened by statistical optimism, may pursue growth despite structural weakness, compounding risks already embedded in their debt-heavy balance sheets. 

For example, the published debt of the top five developers (SM Prime, Ayala Land, Megaworld, Robinsons Land and Vista Land) has a 6-year CAGR of 7.88%, even as their cash holdings grew by only 2.16% (Figure 2, middle image) 

Additionally, the supply side real estate portfolio of Universal-commercial bank loans has accounted for 24% of production loans, total loans outstanding 20.68% net of Repos (RRP) and 20.28% gross of RRPs. This excludes consumer real estate loans, which in Q1 2025 accounted for 7.54%.  (Figure 2, lowest chart) 

But this is where the Keynesian blind spot emerges: artificially inflated prices distort economic signals. 

II. D. Affordability Fallout: Mispricing New Entrants 

In equities, inflated valuations misprice capital, leading to overcapacity and overinvestment in capital-intensive sectors like real estate or malinvestments. 

In housing, speculative price increases distort affordability, widening the gap not only between renters and owners, but also between incumbent homeowners and prospective buyers—including those targeting new project launches by developers. 

As developers capitalize on inflated valuations, pre-selling prices rise disproportionately to income growth, pushing ownership further out of reach for middle-income and first-time buyers. 

This dynamic not only excludes a growing segment of the population, but also risks creating inventory mismatches, where units are sold but remain unoccupied due to affordability constraints. 

The ULI Asia-Pacific Home Attainability Index pointed to such price-income mismatches 

II. E. Vacancy vs. Real Demand: The Phantom of Occupancy, Market Hoarding and the Developer Divide 

Vacancies extrapolate to an oversupply. 

Even when a single buyer or monopolist absorbs all the vacancies, this doesn’t guarantee increased occupancy. 

Demographics and socio-economic conditions—not speculative fervor—drive real demand. 

Meanwhile, rising property prices also translate to higher collateral values, encouraging further credit expansion and balance sheet leveraging in the hope of stimulating consumption. 

But this cycle of debt-fueled optimism risks compounding systemic fragility. 

Rising prices also create friction between small developers and elite firms, the latter leveraging cheap capital and financial heft to dominate the industry. 

Owners of large property portfolios can afford to hoard inventories, allowing prices to rise artificially while sidelining smaller players. 

II. F. The Squeeze on Small Property Owners: Valuation Taxes and Hidden Costs 

Beyond affordability, rising property prices carry compounding burdens for small-scale owners. 

As valuations climb, so do real property taxes, which are pegged to assessed values and can reach up to 2% annually in Metro Manila. 

Insurance premiums and maintenance costs—from association dues to repairs—rise in tandem. These escalating expenses disproportionately impact small owners, who lack the financial buffers of large developers or elite asset holders. 

The result is a quiet squeeze: ownership becomes not just harder to attain, but harder to sustain. 

II. G. Sentiment Engineering: Policy Windfalls, Redistribution, Inequality 

Governments reap fiscal windfalls via inflated valuations, using funds to back deficit spending. But these redistributions often fund projects detached from systemic equity or real productivity.

Despite the optics, only a sliver of the population truly benefits. 

Aside from the government, the other primary beneficiaries of asset inflation are the elite of the Forbes 100, not the broader population 

This "trickle-down strategy", rooted in sentiment and asset inflation, risks deepening inequality and fueling balance sheet-driven malinvestments. 

Part III: Policy Transmission: Consumer Debt, Market Dispersion, and the Mounting Fragility 

III. A. Capital Market Transmission: Where Confidence Becomes Signal 

Here is how the easing-benchmarkism policy is being transmitted at the PSE.

Figure 3

The PSE’s property index sharply bounced by 8.2% (MoM) in June 2025, while the bank-led financial index dropped 4.9%. This divergence reveals that asset reflation via statistical optics has buoyed developers—but failed to restore investor confidence in the banking sector. (Figure 3, topmost window) 

During the first inning of the ‘propa-news’ campaign that “Easing Cycle equals Economic Boom” in Q3 2024, both indices had surged—property by 16.41% and financials by 19.4%. But Q2 2025 tells a different story: while property stocks outperformed the PSE again, financial stocks weighed it down. (Figure 3, middle diagram) 

This magnified dispersion reflects the imbalance at play. As a ratio to the overall PSE, property stocks are gaining market cap dominance. At the same time, the free float market capitalization of the PSEi 30’s top three banks have declined—mirrored by the rising share of the two biggest property developers. (Figure 3, lowest visual) 

Unless bank shares recover, gains in the property sector will likely be capped. After all, property developers remain the biggest clients of the Philippine banking system. 

Put another way: whatever confidence boost the BSP engineers through easing and revised benchmarks, markets eventually push back against artificial gains. 

Signal may dominate short-term sentiment—but fundamentals reclaim price over time. 

III. B. Price Divergences and Latent Losses: Fort Bonifacio & Rockwell 

There is more.

Figure 4

The widening divergence in pre-selling and secondary prices of condominiums in Fort Bonifacio and Rockwell Center signifies a deeper signal: the BSP’s implicit rescue of banks via the property sector is being tested on the ground. (Figure 4, topmost window) 

The widening price gap implies mounting losses for pre-selling buyers—early investors who are now exposed to valuation markdowns in the secondary market.

So far, these losses have not translated into Non-Performing Loans (NPLs). Continued financing, sunk-cost inertia, buyer risk aversion, and an economy growing more through credit expansion than productivity have suppressed the impact.

But if these losses scale—or if the economy tips into recession or stagnation—underwater owners may surrender keys. This leads to cascading vacancies and NPLs, raising systemic risk. 

III. C. Liquidity Spiral: From Losses to Liquidation Risk 

Losses, once translated into constrained liquidity, spur escalating demand for liquid assets. This pressure breeds forced liquidations—not just by individual buyers of pre-selling projects, developers but among holders of debt-financed real estate. 

Banks, as financial intermediaries, face direct exposure. When collateral values fall, they may issue a ‘collateral call’—requiring borrowers to post more assets—or a ‘call loan,’ demanding immediate repayment.

If rising NPLs escalate into operational or capital deficits, banks themselves become sellers—dumping assets to raise cash. This synchronized selloff in a buyer’s market fuels fire sales and elevates the risk of a broader debt crisis.

III. D. Concentration Risk in Consumer Lending

Last week, the Inquirer cited a Singaporean fintech company which raised concern about the extreme dependence on credit card usage in the Philippines, noting: “The 425-percent debt-to-income ratio in the Philippines—the worst in the region—indicates a ‘severe financial stress.’” (Figure 4, middle image)

Downplaying this, an industry official clarified that since the total credit card contracts were at 20 million, credit card debt averaged 54,000 pesos per contract. Since the number of individuals covered by the contracts was not identified, a person holding multiple credit card debt contracts could, collectively, contribute to a debt profile resembling the 425% debt-to-income ratio (for contract holders).

Based on BSP’s Q4 2023 financial inclusion data, only a significant minority—just 8.1% of the population as of 2021 (World Bank Findex)—carry credit card debt. Even if this figure has doubled or tripled, total exposure remains below 30%, highlighting mounting concentration risks among debt-laden consumers. (Figure 4, lowest table)

III. E. Credit-Led Growth: Ideology and Fragility

The seismic shift toward consumer lending has been driven not only by interest rate caps on credit cards, but by ideological faith in a consumer-driven economy.

Universal and commercial bank consumer credit surged 23.7% year-on-year in May. Credit card loans alone zoomed by 29.4%, marking the 34th consecutive month of 20%+ growth.

Figure 5

From January 2022 to May 2025, consumer and credit card loan shares climbed from 8.8% and 4.4% to 12.7% and 7.5%, respectively. Last May, credit card debt represented 59% of all non-real estate consumer loans. (Figure 5, upper chart) 

Yet how much of credit card money found its way into supporting speculative activities in the stock market and real estate? 

What if parts of bank lending to various industries found their way into asset speculation? 

Once disbursed, banks and the BSP have limited visibility on end-use—adding opacity to the cycle they’re stimulating. 

III F. Employment Paradox and Inflation Disconnect 

Interestingly, this all-time high in debt coincides with near-record employment rates. The May employment rate rose to 96.11%, not far from the all-time highs of 96.9% in December 2023 and 2024, and June 2024. The employed population of 50.289 million last May was the second highest ever. (Figure 5, lowest graph) 

Yet CPI inflation remains muted. Despite collapsing rice prices driven by the Php 20 rollout, inflation ticked up only slightly in June—from 1.3% to 1.4%. 

With limited savings and shallow capital market penetration, the Philippines faces a precarious juncture. What happens when credit expansion and employment reverses from these historic highs? 

And this won’t affect only residential real estate but would worsen conditions of every other property malinvestments like shopping malls/commercial, ‘improving’ office, hotel and accommodations etc. 

III G. Fragile Banking System: Liquidity Warnings Flashing 

Beneath the surface, bank stress is already visible.

Figure 6

Even as NPLs remain officially low—possibly understated—liquidity strains are worsening:

-Cash and due from banks posted a modest 3.4% MoM increase in May—but fell 26.4% YoY

(Figure 6, topmost image)

-Deposit growth edged from 4.04% in April to 4.96% in May

-Cash-to-deposit ratio bounced slightly from 9.68% to 9.87%, yet remains at its lowest level since at least 2013

-Liquid assets-to-deposit ratio fell from 48.29% in April to 47.5% in May

-Bank investment growth slowed from 8.84% to 6.5% (Figure 6, middle diagram)

-Portfolio growth dropped from 7.82% to 5.25% 

Despite these constraints, banks continued lending. 

Interbank lending (IBL) surged, pushing the Total Loan Portfolio (inclusive of IBL and Reverse Repos) from 10.2% to 12.7%, sending the loan-to-deposit ratio to its highest level since March 2020. 

Beyond Held-to-Maturity (HTM) assets, underreported NPLs—particularly in real estate lending—may be compounding the liquidity strain and masking deeper fragility. The surge in HTMs has coincided with a steady decline in cash-to-deposit ratios, signaling stress beneath the statistical surface. (Figure 6, lowest visual) 

IV. Conclusion: The Dangerous Game of Inflating Asset Bubbles 

Despite the Q3 2024 surge in the Property Index—helping power the PSEi 30 upward—combined with a 6.7% rebound in the old real estate index in Q4, vacancy rates soared to record highs in Q1 and remain near all-time highs as of Q2 2025. 

This unfolds amid surging consumer and bank credit, all-time high public liabilities fueled by near-record deficit spending, and peak employment rates. 

Ironically, the distortions in stock markets—and the engineered statistical illusions embedded in the old property index—have barely moved the needle against real estate oversupply, as measured by vacancy data.  

Not only has the BSP sustained its aggressive easing campaign, it is now amplifying statistical optics to reignite animal spirits—hoping to hit two birds with one stone: rescuing property sector balance sheets as a proxy for bank support. 

Yet inflating asset bubbles magnifies destabilization risks—accelerating imbalances and expanding systemic leverage that bank balance sheets already betray. 

Worse, the turn toward benchmark-ism and sentiment engineering in the face of industry slowdown signals more than strategy—it reeks of desperation.

When monetary tools fall short, propaganda steps in to fill the gap—instilling false premises to manufacture resilience.

And the louder the optimism, the deeper the dissonance. 

____

References 

Bangko Sentral ng Pilipinas BSP's new Residential Property Price Index more accurately captures market trends June 27, 2025 bsp.gov.ph

 

Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

 

Bulls of 1929 like their 1990s counterparts had their eyes glued on improving profits and stock valuations.  Not a thought was given to the fact that the rising tide of money deluging the stock market came from financial leverage and not from savings-Dr. Kurt Richebacher 

In this issue:

Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

I. An Extension of 2024's Fiscal-Monetary Interplay

II. Debt-Led Growth: Fragile Foundations

III. Revenue Growth: Record Highs, Diminishing Returns

IV. Consumer Sector Strains: Retail and Real Estate Under Pressure

V. Net Income Surge: A Paradox of Profitability

VI. Sectoral Performance: Diverging Trends

VII. Top Movers: Individual Firm Highlights

VIII. A Fragile Foundation: The Risks of Fiscal and Financial Leverage

IX. Transparency and Accuracy Concerns

Q1 2025 PSEi 30 Performance: Deepening Debt-Driven Gains Amid Slowing Economic Momentum

Debt-fueled profits mask deeper signs of strain across retail, real estate, and consumer sectors—even as policy easing and fiscal expansion continue.

I. An Extension of 2024's Fiscal-Monetary Interplay 

The PSEi 30’s Q1 2025 performance is largely a continuation of the trends established throughout 2024 and the past decade. 

Fundamentally, it reflects the model of "trickle-down" economic development, underpinned by Keynesian debt-financed spending. This model is anchored primarily on the BSP’s policy of "financial repression"—or sustained easy money—combined with fiscal stabilizers. It has manifested through the persistent "twin deficits," driven by a record-high "savings-investment gap," and rests on the “build and they will come” dogma. 

Q1 2025 also marks the initial impact of the BSP’s first phase of monetary easing, with Q2 expected to reflect the effects of the second round of policy rate and reserve requirement (RRR) cuts. 

At the same time, the all-time high Q1 fiscal deficit—relative to previous first quarters—was clearly reflected in the PSEi 30’s performance. 

Nota Bene:

PSEi 30 data contains redundancies, as consolidated reporting includes both parent firms and their subsidiaries.

Chart Notes:

1A: Based on current index members; may include revisions to past data

1B: Historical comparison; includes only members present during each respective period; based on unaudited releases

 II. Debt-Led Growth: Fragile Foundations

Figure 1

In Q1 2025, non-financial debt among PSEi 30 firms surged by 7.6% to a record Php 5.87 trillion, with a net increase of Php 413 billion, marking the third-highest quarterly rise since 2020. (Figure 1, upper window)         

In context, this debt level accounted for about 17.12% of total financial resources (bank and financial assets), up from 16.92% in 2024, reflecting increased leverage in the financial system 

In addition, bills payable for the top three PSEi 30 banks soared by 117.5%, rising from Php 393 billion to Php 854 billion, a net increase of Php 461 billion, excluding bonds payable. 

This dramatic increase in the bank’s short-term borrowing likely stems from a sharp decline in the banking system’s liquidity metrics—specifically, the cash and due-from-banks-to-deposits ratio and the liquid assets-to-deposits ratio. 

III. Revenue Growth: Record Highs, Diminishing Returns 

Gross revenues for the PSEi 30 rose by 3.92% to a record Php 1.78 trillion in Q1 2025. However, the net revenue increase of Php 67 billion was the smallest in the past four years, signaling a clear deceleration in growth momentum. (Figure 1, lower image)

Figure 2

This revenue softness partly reflected disinflationary trends, as the Consumer Price Index (CPI) fell to 2.3%—marking its third consecutive quarterly decline. (Figure 2, topmost chart) 

This occurred despite the economy operating near full employment, with the average unemployment rate at 4%, all-time high Q1 fiscal deficit, and amid record levels of bank credit growth, particularly in consumer lending. (Figure 2, middle graph) 

Nonetheless, the validity of the near-full employment narrative appears questionable. Our estimates suggest that approximately 32% of the workforce remains 'functionally illiterate,' raising concerns about the accuracy of PSA labor market data. 

Yet, the paradox is telling: even with aggressive fiscal stimulus and sustained easy money policies, economic returns appear to be diminishing. 

The PSEi 30’s revenue slowdown closely mirrored real GDP growth of 5.4% in Q1 2025, reinforcing the broader downtrend. (Figure 2, lowest diagram) 

Nevertheless, the PSEi 30 revenues accounted for 27% of nominal GDP in Q1 2025, underscoring their substantial footprint in the Philippine economy. Broadening the scope of PSE-listed firms in national accounts would likely magnify this contribution—while simultaneously highlighting the risks posed by mounting economic and market concentration and the fragile underpinnings of "trickle-down" economic development. 

IV. Consumer Sector Strains: Retail and Real Estate Under Pressure

Figure 3

Consumer sector stress was evident in the performance of PSE-listed firms. While retail nominal GDP grew by 7.9% and real consumer GDP by 4.9%, Q1 2025 sales revenue growth for the six largest non-construction listed retail chains—SM Retail, Puregold, SSI Group, Robinsons Retail, Philippine Seven, and Metro Retail Group—slowed to 6.8%, down from 8% in Q4 2024. This deceleration occurred despite aggressive supply-side expansion, underscoring deteriorating growth dynamics. (Figure 3, upper pane) 

Since peaking in 2022, both statistical (GDP) and real indicators (sales) have undergone significant depreciation. Downstream real estate consumer publicly listed retail chains, Wilcon Depot (WLCON) and AllHome (HOME), continue to grapple with substantial challenges, as rising vacancies further deepen the ongoing sales recession. (Figure 3, lower image) 

For example, WLCON reported a 2% quarter-on-quarter increase in store count, but only a 1.2% increase in sales YoY—highlighting excess capacity amid softening demand.

Figure 4

The food services sector also showed signs of strain, despite posting 10.3% revenue growth in Q1 2025—outpacing both nominal and real GDP. (Figure 4, topmost visual) 

Jollibee’s domestic operations, which accounted for 80% of total group sales, led the sector with a 14% gain. 

In contrast, McDonald’s reported an 11.5% sales contraction despite its 'aggressive store expansion' strategy, which includes plans to open 65 new outlets in 2025. This disparity underscores uneven, yet broadly weakening, performance across major retail chains. (Figure 4, middle chart) 

Even electricity consumption has recently deteriorated. Meralco’s electricity consumption growth slowed to 1.5% (in GWh), diverging from historical GDP correlations. This downturn signals weakening underlying demand, despite near-full employment and record-high bank credit expansion. (Figure 4, lowest graph) 

V. Net Income Surge: A Paradox of Profitability

Figure 5

Despite revenue challenges, the PSEi 30’s net income amazingly surged by 16.02% to a record Php 290.6 billion in Q1 2025, with an absolute increase of Php 40.12 billion, the second-highest since 2020. (Figure 5, topmost diagram)

This was driven by a significant increase in net income margin, which reached 16.3%, the highest since 2020, possibly due to asset sales (e.g., SMC’s divestitures). (Figure 5, middle window)

Excluding SMC’s asset sales, PSEi 30’s net income would have stood at Php 269.3 billion—reflecting only a 7.6% increase. This equates to a net profit rise of Php 19.12 billion, rather than the reported Php 40.12 billion

The record Q1 fiscal deficit likely bolstered incomes, both directly through government contracts (e.g., infrastructure projects) and indirectly via increased consumer spending. However, this came at the cost of record public debt and systemic leverage, which reached Php 30.7 trillion. Public debt hit an all-time high of Php 16.683 trillion. (Figure 5, lowest image)

The PSEi 30’s debt-to-net income ratio revealed that Php 1.42 in net debt additions was required for every peso of profit generated. In terms of absolute gains, Php 10.3 in new debt supported each peso of profit increase, highlighting deepening debt dependency.

 

Figure 6 

Paradoxically, despite record borrowing and improved net income, net cash reserves fell to 2022 levels, raising more concerns about systemic liquidity. (Figure 6, upper chart)

VI. Sectoral Performance: Diverging Trends 

By sector:  (Figure 6, lower table) 

Debt: The industrial sector recorded the largest percentage increase at 48.9%, but holding companies led in absolute peso gains Php 165.644 billon, followed by industrials Php 151.4 billion. 

Revenues: Banks achieved the highest percentage revenue growth at 9.8%, but industrials led in nominal terms with Php 17 billion in gains. 

Net Income: Holding and property sectors posted the largest percentage increases at 31% and 7.6%, respectively, with holding firms leading in peso terms Php 33.8 billion. 

Cash: The services sector saw the largest increases in both percentage (30.9%) and peso terms (Php 56 billion). 

VII. Top Movers: Individual Firm Highlights

Figure 7

By firm: (Figure 7, upper table) 

Debt: Ayala Corp, San Miguel Corporation (SMC), and Aboitiz Equity Ventures (AEV) recorded the largest peso increases at Php 74 billion, Php 70 billion, and Php 62 billion, respectively. LT Group (LTG) showed a substantial reduction of Php 24 billion. 

Interestingly, SMC reported a reduction in total debt—from Q4 2024’s record Php 1.56 TRILLION to Php 1.511 TRILLION in Q1 2025—despite substantial capital and operating requirements. This decline coincided with a surge in income, primarily driven by Php 21 billion in energy asset sales (San Miguel Global Power Holding LNG Batangas facility). Even excluding one-off gains, core profits rose by 31% to Php 19 billion. The company also strengthened its cash position, with cash reserves increasing by Php 57 billion year-on-year. How did this happen? (Figure 7, lower graph) 

Revenue: GT Capital (GTCAP) and Meralco posted the largest revenue increases at Php 15.6 billion and Php 9 billion, while SMC recorded the largest decrease at Php 31.8 billion. 

Net Income: SMC led with a Php 34 billion increase, driven by asset sales, while JG Summit (JGS) reported the largest decline at Php 7.2 billion. 

Cash: ICTSI and SMC posted the largest cash expansions at Php 79.9 billion and Php 57.6billion, while LTG (due to debt repayment) and AEV had the largest reductions at Php 38.2 and 15.015 billion 

VIII. A Fragile Foundation: The Risks of Fiscal and Financial Leverage 

Consider the potential impact on the PSEi 30, the broader PSE, and GDP when: 

-Bond vigilantes demand fiscal prudence, pushing interest rates higher

-Heavily leveraged consumer adopt austerity measures.

-Malinvestments from "build and they will come" industries, such as over saturation in real estate (26% residential condominium and office condominium vacancy rates and 22% per Colliers Philippines), and trade sectors, could lead to rising unemployment. 

These risks, compounded by diminishing stimulus effectiveness, threaten the sustainability of PSEi 30 performance and GDP growth. 

For instance, SMC’s business model has become increasingly reliant on recycling its borrowings or asset sales, making it wholly dependent on the sustainability of cheap money to refinance its rapidly growing debt. Neo-Keynesian economist Hyman Minsky famously characterized this as 'Ponzi finance.' (Minsky,1992) 

In essence, the structural risks are real—and growing more visible in each earnings season. 

IX. Transparency and Accuracy Concerns 

As previously stated: 

"The credibility of this analysis rests on disclosures from the Philippine Stock Exchange and related official sources. However, questions persist regarding the possible underreporting of debt and the inflation of both top-line and bottom-line figures by certain firms." (Prudent Investor, May 2025) 

These concerns underscore persistent governance challenges—particularly if elite-owned firms are engaged in systematically underreporting liabilities and overstating revenues or profits. Such practices not only contribute to the distortion of market signals but also foster moral hazard, eventually eroding investor confidence and undermining regulatory integrity. 

___ 

References 

Hyman P. Minsky, The Financial Instability Hypothesis* The Jerome Levy Economics Institute of Bard College May 1992 

Prudent Investor, The PSEi 30 in 2024: Debt-Fueled Expansion Amid Fiscal and Monetary Shifts, Substack May 25, 2025

 

 

2024’s Savings-Investment Gap Reaches Second-Widest Level as Fiscal Deficit Shrinks on Non-Tax Windfalls

 

Deficits add up. Debt needs to be refinanced. And the larger the cost of servicing past spending, the less is available for the present. This is inherently and obviously a crackpot way to run a nation. It guarantees chaos, inflation, defaults and poverty—Bill Bonner 

In this issue

2024’s Savings-Investment Gap Reaches Second-Widest Level as Fiscal Deficit Shrinks on Non-Tax Windfalls 

In 2024, the Philippines' Savings-Investment Gap continued to widen to a near record, driven primarily by fiscal deficit spending—its effects and potential consequences discussed in two connected articles.

A. The Widening Savings-Investment Gap: A Growing Threat to Long-Term Stability

I. The Philippines as a Poster Child of Keynesian Economic Development

II. The Persistent Decline in Savings and the Investment Boom

III. Sectoral Investment Allocation and Bank Lending Trends

IV. Bank Lending Patterns and the Role of Real Estate

V. The SI Gap and the ’Twin Deficits’

VI. Conclusion: Deepening SI Gap a Risk to Long-Term Stability

B. 2024 Fiscal Performance: Narrower Deficit Fueled by Non-Tax Windfalls, Masking Structural Risks

I. 2024 Deficit Reduction: A Superficial Improvement? Revenue Growth: The Role of Non-Tax Windfalls

II. Government Spending Trends: A Recurring Pattern; Symptoms of Centralization

III. 2024 Public Debt and Debt Servicing Costs Soared to Record Highs!

IV. Public "Investments:" Unintended Market and Economic Distortions

V. Conclusion: Current Fiscal Trajectory a Growing Risk to Financial and Economic Stability 

A. The Widening Savings-Investment Gap: A Growing Threat to Long-Term Stability

I. The Philippines as a Poster Child of Keynesian Economic Development

 Figure 1

Businessworld, February 28, 2025: In 2024, the country’s savings rate — defined as gross domestic savings as a percentage of gross domestic product (GDP) — grew to 9.3%, reaching P2.47 trillion. Meanwhile, the investment rate was 23.7% of GDP, or P6.27 trillion, resulting in a P3.8-trillion gap. The savings-investment gap (S-I) gap — the difference between gross domestic savings and gross capital formation — shows a country’s ability to finance its overall investment needs. An S-I deficit occurs when a country’s investment expenditures exceed its savings, forcing borrowing to fund the gap. (Figure 1, topmost chart)

The Philippines may be considered one of the poster children of Keynesian economic development.

Given that aggregate demand serves as the foundation of the economy, national economic policies have been designed to stimulate and manage a spending-driven growth model, particularly through investment and consumption.

From a Keynesian perspective, the government is expected to compensate for any spending shortfall from the private sector by increasing its own expenditures.

The Savings-Investment Gap (SIG) serves as a key metric for tracking the evolution of aggregate demand management over time.

However, this ratio may be understated due to potential discrepancies in macroeconomic data—GDP figures may be overstated, while inflation (CPI) may be understated. Or, in my humble view, the actual savings rate may be even lower than indicated.

II. The Persistent Decline in Savings and the Investment Boom

The Philippines’ gross domestic savings rate has been in a downtrend since 1985, but it plummeted after 2018, coinciding with an acceleration in government spending. This trend worsened in 2020, when the pandemic triggered a surge in public expenditures. (Figure 1, middle image) 

From 1985 onward, the persistent decline in savings suggests a rise in household consumption, a "trickle-down effect," supported by accommodative monetary policy and moderate fiscal expansion.

Meanwhile, the investment rate surged between 2016 and 2019, driven by government-led initiatives, particularly the ‘Build, Build, Build’ program.

However, the 2020 collapse—where both savings and investment rates fell sharply—highlighted the government’s aggressive "automatic stabilization" response to the pandemic recession, which relied on RECORD deficit spending and monetary stimulus.

The Bangko Sentral ng Pilipinas (BSP) introduced unprecedented measures, including ₱2.3 trillion in liquidity injections, historic reductions in reserve requirements and policy rates, a managed USDPHP cap, and various financial relief programs.

III. Sectoral Investment Allocation and Bank Lending Trends 

The distribution of investments can be inferred from sectoral GDP contributions and bank lending trends. 

As of 2024, the five largest contributors to GDP were:

-Trade (18.6%)

-Manufacturing (17.6%)

-Finance (10.6%)

-Agriculture (8%)

-Construction (7.5%) (Figure 1, lowest graph) 

However, both manufacturing and agriculture have been in decline since 2000, suggesting that investments have largely flowed into trade, finance, and construction (including government-related projects).

Real estate, once a growing sector, peaked in 2015 and has since been in decline. Nevertheless, it remained the seventh-largest sector in 2024. It trailed professional and business services—which encompasses head office activities, architectural and engineering services, management consultancy, accounting, advertising, and legal services.

The top five GDP contributors accounted for 62.25% of total output, down from 66.06% in 2020, primarily due to the contraction in manufacturing and agriculture. 

IV. Bank Lending Patterns and the Role of Real Estate

Figure 2

While the real estate sector's share of real GDP declined, its share of bank lending expanded significantly. (Figure 2, topmost window) 

From 2014, real estate-related borrowing rose sharply, peaking in 2021, before moderating below 2022 levels. Nevertheless, real estate remained the largest client of the banking system in 2024, accounting for 19.6% of total loans. (Figure 2, middle diagram) 

That is—assuming banks have reported accurate data to the BSP. The reality is that banks often lack transparency regarding loan distribution and utilization (where the money is actually spent). 

Given that many retail investors (mom-and-pop borrowers) are very active in real estate, it is likely that actual exposure is understated, as banks may structure their reporting to circumvent BSP lending caps on the sector—it extended the price cap during the pandemic. 

In the meantime, the share of consumer lending has seen the most significant growth, surging after 2014 and becoming the dominant growth segment of bank credit. 

Meanwhile, the share of loans to the trade industry declined marginally, and manufacturing loans saw a steep drop—reflecting its GDP performance. 

Lending to the financial sector peaked in 2022 but has since declined, whereas credit to the utilities sector increased from 2014 to 2020 and has remained stable since. 

V. The SI Gap and the ’Twin Deficits’ 

The sharp decline in manufacturing underscores the structural imbalances reflected in the SI Gap, which in turn has contributed to the record "twin deficits" (fiscal and external trade). (Figure 2, lowest chart) 

As both consumers and the government spent beyond domestic productive capacity, the economy became increasingly reliant on imports to satisfy aggregate demand. 

Although the deficits have slightly narrowed from their pandemic peaks, they remain at ‘emergency stimulus levels’, posing risks to long-term stability. (see discussion on fiscal health below) 

These deficits have been—and will continue to be—financed through both domestic (household) and foreign (external debt) borrowing.

Figure 3 

The widening SIG has coincided with a decline in M2 savings growth, while the M2-to-GDP ratio surged, reflecting both credit expansion and monetary stimulus (including BSP’s money printing operations). (Figure 3, upper pane) 

External debt has also reached an all-time high in 2024, adding another layer of vulnerability. 

VI. Conclusion: Deepening SI Gap a Risk to Long-Term Stability 

The Philippines' growing S-I gap and declining savings rate reflect deep-seated structural imbalances that raise concerns about long-term economic stability. 

A shrinking domestic savings pool limits capital accumulation, increase dependence on external financing, and expose the economy to risks such as debt distress and currency fluctuations. 

B. 2024 Fiscal Performance: Narrower Deficit Fueled by Non-Tax Windfalls, Masking Structural Risks 

I. 2024 Deficit Reduction: A Superficial Improvement? Revenue Growth: The Role of Non-Tax Windfalls 

Inquirer.net, February 28: "The Marcos administration posted a smaller budget shortfall in 2024, but it was not enough to contain the deficit within the government’s limit as unexpected expenses pushed up total state spending. Latest data from the Bureau of the Treasury (BTr) showed that the budget gap had dipped by 0.38 percent to around P1.51 trillion last year. As a share of gross domestic product (GDP), the deficit improved to 5.7 percent last year, from 6.22 percent in 2023. But it still indicated that the government had spent beyond its means, requiring more borrowings that pushed the state’s outstanding debt load to P16.05 trillion by the end of 2024." (bold added)

Now, let us examine the performance of the so-called "public investment" in 2024.

Officials hailed the alleged improvement in the fiscal balance. One remarked, "This is the lowest since 2020 and shows the good work of the administration's economic team."

Another noted that "the drop in the deficit was ‘better than expected,’" implying that "the government no longer needs to borrow as much if the budget deficit is shrinking."

From my perspective, manipulating popular benchmarks—whether through statistical adjustments or market prices—as a form of political signaling to sway depositors and voters—is what I call "benchmark-ism."

While both spending and revenues hit their respective milestones, the 2024 fiscal deficit only decreased marginally from Php 1.512 trillion to Php 1.51 trillion. (Figure 3, lower image)

The so-called "improvement" mainly resulted from a decline in the deficit-to-GDP ratio, which fell from 6.22% in 2023 to 5.7% in 2024—a reduction driven largely by nominal GDP growth rather than actual fiscal restraint.

Authorities credit this "improvement" primarily to revenue growth.

While it's true that fiscal stimulus led to a broad-based increase in revenues, officials either deliberately downplayed or diverted attention from the underlying reality.

Figure 4

Despite record bank credit expansion in 2024, tax revenue only increased 10.8%, driven by the Bureau of Internal Revenue’s (BIR) modest 13.3% growth and the Bureau of Customs’ (BoC) paltry 3.8% rise. Instead, the real driver of revenue growth was an extraordinary 56.9% surge in NON-tax revenues, which pushed total public revenues up 15.56%. (Figure 4, middle image) 

As a result, the share of non-tax revenues spiked from 10.3% in 2023 to 14% in 2024—its highest level since 2007’s 17.9%! (Figure 4, topmost diagram) 

The details or the nitty gritty tell an even more revealing story. According to the Bureau of Treasury (February 27): "Total revenue from other offices (other non-tax, including privatization proceeds, fees and charges, grants, and fund balance transfers) doubled to PHP 335.0 billion from PHP 167.2 billion a year ago and exceeded the P262.6 billion revised program by 27.56% (PHP 72.4 billion) primarily due to one-off remittances." (bold added)

To emphasize: ONE-OFF remittances!

Revenues from "Other Offices" doubled in 2024, with its share jumping from 4.4% to 7.6%.

If this one-time windfall hadn’t occurred, the fiscal deficit would have exploded to a new record of Php 1.84 trillion! 

Despite the minor deficit reduction, public debt still surged. 

Public debt rose by 9.82% YoY (Php 1.435 trillion) in 2024—higher than 8.92% (Php 1.2 trillion) in 2023. (Figure 4, lowest graph) 

Was the increased borrowing in 2024 a response to cosmetically reducing the fiscal deficit? 

And that’s not all.

II. Government Spending Trends: A Recurring Pattern; Symptoms of Centralization

Figure 5

For the sixth consecutive year, the government exceeded the ‘enacted budget’ passed by Congress. The Php 157 billion overrun in 2024 was the largest since the post-pandemic recession in 2021, when the government implemented its most aggressive fiscal-monetary stimulus package. (Figure 5, topmost chart)

More importantly, this repeated breach of the "enacted budget" signals a growing shift of fiscal power from Congress to the executive branch.

Looking ahead, 2025’s enacted budget of Php 6.326 trillion represents a 9.7% increase from 2024’s Php 5.768 trillion.

The seemingly perpetual spending growth has been justified on the assumption of delivering projected GDP growth. 

While some "experts" claim the Philippines is becoming more ’business-friendly,’ the growing expenditure-to-GDP ratio tells a different story:

-The government is increasingly centralizing control over economic resources.

-This trend began in 2014, accelerated in 2016, and peaked in 2021 at 24.1%—the first breach of the enacted budget. After marginally declining to 21.94% in 2023, it rebounded to 22.4% in 2024. (Figure 5, middle image)

However, these figures only account for public spending. When factoring in private sector funds allocated to government projects, the true extent of government influence could easily exceed 30% of economic activity.

Of course, this doesn’t come for free. Government spending is funded through taxation, borrowing, and inflation. 

The more the government "invests," the fewer resources remain for private sector growth—the crowding out effect. 

This spending-driven economic model has distorted production and price structures, evident in: 

-The persistent "twin deficits"

-A second wave of inflation (Figure 5, lowest visual) 

III. 2024 Public Debt and Debt Servicing Costs Soared to Record Highs!

Figure 6

And surging public debt is just one of the consequences of crowding out the private sector. 

Public debt-to-GDP rose from 60.1% in 2023 to 60.7% in 2024—matching 2005 levels. (Figure 6, topmost diagram) 

More strikingly, debt service (interest + amortization) as a share of GDP surged from 6.6% in 2023 to 7.6% in 2024—its highest since 2011.

In fact, both debt-to-GDP and debt service-to-GDP in 2024 exceeded pre-Asian Crisis levels (1996-1997). 

Rising debt service costs imply that: 

1 Government spending will increasingly be diverted toward debt payments or rising debt service costs constrain fiscal flexibility, leaving fewer resources for essential public investments

2 Revenues will suffer diminishing returns as debt servicing costs spiral (Figure 6 middle window)

3 Growing risks of inflation (financial repression or the inflation tax)—as government responds with printing money

4 Mounting pressures for taxes to increase 

The principal enabler of this debt buildup has been the BSP’s prolonged easy money regime. (Figure 6, lowest chart)

Figure 7

The banking system has benefited from extraordinary BSP political support, including: Official rate and RRR cuts, liquidity injections, USDPHP cap and various subsidies and relief measures 

The industry has also functioned as a primary financier of government debt via net claims on central government or NCoCG), with banks acquiring government debt—reaching an all-time high in 2024. (Figure 7, topmost window)

IV. Public "Investments:" Unintended Market and Economic Distortions

This policy stance of propping up the banking system comes with unintended consequences. 

Bank liquidity has steadily declined—the cash-to-deposit ratio has weakened since 2013, mirroring the rising deficit-to-GDP ratio. (Figure 7, middle graph) 

Market distortions are also evident in declining stock market transactions and the PSEi 30’s prolonged bear market—despite interventions by the so-called "National Team." (Figure 7, lowest chart)

V. Conclusion: Current Fiscal Trajectory a Growing Risk to Financial and Economic Stability 

So, what’s the bottom line? 

Government "investment" is, in reality, consumption. 

It has fueled economic distortions, malinvestment, and ballooning public debt—ultimately crowding out private sector investment and jeopardizing fiscal sustainability. 

Political "free lunches" remain popular, not only among the public but also within the “intelligentsia” class or the intellectual cheerleaders of the government.

As we warned last December: 

"Any steep economic slowdown or recession would likely compel the government to increase spending, potentially driving the deficit to record levels or beyond. 

Unless deliberate efforts are made to curb spending growth, the government’s ongoing centralization of the economy will continue to escalate the risk of a fiscal blowout. 

Despite the mainstream's Pollyannaish narrative, the current trajectory presents significant challenges to long-term fiscal stability." (Prudent Investor 2024)

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References: 

Prudent Investor, Debt-Financed Stimulus Forever? The Philippine Government’s Relentless Pursuit of "Upper Middle-Income" Status December 1, 2025