The Philippines’ May and 5-Month 2025 Budget Deficit: Can Political Signaling Mask a Looming Fiscal Shock?

 

THE question of deficit finance is at the center of public discussion of economic matters today, as it is in any society undergoing serious price inflation, and as it should be, for there is no more basic connection in economic affairs than that linking deficit finance and inflation. Though Milton Friedman's aphorism that ''inflation is always and everywhere a monetary phenomenon'' is true (or as true as economic aphorisms get), it is equally true that sustained monetary expansions are always and everywhere a consequence of printing money to cover the difference between Government expenditures and tax revenues—Robert E. Lucas 

In this issue

The Philippines’ May and 5-Month 2025 Budget Deficit: Can Political Signaling Mask a Looming Fiscal Shock?

I. The Illusion of Fiscal Soundness: Benchmark-ism, Political Signaling, and the Fiscal Narrative

II. The Five-Month Reality Check: The Mask of March’s Spending Rollback

III. Revenue Performance: Strong Headline, Weak Underpinnings

A. May 2025 Revenue Dynamics

B. Five-Month Revenue Trends

IV. DBCC Downgrades 2025 GDP and Macroeconomic Targets

V. The Politics of Economic Forecasting and Revenue Implications

VI. Public Spending Patterns: Election Effects and Structural Trends

A. May 2025 Expenditure Analysis

B. Five-Month Spending Trends

C. Budget Execution and Future Projections

VII. Deficit Financing and Debt Servicing: A Ticking Time Bomb

A. Interest Payment Trends

B. Financing Implications

C. Liquidity, Interest Rate Pressures and the Bond Vigilantes

VIII. Conclusion: Beyond the Headlines: A Looming Fiscal Shock 

 

The Philippines’ May and 5-Month 2025 Budget Deficit: Can Political Signaling Mask a Looming Fiscal Shock? 

Fiscal Theater vs. Market Reality: A Critical Look at the 2025 Budget Trajectory Using May and 5-month Performance as Blueprint 

I. The Illusion of Fiscal Soundness: Benchmark-ism, Political Signaling, and the Fiscal Narrative 

This article is an update to our previous piece titled “Is the Philippines on the Brink of a 2025 Fiscal Shock?" 

Are Philippine authorities becoming increasingly desperate in their portrayal of economic health? Is there an escalating reliance on "benchmark-ism"—the artful embellishment of statistics and manipulation of market prices—to project an aura of ‘sound macroeconomics?’ 

Beyond the visible interventions—such as the quasi-price controls of Maximum Retail Prices (MSRPs) and the Php 20 rice initiatives, which signal low inflation—amid the emerging disconnect between market dynamics and banking conditions, does May’s fiscal deficit reflect political signaling? 

This article dissects the National Government’s (NG) fiscal performance for May 2025 and the first five months of the year, revealing structural nuances behind the headline figures and questioning the sustainability of current fiscal policies.

Figure 1

The Bureau of Treasury (BTr) reported: "The National Government’s (NG) fiscal position significantly improved in May 2025, with the budget deficit narrowing to Php 145.2 billion from Php 174.9 billion in the same month last year. This lower deficit was primarily driven by a robust 13.35% growth in revenue collections, alongside a moderation in expenditure growth to 3.81% during the national elections month. The cumulative deficit for the five-month period reached Php 523.9 billion, 29.41% (Php 119.1 billion) higher year-on-year (YoY), as the government accelerated investments in infrastructure and social programs to support inclusive growth. NG remains on track to meet its deficit target for the year through prudent fiscal management and efficient use of resources, in line with its Medium-Term Fiscal Program" (BTr, June 2025) [bold added] [Figure 1, upper graph] 

However, beneath the fog of political rhetoric, the election-induced public spending cap—mainly on infrastructure—appears to be the true catalyst behind May's reported budget improvement. The temporary restraint on government expenditures during the electoral period created an artificial enhancement in fiscal metrics that masks underlying structural concerns. 

II. The Five-Month Reality Check: The Mask of March’s Spending Rollback 

Examining the January-to-May period reveals a more complex narrative. The stated deficit of "Php 523.9 billion, 29.41% (Php 119.1 billion) higher year-on-year" actually reflects a substantial revision in March spending that resulted in a lower reported deficit. 

March public spending was revised downward by 2.2% or Php 32.784 billion, from Php 654.984 billion to Php 622.2 billion. This revision cascaded into a 5.9% reduction in the five-month deficit, from the original Php 556.7 billion to the revised Php 523.9 billion. Authorities attributed this revision to "trust transactions." 

Despite this rollback, the current deficit represents the THIRD-highest level on record, trailing only the unprecedented Php 566.204 billion and Php 562.176 billion recorded in 2021 and 2020, respectively. [Figure 1, lower chart]

Figure 2

Those record-high deficits reflected ‘fiscal stabilization’ policies during the pandemic recession, when deficit-to-GDP ratios reached 7.6% and 8.6% amid negative GDP growth of -8.02% in 2020 (pandemic recession) and +8.13% in 2021 in nominal terms, or -9.5% and +5.7% in real GDP terms.  (Figure 2, topmost window)  

Of course, these were funded by all-time high public debt (excluding indirect liabilities incurred by private firms under PPP projects). 

Remarkably, without a recession on the horizon, the five-month deficit has already surpassed the budget gaps of the last three years (2022-2024) and appears likely to either match or even exceed the 2020-2021 levels. 

This trajectory stands in stark contrast to authorities' optimistic target of a 5.3% deficit-to-GDP for 2025—revised to 5.5% just last week. Just 5.5%! Amazing. 

With financial markets seemingly complacent—barely pricing in any surprises—would the eventual revelation that the early 2025 deficit “blowout” might mimic the fiscal health of 2020–2021 trigger a significant market shock? 

Or has the risk premium been quietly numbed by a narrative of “contained inflation” and headline-driven optimism? 

In this climate, the interplay between fiscal slippage and monetary posture warrants closer scrutiny. If macro fundamentals continue to diverge from market sentiment, will the ‘bond vigilantes’ remain silent—or are they simply biding their time? 

III. Revenue Performance: Strong Headline, Weak Underpinnings 

While the five-month headline figures for revenues and expenditures did set new nominal records, the underlying structural details will ultimately dictate the fiscal year's trajectory. 

A. May 2025 Revenue Dynamics 

Total revenues grew by 13.35% in May 2025, slightly below the 14.6% recorded in May 2024. Tax revenues, comprising 75% of total revenues, expanded by 6.25%—nearly double the 3.35% growth rate of May 2024. This improvement was driven by the Bureau of Internal Revenue's (BIR) robust 10.71% growth, while the Bureau of Customs (BoC) contracted by 6.94%, contrasting with 2024's respective growth rates of 3.35% and 4.33%. 

Non-tax revenues surged 40.9% in May 2025, though this paled compared to the 98.6% spike recorded in May 2024. 

B. Five-Month Revenue Trends 

May's revenue outperformance lifted the cumulative five-month results. From January to May 2025, total revenue grew by 5.4%, representing significant deceleration from the 16.34% surge in the corresponding 2024 period. (Figure 2, middle diagram) 

Tax revenues, accounting for 89.7% of total collections, increased by 10.5%, marginally down from 2024's 11.2%. The BIR demonstrated resilience with 13.8% growth compared to 12.8% in 2024. However, the BoC stagnated with a mere 0.22% increase, dramatically lower than the previous year's 6% growth. 

Despite May's surge, non-tax revenues contracted by 24.8% in the first five months of 2025, a sharp reversal from the 60.6% growth spike recorded last year. 

While the BIR shows resilience, the BoC and non-tax revenues lag, signaling vulnerabilities in revenue diversification. 

IV. DBCC Downgrades 2025 GDP and Macroeconomic Targets 

Authorities markedly lowered their GDP target for 2025. According to ABS-CBN News on June 26, "The Philippines has again revised its growth target for the year, citing heightened global uncertainties such as the conflict in the Middle East and the imposition of US tariffs. The Development and Budget Coordination Committee on Thursday said it was targeting an economic growth range of 5.5 to 6.5 percent. In December last year, the target for 2025 was set at 6 to 8 percent." (bold added) (Figure 2, lower image) 

The BSP's June rate cut also hinted at growth moderation. As reported by ABS-CBN News on June 19: "BSP Deputy Governor Zeno Abenoja said the central bank also eased rates due to the possible 'moderation' in economic activity." (bold added) 

The most striking revision involved reducing the upper end of the growth target from 8% to 6.5%—a substantial markdown that signals underlying economic concerns! 

V. The Politics of Economic Forecasting and Revenue Implications 

The Development Budget Coordination Committee (DBCC), as an inter-agency body, represents an inherently political institution plagued by ‘optimism bias’—the tendency to overestimate GDP growth. This bias stems from multiple sources: political pressure to maintain public confidence for approval ratings, the need to justify ambitious economic targets for budget and spending projections, and the imperative to maintain access to affordable financing through public savings. 

Authorities also embrace the Keynesian concept of ‘animal spirits,’ believing that overly optimistic predictions boost business and consumer confidence, thereby spurring increased spending to drive GDP growth. 

Likewise, by promoting investor sentiment, they hope that buoyant markets will create a ‘wealth effect’ that further bolsters spending and economic growth. Rising asset markets may translate capital gains into increased consumption, while higher collateral values encourage more debt-financed spending to energize GDP. 

However, because authorities rely on “data-dependent” approaches, they turn to economic models anchored in historical data and rigid assumptions—often constructed through ex-post analysis. 

Yet effective forecasting requires more than backward-looking templates; it demands grappling with the complexities of purposive human action, where theory operates not as a passive derivative of data, but as a deductive logical framework for validation or falsification. 

As economist Ludwig von Mises observed: 

"Experience of economic history is always experience of complex phenomena. It can never convey knowledge of the kind the experimenter abstracts from a laboratory experiment. Statistics is a method for the presentation of historical facts concerning prices and other relevant data of human action. It is not economics and cannot produce economic theorems and theories." (Mises, 1998) (bold added) 

Because the DBCC relies on “data-dependent” econometric models that essentially project the past into the future, authorities attempt to smooth out forecasting errors through revisions. 

They often rely on ‘availability bias or heuristic’ to inject perceived relevance into their projections.  

They also embrace ‘attribution bias’—crediting positive developments as their accomplishments, while assigning blame for adverse outcomes to exogenous factors. 

Last week’s GDP downgrade exemplifies this pattern. Authorities cited the Middle East conflict and new US tariffs to justify the lower projections—an example of political messaging shaped by both availability and attribution biases. 

This GDP downgrade carries significant implications, as revenues depend on both economic conditions and collection efficiency. If authorities have already observed signs of economic “moderation” that warranted substantial downward revisions—yet continue to overstate targets—this suggests that actual GDP may fall well below projections. 

A lower GDP would likely erode public revenues, potentially setting off a vicious cycle of fiscal deterioration. 

VI. Public Spending Patterns: Election Effects and Structural Trends 

A. May 2025 Expenditure Analysis 

Public spending barely grew in May—the mid-term election period—increasing by only 0.22% compared to 22.24% in 2024. National disbursements remained virtually unchanged at 0.12% versus 22.22% in 2024. Local government unit (LGU) spending increased 14.5%, accelerating from 8.54% last year. Interest payments jumped 14.5% compared to 47.8% in 2024. 

The national government commanded the largest expenditure share at 69.9%, followed by LGUs at 16.15% and interest payments at 12.1%. 

B. Five-Month Spending Trends 

Though public spending in the first five months of 2025 reached record levels in peso terms, growth moderated to 9.7% from 10.6% in 2024. LGU spending growth of 13.2% exceeded 2024's 10.6%. Both national government and interest payments registered lower growth rates of 9.24% and 11.14% respectively, compared to 14.83% and 40% in the previous year.

Figure 3 

Despite decreased growth rates, interest payments hit record highs in peso terms, with their expenditure share reaching 14.43%—the highest level since 2010. (Figure 3, upper visual) 

C. Budget Execution and Future Projections 

The selective infrastructure ban during elections, combined with March's spending cuts, clearly reduced five-month disbursements and the fiscal deficit. Public spending in the first five months totaled Php 2.447 trillion, representing 39.16% of the annual budget. 

With seven months remaining to utilize the annual allocation of Php 6.326 trillion, government outlays must average Php 549.83 billion monthly. If the executive branch continues asserting dominance over Congress, the six-year trend of budget excess will likely extend to a seventh year in 2025. (Prudent Investor, May 2025) 

Crucially, with authorities anticipating a potential significant shortfall in GDP, the recent spending limitations due to the exercise of suffrage could translate into a substantial back-loading of the budget in June or Q3. (Figure 3, lower chart) 

That is to say, even if June 2025's deficit merely hits its four-year average of Php 200 billion, the six-month budget gap would soar to Php 723.9 billion, surpassing the 2021 record of Php 716.07 billion! 

Thus, it defies sensible logic for authorities to assert, "NG remains on track to meet its deficit target for the year through prudent fiscal management," as this would amount to a complete inversion of economic reality. 

The crucial question is, ‘how would markets react to a likely fiscal blowout?’

VII. Deficit Financing and Debt Servicing: A Ticking Time Bomb 

How will the current deficit be financed? 

A. Interest Payment Trends 

While 2025's five-month interest payment growth of 11.14% was considerably slower than 2024's 40%, nominal values reached record highs, with interest payments' share of public expenditure rising to its highest level since 2010.

Figure 4

Including amortizations, public debt servicing costs declined significantly by 42.22% compared to the previous year, which had posted a 48.5% growth spike. This wide gap primarily resulted from a 61.4% plunge in amortizations. (Figure 4, topmost graph) 

However, the five-month foreign exchange (FX) share of debt servicing accelerated dramatically from 18.94% in 2024 to 38.6% this year. (Figure 4, middle window) 

B. Financing Implications 

Several critical observations emerge from the data. 

First, authorities may currently be paying less due to scheduling reasons, 2024 prepayments, or political considerations—to avoid arousing public concern or triggering uproar over the rising national debt. 

Second, the widening deficit represents no free lunch—someone must fill the financing void. In the first five months, debt financing surged 86.24%, from Php 527.248 billion to Php 981.94 billion. (Figure 4, lowest image) 

Regardless of how authorities obscure these costs, sustained borrowing will inevitably translate into higher servicing burdens. 

As we 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)

Figure 5

Third, public debt surged 10.24% YoY to hit a fresh all-time high of Php 16.95 trillion in May and will likely continue climbing through bond issuance to finance a swelling deficit! (Figure 5, topmost pane) 

The increase in May’s public debt was partly muted by a stronger peso. The BTr noted, "The decrease was due to P3.55 billion in net repayments and the strengthening of the peso, which reduced the peso value of foreign debt by P29.35 billion." 

But of course, this represents statistical "smoke and mirrors," as FX debt will ultimately be repaid in foreign currency—not pesos. In a nutshell, the strong peso disguises the actual extent of the public debt increase. 

Fourth, despite record-high government cash holdings of Php 1.181 trillion, the Bureau of the Treasury reported a cash deficit of Php 23.14 billion in May—underscoring underlying liquidity strains. 

Fifth, banks will likely remain the primary vehicle for deficit financing. While their Held-to-Maturity (HTM) assets slightly declined from a record Php 4.06 trillion in March to Php 4.036 trillion in April, this was mirrored in net claims on the central government (NCoCG), which moderated from Php 5.58 trillion in March to Php 5.5 trillion in May (+9.36% YoY). Notably, NCoCG has closely tracked the trajectory of HTM assets. (Figure 5, topmost and middle visuals) 

C. Liquidity, Interest Rate Pressures and the Bond Vigilantes 

Beyond government debt affecting bank liquidity conditions, competition for public savings between banks and non-financial conglomerates continues to tighten financial conditions—via liquidity constraints and upward pressure on interest rates. 

The crowding-out effect from rising issuance of government, bank, and corporate debt further diverts savings toward non-productive ends: debt refinancing, politically driven consumption, and speculative “build-and-they-will-come” ventures. 

Despite this, Philippine Treasury markets and the USD-PHP exchange rate appear defiant in the face of the BSP’s easing cycle—even as the Consumer Price Index (CPI) trends lower—as previously discussed) 

Globally, rising yields amid mounting debt loads have reawakened the specter of “bond vigilantes”—their resurgence partly driven by balance sheet reductions and Quantitative Tightening. Their presence is evident in the upward drift of sovereign yields (e.g. Japan 10Y, US 10Y, Germany 10Y and UK 10Y), posing a risk that could reverberate across local markets. (Figure 5, lowest chart) 

In response, the Philippine government has redoubled efforts to lower rates through a variety of channels—ranging from quasi-price controls to market interventions to an intensified BSP easing cycle. 

Yet perhaps most telling is its increasing reliance on statistical legerdemain or "benchmark-ism"—notably, the reconstitution of the real estate index to erase prior deflationary prints, despite soaring commercial vacancy rates—a subject, of course, for another post. 

VIII. Conclusion: Beyond the Headlines: A Looming Fiscal Shock 

What authorities frame as "prudent fiscal management" increasingly looks like an exercise in political optics designed to pacify markets and voters, while deeper structural risks build beneath the surface. Headline improvements in the deficit mask the reality of slowing revenue momentum, surging financing needs, rising reliance on FX debt, and a likely surge in second-half deficit. 

As markets remain lulled by political signaling, the Philippines moves closer to a fiscal reckoning — one where statistical smoothing and policy theater will no longer suffice. 

The key question: how will markets and the public react when the full weight of these imbalances becomes undeniable? 

___

References 

Bureau of Treasury, National Government’s Budget Deficit Narrows to Php 145.2 Billion in May 2025 Amid Sustained Strong Revenue Growth June 26, 2025 https://www.treasury.gov.ph/

Ludwig von Mises, Human Action, p.348 Mises Institute, 1998, Mises.org 

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

The Ghost of BW Resources: The Bursting of the Philippine Gaming Stock Bubble

An inflation tends to demoralize those who gain by it as well as those who lose by it. They become used to “unearned increment.” They want to hold on to their rela­tive gains. Those who have made money from speculation prefer to continue this way of making money to the former method of working for it…The trend in an inflation is toward less work and produc­tion, more speculation and gam­bling—Henry Hazlitt

In this issue: 

The Ghost of BW Resources: The Bursting of the Philippine Gaming Stock Bubble

I. Why Our Prescient Warning? Seven Disturbing Parallels

II. One: Gaming at the Core

III. Two: Distortions: Market Dominance and Turnover

IV. Three: Post-Crisis Timing

V. Four: Inflation and the Illusion of Prosperity

VI. Five: Prohibition, the Satirical Theater of Morality and Potential Political Controversies

VII. Six: The South Sea Parallel

VIII. Seven: Bull Traps and Secular Cycles

IX. Conclusion: Bubble Cycles: The Rhyming of History 

The Ghost of BW Resources: The Bursting of the Philippine Gaming Stock Bubble 

From BW Resources to PLUS and BLOOM: The Anatomy of a Gaming Stock Market Bubble Reborn, 7 disturbing parallels

I. Why Our Prescient Warning? Seven Disturbing Parallels 

At the peak of the euphoria surrounding the Philippine gambling bubble, I issued a subtle warning via tweet (x.com post): (Figure 1)

Figure 1

"Strange fascination with gaming bubbles. Has the Philippine financial community forgotten the BW Resources bubble, w/c soared in a bear market's 'bull-trap' phase & crashed in 1999, exposing unsustainability & 'manipulation?' Learn from history—recurring bubbles in market cycles"

Certainly, 2025 is not 1999. The economy, financial architecture, and technological landscape have evolved. The composition of the Phisix—now the PSEi 30—has changed. The circumstances behind the BW scandal were unique. 

Despite the passage of time and evolution of market instruments, a troubling déjà vu grips the Philippine financial landscape. The current gaming bubble echoes the BW Resources scandal with unsettling fidelity—both in structure and in consequence. 

Below are seven disturbing parallels that merit scrutiny, not dismissal. 

II. One: Gaming at the Core 

BW Resources began as an online bingo firm with a nationwide franchise. It was, fundamentally, a gaming enterprise. 

Today’s speculative darlings—Digiplus Interactive Corporation [PSE: PLUS] and Bloomberry Resorts Corporation [PSE: BLOOM]—are likewise gaming firms, riding a digital demand boom.

Figure 2

PLUS has enjoyed a windfall: retail sales surged 181% (YOY) year-on-year in 2024, while net income growth vaulted 207%. In Q1 2025, net income soared 110% to Php 4.2 billion. (Figure 2, topmost window) 

Riding on the coattails of PLUS, BLOOM—a relative newcomer to online gaming—launched its digital platform in April, coinciding with a sharp rally in its share price. The timing fueled market excitement, further amplifying speculative fervor toward the sector. 

III. Two: Distortions: Market Dominance and Turnover 

BW Resources once commanded a disproportionate share of market turnover. (Figure 2, middle graph) 

At its peak, its market cap eclipsed stalwarts like San Miguel and Ayala Corporation (Hamlin, 2000). 

In mid-June 2025, PLUS and BLOOM’s combined turnover reached over 20% of the mainboard. (Figure 2, lowest image) 

As the bubble began to deflate, their aggregate volume still accounted for 16.9% of June’s total. 

The collapse saw a further explosion in turnover: in June, PLUS plunged 48.15%, BLOOM fell 17.2%, and their combined turnover share spiked to 22.2%. PLUS alone captured 17.8% of weekly volume—33.3% on Friday alone! Astounding. 

The stunning magnitude of PLUS's volume share—a firm which used to be on the sidelines—suggests that this represents a corporate-specific boom-bust episode driven not by savings but by leverage. 

Remember that the banking system's credit portfolio stands at an all-time high, mostly powered by consumer credit. 

The spike in volume as PLUS shares collapsed may indicate ‘margin calls’ or the selling of other PSE-listed shares to bolster collateral backing leveraged PLUS positions. This could explain the PSEi 30's 1.13% drop last Friday. 

IV. Three: Post-Crisis Timing

Figure 3

BW Resources peaked and imploded in 1999, two years after the Asian Financial Crisis (AFC), when GDP contracted by 0.51% in 1998. (Figure 3, upper chart) 

The current bubble climaxed four years after the pandemic-induced recession of 2020, when GDP shrank by 9.6%. 

V. Four: Inflation and the Illusion of Prosperity 

The BW Scandal was a product of easy money-fueled inflation. 

Since peaking at 12.5% in 1994, the CPI headed downhill until the 9.4% spike in 1998, belatedly brought about by the AFC. The CPI dropped significantly to 6.1% in 1999 as the BW scandal unfolded. 

Similarly, CPI rose from 3.9% in 2021 to 6% in 2023, then plummeted to 3.2% in 2024. 

As the great economist Henry Hazlitt noted, 

"A vital function of the free market is to penalize inefficiency and misjudgment and to reward efficiency and good judgment. By distorting economic calculations and creating illusory profits, inflation will destroy this function. Because nearly everybody will seem to prosper, there will be all sorts of maladjustments and investments in the wrong lines. Honest work and sound production will tend to give way to speculation and gambling. There will be a deterioration in the quality of goods and services and in the real standard of living" (Hazlitt, 1969). [bold added] 

As Hazlitt warned, inflation distorts economic calculation, rewards speculation over production, and erodes real living standards. Despite disinflation, the purchasing power of the common tao continues to decline. 

Elevated self-rated poverty and hunger suggest a deteriorating standard of living. (Figure 3, middle and lowest panes) 

As a side note—and quite ironically—despite the falling rate of CPI, sentiment metrics such as self-rated poverty and hunger continue to trend upward, even in the face of recent declines. Consider this: the current environment operates under an easy money regime that has buoyed all-time highs in fiscal stimulus, near-record employment, unprecedented public debt, expanding bank credit, and systemic leverage. But what happens if this constellation of highs begins to unravel? 

Many turn to gambling not for leisure, but as a desperate attempt to bridge income gaps, service debt, and or as a coping mechanism—a form of psychological escapism from personal financial straits. 

In this prism, rising gaming revenues hardly represent economic progress, but rather a transfer from the vulnerable public to the house casino. 

VI. Five: Prohibition, the Satirical Theater of Morality and Potential Political Controversies 

The implosion of the BW Resources stock market bubble effectively opened a Pandora’s Box of political ramifications. It exposed systemic corruption, egregious stock market manipulation, and other conflicts of interest with connections reaching the highest echelons of power (Pascual and Lim, 2022). 

Following the contemporary political assault on Philippine Offshore Gaming Operators (POGO), political evangelists have opportunistically piggybacked on this sentiment, advocating for increasingly vocal and deeper prohibitions anchored on the supposed social sanctity or righteousness of a total ban on digital gambling. 

Yet the crackdown on POGOs appears entangled in deeper geopolitical currents—linked to Chinese interests under the previous administration and potentially reflecting the broader US–China hegemonic rivalry, made manifest through diverging diplomatic relations between alternating political regimes in the Philippines. 

Crucially, in a populist climate framed by social-democratic ideals, the magnitude of state intervention often becomes a currency of political capital—the larger the crackdown, the louder its resonance among voters. 

History repeats: the public once clamored to ban jueteng, which helped trigger People Power II and the ouster of President Joseph E. Estrada. Eventually, the state legalized it through STL under PCSO. 

Wikipedia notes: "One of the suggested reasons for legalization was to eliminate repeated corruption scandals... It has been compared to the tribulations in the United States regarding their prohibition of alcohol." 

Or rather, legalization signified the ‘nationalization’ of what was once a fragmented, decentralized, and implicitly local government (LGU) controlled shadow economy—effectively converting informal vice into formal state enterprise. 

In the same vein, one might ask: what became of the Philippine drug war, "Operation Tokhang"? 

Aside from the escalating calls for prohibition, will other political controversies emerge from this bubble bust? 

If history is a reliable compass, financial distortions often leave behind trails of corruption, regulatory compromise, and partisan leverage. The unraveling may reveal ties between speculative fervor and institutional patronage—suggesting that what began as financial exuberance could metastasize into yet another political saga. When markets deflate, the silence seldom lasts. 

Echoing the BW scandal, will malfeasance reemerge? As economic historian Charles Kindleberger once warned: "The propensity to swindle grows parallel with the propensity to speculate during a boom; the implosion of an asset price bubble always leads to the discovery of frauds and swindles" (Kindleberger & Aliber 2005) 

VII. Six: The South Sea Parallel

Figure 4 

While intense volume spikes amid a share collapse are associated with 'capitulation' or a theoretical ‘bottom,’ we harbor doubt that this is the case. 

From our humble perspective, whether a bounce occurs or not, the Philippine gaming bubble may have likely been pricked. 

PLUS’ chart, born of BSP’s easing cycle, evokes the South Sea Bubble of 1720—a spectacle of leverage, speculation, and political complicity. (Figure 4, upper and lower graphs) 

The South Sea Bubble was a major financial crisis that shook Britain in 1720, driven by wild speculation in the South Sea Company. The company had been granted a monopoly on trade with Spanish South America and took on a central role in managing the national debt by converting the King’s personal debt into the nation’s debt. Investors were drawn in by promises of immense profits. The company fueled the frenzy by allowing shareholders to borrow against their own South Sea stock as collateral, encouraging dangerous levels of leverage. The bubble was also part of a broader shift toward modern finance, including the creation of paper money and the rise of institutions like the Bank of England, which was established in 1694 to help manage government borrowing and stabilize the financial system. When confidence collapsed, share prices crashed, collateral became worthless, and forced liquidations deepened the ruin. The episode exposed corruption at the highest levels of government and business, leading to political fallout and reforms in financial regulation.  (Cwik, 2012) 

Isaac Newton, emblematic of intellectual prowess, became entangled in the bubble. After initially profiting, he reinvested heavily—and ultimately went broke. It’s often said the experience prompted him to declare: "I can calculate the motions of the heavenly bodies, but not the madness of people." (chart from Dr. Marc Faber) 

Ironically, Newton’s third law of motion—"for every action, there is an equal and opposite reaction"—finds metaphorical resonance here: South Sea shares returned to their starting point, as did the illusions of prosperity they once inspired. 

VIII. Seven: Bull Traps and Secular Cycles

Figure 5 

The BW scandal unfolded and climaxed in 1999 during a "bull trap" in a secular bear market. Once exposed, the market plunged until its 2002 trough—where the next bull cycle began. (Figure 5, upper chart) 

Today, the bear market persists. A “bull trap” rally is being engineered through easy money, fiscal stimulus, market interventions, and statistical optics—all framed within a carefully curated Overton Window, reminiscent of the ‘easing cycle’ powered "bull trap" of Q3 2024, as exhibited by prevailing media headlines. (links here, here and here) (Figure 5, lower diagram, Figure 6, media images)

Figure 6

IX. Conclusion: Bubble Cycles: The Rhyming of History 

The bursting of the Philippine gaming bubble represents more than a mere market correction—it embodies the cyclical nature of speculative excess that has plagued financial markets throughout history. 

The parallels between today's gaming bubble and the BW Resources scandal of 1999 are symptomatic of deeper structural patterns in market psychology, monetary policy and political misdeeds and imbroglios. 

As Mark Twain allegedly observed, "History doesn't repeat itself, but it often rhymes." Beneath the veneer of technological advancement and regulatory sophistication, the fundamental drivers of speculation—easy money, leverage, political interventions and human greed—remain unchanged. 

For those who understand the pattern, the current gaming bubble's burst may indeed signal the end of the artificial "bull trap" and the resumption of the secular bear market that never truly ended. 

In the end, the house always wins—not just in gaming, but in the grander casino of speculative markets where bubbles, once formed, must eventually burst. 

Yet, the silence after bubbles burst is rarely permanent. It’s often the prelude to scapegoating, reform, or reinvention—sometimes all three.  

___

References 

Henry Hazlitt, Comments on Inflation, May 1960 Fee.org 

Kevin Hamlin, Confidence Game, Institutional Investor, August 1, 2000 

CLARENCE PASCUAL AND JOSEPH LIM Corruption and Weak Markets: The BW Resources Stock Market Scam, March 2022 UP Center for Integrative and Development Studies, cids.up.edu. ph 

Henry Hazlitt, Man vs. The Welfare State p. 133 Arlington House, 1969, Mises.org 

Wikipedia, Jueteng 

Kindleberger, Charles P., and Robert Z. Aliber. Manias, Panics, and Crashes: A History of Financial Crises. 5th ed., Palgrave Macmillan, 2005. Chapter 9. 

Paul F. Cwik, The South Sea Bubble, April 3, 2012, Mises.org

  

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