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

 

 

The PSEi 30 in 2024: Debt-Fueled Expansion Amid Fiscal and Monetary Shifts

 

Besides, stock prices are primarily information... they tell investors where their capital can be most fruitfully employed. The important thing is not that prices be high or low... but that they be honest—Bill Bonner 

In this issue

The PSEi 30 in 2024: Debt-Fueled Expansion Amid Fiscal and Monetary Shifts

I. Monetary Tailwinds and a Fiscal Inflection

II. PSEi 30: Debt as the Primary Growth Driver

III. Record Revenues, Yet Slowing Growth Momentum

IV. Net Income Challenges: Slow Growth and Declining Margins

V. “Cui Bono?” — Who Benefits from GDP Growth? A Symptom of Trickle-Down Economics

VI. Sectoral Performance: Debt, Revenue, and Income Trends

VII Top Movers: Individual Firm Highlights

VIII. Final Notes on Transparency and Accuracy 

The PSEi 30 in 2024: Debt-Fueled Expansion Amid Fiscal and Monetary Shifts 

What the PSEi 30 tells us about the Philippine economy’s fiscal and financial direction in 2024. 

I. Monetary Tailwinds and a Fiscal Inflection 

The Bangko Sentral ng Pilipinas (BSP) initiated the first phase of its easing cycle in the second half of 2024, comprising three policy rate cuts alongside a reduction in the Reserve Requirement Ratio (RRR). 

This coincided with an all-time high in public spending, bolstered by a surge in non-tax revenues. As a result, the Philippine fiscal deficit marginally narrowed to Php 1.506 trillion in 2024—still the fourth largest in history. To fund this gap, public debt rose to a historic high of Php 16.05 trillion. 

Simultaneously, a steep decline in quarterly Consumer Price Index (CPI) readings during Q3 and Q4 pulled average annual inflation down from 6.0% in 2023 to 3.2% in 2024. 

These three macroeconomic developments—monetary easing, record government expenditure, and easing inflation—served as key underpinnings of GDP growth. Despite noticeable slowdowns in Q3 (5.2%) and Q4 (5.3%), relatively stronger performances in Q1 (5.9%) and Q2 (6.5%) lifted full-year GDP growth to 5.7%, edging up from 5.5% in 2023.

Against this backdrop, how did the elite composite members of the PSEi 30 perform in 2024?

This article examines their financial performance, focusing on debt, revenue, net income, and sectoral contributions, while highlighting the broader implications for the Philippine economy. 

Nota Bene:

PSEi 30 data include redundancies due to the inclusion of assets and liabilities of subsidiaries and their parent holding firms.

Chart Labels:

B 1A Recent Data: Consists of current members and includes possible data revisions from the past year.

1B Data: Reflects comparisons between previous years, consisting of members during the existing period and unaudited publications for the period.

II. PSEi 30: Debt as the Primary Growth Driver

Figure 1 

In 2024, non-financial debt surged by 8.44% to a record Php 5.767 trillion, marking the third largest annual increase since 2018. (Figure 1, topmost pane) 

This Php 449 billion net addition occurred despite elevated borrowing costs, with 10-year BVAL rates remaining high. (Figure 1, middle graph) 

Relative to the broader financial system, non-financial debt accounted for 16.92% of total financial resources (bank and financial assets), slightly above the 16.87% share in 2023. (Figure 1, lowest image) 

On top of this, the top three PSEi 30 banks reported a staggering 49.99% increase in bills payable—from Php 483.58 billion in 2023 to Php 725.30 billion in 2024. Notably, this figure excludes bond issuances. 

III. Record Revenues, Yet Slowing Growth Momentum

Figure 2

The PSEi 30 collectively posted record revenues of Php 7.22 trillion, representing a 7.91% increase or Php 529.07 billion in absolute terms. This slightly surpassed the 7.8% growth or Php 478 billion gain in 2023. (Figure 2, upper chart) 

However, in historical context, the 2024 increase ranked as the third smallest since 2018—reflecting the easing of price pressures as the CPI cooled. 

Systemic leverage—defined here as the sum of public debt and universal/commercial bank loans (excluding fixed-income instruments and FDIs)—rose by 11.1% in 2024, reaching an all-time high of Php 29.96 trillion. (Figure 2, lower chart) 

This expansion in credit, alongside continued deficit spending, substantially supported aggregate demand, thereby contributing to the PSEi 30’s revenue gains. 

Figure 3 

However, viewed from another lens, the slowing contribution of money supply relative to GDP—a key indicator of real economy liquidity—has increasingly revealed slack in both PSEi 30 performance and broader GDP growth. (Figure 3, upper image) 

The 2020 spike in this metric underscored the BSP’s historic role in backstopping the banking system during the pandemic. 

Yet it also marked a turning point in the financialization of the Philippine economy—an underlying force behind demand-side inflation and a structural driver of imbalances between financial sector gains and real-sector productivity. 

Importantly, the deceleration in revenue growth mirrored the nominal GDP trends of 2023 and 2024, highlighting the interconnectedness of corporate performance and macroeconomic trends. (Figure 3, lower visual) 

IV. Net Income Challenges: Slow Growth and Declining Margins

Figure 4

Net income across PSEi 30 firms grew at a sluggish 6.8% to a record Php 971 billion. While this represents a nominal gain of Php 80.31 billion, both the growth rate and the absolute increase were the smallest since 2021. (Figure 4, topmost image) 

Despite widespread corporate participation in government projects, historic public spending growth of 11.04% outpaced net income growth, underscoring the accumulating inefficiencies in the effectiveness of 'trickle-down' policies. (Figure 4, middle graph) 

The PSEi 30 maintained a steady net income margin of 13.44%, slightly lower than last year's 13.45% but still exceeding the 5-year average of 12.15% (2019–2024). (Figure 4, lowest chart) 

Critically, the debt-to-net income ratio revealed that Php 0.46 in debt was needed to generate every Php 1 in profit. 

More alarmingly, on a net basis, Php 7.3 in new debt was required for every Php 1 increase in profit—a record high. 

The takeaway: Deepening debt dependency to drive profits is not only artificial but also subject to diminishing returns. 

V. “Cui Bono?” — Who Benefits from GDP Growth? A Symptom of Trickle-Down Economics

Figure 5

Revenue as a share of GDP edged up to 27.3% in 2024 from 27.22% in 2023—marking the third-highest level since 2019. (Figure 5 upper window) 

The PSEi 30 accounted for more than a quarter of nominal GDP, excluding additional contributions from other publicly listed firms under elite conglomerate umbrellas. 

This substantial contribution highlights a hallmark of the government and BSP’s “trickle-down” economic development model, characterized by increased business operations through direct state spending, which disproportionately benefits politically connected corporate giants. 

Importantly, the BSP’s easy-money regime functions as an implicit subsidy, enabling elite firms to acquire cheaper credit as a protective moat against competition. 

The result: a centralization of economic gains among the elite, while MSMEs and average Filipinos—Pedro and Maria—bear the costs. 

In essence, the model privatizes profits while socializing costs, exacerbating economic inequality. 

VI. Sectoral Performance: Debt, Revenue, and Income Trends 

In 2024, sectoral performance varied significantly: (Figure 5, lower table) 

Debt: The industrial sector posted the largest percentage increase in debt at 17.33% year-on-year (YoY), but holding firms dominated in peso terms, accounting for a 67.85% share of total debt. 

Revenues: Despite rising vacancies, the property sector recorded the highest percentage revenue gain at 16.6% YoY. However, holding firms led in absolute peso increases and percentage share, contributing 45.9% of total revenue growth. 

Net Income: The services and property sectors outperformed with net income growth of 20.6% and 17.6%, respectively. Banks, however, led in peso growth and accounted for 45.6% of the net income increase. 

Cash Holdings: Non-financial firms’ cash holdings contracted by 1.91%, driven by a 14.6% and 3.35% decline in reserves in the industrial and service sectors, respectively. 

In contrast, PSEi 30 banks saw their cash holdings rise by 14.6%, despite the BSP reporting otherwise. This discrepancy raises questions over possible dual standards in bank reporting. 

VII Top Movers: Individual Firm Highlights

Figure/Table 6 

Debt: San Miguel Corporation (SMC) led all firms with a Php 155 billion increase in debt, bringing its total to a historic Php 1.560 TRILLION—comprising 35% of all non-financial PSEi 30 debt. Ayala Corporation and its energy subsidiary ACEN followed with Php 76.9 billion and Php 54 billion increases, respectively.

Revenues: San Miguel, BPI, and BDO were the top contributors in terms of revenue increases. Conversely, DMC and its subsidiary Semirara reported revenue contractions. 

Net Income: ICT, BPI, and BDO led net income growth in absolute terms, while SMC and SCC posted the largest declines. 

Cash Holdings: The largest cash increases came from SMC and ICT, while Aboitiz Equity Ventures and LTG Group reported the steepest reductions. 

VIII. Final Notes on Transparency and Accuracy 

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. 

Moreover, when authorities overlook or fail to act on instances of misreporting—especially by large, elite-aligned corporations—this raises serious governance concerns. Such inaction fosters moral hazard and risks entrenching a culture of non-transparency within the corporate sector. 

Philippine Fiscal Performance in Q1 2025: Record Deficit Amid Centralizing Power

 

The greatest threat facing America today is the disastrous fiscal policies of our own government, marked by shameless deficit spending and Federal Reserve currency devaluation. It is this one-two punch -- Congress spending more than it can tax or borrow, and the Fed printing money to make up the difference—that threatens to impoverish us by further destroying the value of our dollars—Dr. Ron Paul 

In this issue:

Philippine Fiscal Performance in Q1 2025: Record Deficit Amid Centralizing Power

I. Public Spending: A Rising Floor, Not a Ceiling

II. Shifting Power Dynamics: The Ascendancy of the Executive Branch

III. A Historic Q1 2025 Deficit: Outpacing the Pandemic Era

IV. Revenue Shortfalls: The Weakest Link

V. Crowding Out: Public Revenues at the Expense of the Private Sector

VI. Expenditure Trends: Centralization in Action as LGUs Left Behind

VII. Debt Servicing: A Growing Burden

VIII. Foreign Borrowing: A Risky Trajectory

IX. Savings and Investment Gap: The Twin Deficits

X. Twin Deficit Structure

XI. Mounting FX Fragility and Systemic Risks

XII. Fiscal Strain Reflected in the Banking and Financial System

XIII. Bank Liquidity Drain and Risky Credit Expansion

XIV. Conclusion: A Fragile Political Economy  

Philippine Fiscal Performance in Q1 2025: Record Deficit Amid Centralizing Power 

A record Php 478.8 billion deficit, driven by soaring spending and slowing revenues, exposes deepening fiscal imbalances and a dangerous shift toward centralized power, increasing risks to the Philippines’ economic stability         

Inquirer.net, May 01, 2025: "The Philippine government in March registered its largest budget deficit in 15 months as revenues contracted amid strong growth in spending. The state’s fiscal shortfall had widened by 91.78 percent year-on-year to P375.7 billion in March, according to the latest cash operations report of the Bureau of the Treasury (BTr). This was the biggest budget gap since the P400.96-billion deficit in December 2023. That sent the fiscal gap in the first quarter to P478.8 billion, 75.62 percent bigger than the shortfall recorded a year ago." (bold mine)

The establishment’s talking heads and pundits tend to gloss over unpalatable economic data, but let us fill in the blanks. 

This article dissects the Q1 2025 fiscal performance, highlighting the record deficit, shifting political power dynamics, and underlying economic vulnerabilities.

I. Public Spending: A Rising Floor, Not a Ceiling 

In March, we noted: "This suggests that the monthly average of Php 527 billion represents a floor! We are likely to see months with Php 600-700 billion spending." (Prudent Investor, March 2025) 

The 2025 enacted budget of Php 6.326 trillion translates to an average monthly expenditure of Php 527 billion.

Figure 1

However, public spending in March 2025 soared to Php 654.98 billion—the second-highest on record, surpassed only by December 2023’s Php 661.03 billion. Excluding seasonal December spikes, March 2025 set a new benchmark or a new high for monthly expenditure. (Figure 1, topmost window)

For Q1, public spending hit Php 1.477 trillion, representing 23.35% of the annual budget. This translates to a monthly average of Php 492.33 billion—Php 34.84 billion short of the official target. Nonetheless, Q1 spending ranked as the sixth-largest quarterly expenditure in history.

This aggressive spending pace underscores a pattern observed over the past six years, where the executive branch consistently overshoots the enacted budget. (Figure 1, middle image) 

Based on this path dependency, the Php 527 billion monthly average should indeed be considered a floor, with monthly expenditures likely to hit Php 600–700 billion—or higher—in subsequent months to meet or exceed the annual target.

II. Shifting Power Dynamics: The Ascendancy of the Executive Branch

Beyond the numbers lies a profound political shift. As we highlighted in March:

"More importantly, this repeated breach of the ‘enacted budget’ signals a growing shift of fiscal power from Congress to the executive branch." (Prudent Investor, March 2025) 

The consistent overspending suggests that Congress has implicitly ceded control over the power of the purse to the executive. 

This erosion of legislative oversight effectively consolidates political supremacy in the executive branch, rendering elections a formality in the face of centralized fiscal authority. 

Indeed, the executive’s growing control over the budget illustrates the erosion of democratic checks and balances among the three branches of the Philippine government. 

The widening gap between actual and allocated spending serves as a tangible indicator of this power shift, with the executive branch wielding increasing discretion over national resources. 

III. A Historic Q1 2025 Deficit: Outpacing the Pandemic Era 

The Q1 2025 budget deficit of Php 478.8 billion represents an All-Time high, surpassing even the deficits recorded during the pandemic-induced recession. (Figure 1, lowest diagram) 

It ranks as the sixth-largest quarterly deficit in history and the largest non-seasonal (non-Q4) shortfall. 

Annualized, this deficit projects to Php 1.912 trillion—14.5% above 2021’s record of Php 1.67 trillion! 

This alarming trajectory signals deepening fiscal imbalances, driven by a combination of unrestrained spending growth and the increasing prospect of faltering revenues. 

IV. Revenue Shortfalls: The Weakest Link 

As we observed last December: 

"Briefly, the embedded risks in fiscal health arise from the potential emergence of volatility in revenues versus political path dependency in programmed spending." (Prudent Investor, December 2024)

Figure 2

Q1 2025’s fiscal gap was exacerbated by a 22.4% year-on-year surge in expenditures—the highest since Q2 2020—coupled with a revenue shortfall. (Figure 2, topmost chart) 

March revenues contracted by 3.1%, dragging Q1 revenue growth down to 6.9%, a sharp slowdown from previous quarters. 

Importantly, the shift to quarterly VAT reporting distorts monthly fiscal data, making end-of-quarter figures critical for assessing fiscal health. 

Breaking down the revenue components: 

-Bureau of Internal Revenue (BIR): Collection growth decelerated slightly from 17.2% in 2024 to 16.7% in Q1 2025, reflecting steady but insufficient tax performance to close the spending gap. 

-Bureau of Customs (BoC): Growth improved from 2.4% to 5.7%, potentially driven by frontloaded exports and imports in anticipation of U.S. tariff policies under US President Trump. This trade dynamic may also bolster Q1 2025 GDP figures. 

-Non-Tax Revenues: Non-tax revenues plummeted by 41.21%, contributing only Php 66.7 billion in Q1 2025. The Bureau of the Treasury (BTr) attributes this to delayed GOCC dividend remittances, with only three GOCCs remitting Php 0.027 billion in Q1 2025 compared to 18 GOCCs contributing Php 28.23 billion in Q1 2024. The BTr expects non-tax revenues to recover starting May 2025 as GOCC dividends resume. (BTr, April 2025) (Figure 2, middle graph) 

This drastic reduction in GOCC remittances accounts for the bulk of the non-tax revenue shortfall, pulling the total revenue share down to 6.68%—the lowest since at least 2009. Since 2009, non-tax revenues have averaged a 12.4% share of total revenues, underscoring the severity of the Q1 2025 decline. 

The heavy reliance on non-tax revenues through volatile GOCC dividends exposes a structural vulnerability in fiscal planning. Delays in remittances, whether due to operational inefficiencies or governance issues within GOCCs, amplified the Q1 2025 deficit, forcing the government to draw on cash reserves and increase borrowing to bridge the gap. 

The broader implications are concerning. Tax collections from the BIR and BoC, while still growing, are insufficient to offset aggressive expenditure growth. The dependence on non-tax revenue windfalls introduces heightened unpredictability, as future shortfalls could exacerbate fiscal pressures if GOCCs underperform or remittances are further delayed. 

V. Crowding Out: Public Revenues at the Expense of the Private Sector 

Moreover, potential weaknesses in the economy or tax administration could lead to a substantial deceleration in tax revenue collections from the BIR and BoC, further widening the fiscal gap. 

More critically, this revenue crunch highlights a profound economic trade-off: the government’s growing resource demands, through taxes and non-tax collections, divert funds from the private sector, undermining productivity and long-term growth—a phenomenon known as the crowding-out effect.

Compounding these challenges, the inability or failure of near-record employment rates and unprecedented (Universal-commercial) bank credit expansion to significantly boost revenues signals softening domestic demand. (Figure 2, lowest visual) 

In fact, a chart highlighting the growing gap between public revenues and universal bank lending signals an increasing reliance on credit to drive GDP growth and sustain public coffers.

Figure 3

Declining core CPI, rising real estate vacancies, record-high hunger sentiment, and a decelerating GDP growth trajectory all indicate an economy struggling to convert nominal gains into sustainable fiscal outcomes. (Figure 3, topmost pane) 

If public revenue falters and the fiscal deficit explodes, the government may face heightened borrowing needs and rising interest rates, further straining fiscal health and increasing vulnerability to external economic shocks. 

VI. Expenditure Trends: Centralization in Action as LGUs Left Behind 

The 2019 Mandanas-Garcia Ruling mandated a larger revenue share for Local Government Units (LGUs), yet national government (NG) expenditures have consistently outpaced LGU spending since 2022 under the Marcos administration. 

 In Q1 2025: 

-LGU expenditure growth slowed from 12.6% in 2024 to 11.3%, reducing their share of total spending from 21.5% to 19.6%. 

-NG expenditure growth surged from 5.4% to 25.25%, increasing its share from 60.3% to 61.71%. Key drivers included infrastructure projects (DPWH) and public welfare programs (DSWD) in March. (Figure 3, middle image) 

This divergence reflects a deliberate centralization of resources, concentrating fiscal and political power in the national government while diminishing LGU autonomy. 

The trend aligns with the broader shift of fiscal authority to the executive, further entrenching centralized control. 

VII. Debt Servicing: A Growing Burden 

In the meantime, interest payments, a primary component of debt servicing, reached a record high in Q1 2025. 

While their growth rate slowed from 35.9% in 2024 to 24.9% in 2025, their share of total expenditures rose from 16% to 16.32%. (Figure 3, lowest chart)

Figure 4

Amortization costs plummeted by 87.26%, reducing the total debt servicing burden by 65.3%. (Figure 4, topmost graph)

Mainstream narratives have previously portrayed this as a sign of fiscal improvement—but this is misleading.

The decline in debt servicing is merely a temporary reprieve. With the historic Q1 deficit, future borrowing—and therefore future debt servicing—will inevitably rise.

Moreover, the touted "fiscal consolidation" rests on a flawed assumption: that economically sensitive, variable revenues will increase in lockstep with programmed spending.

The Q1 2025 deficit necessitated a sharp increase in financing, with the Bureau of the Treasury’s borrowing doubling from Php 280.79 billion in 2024 to Php 644.12 billion this year. (Figure 4, second to the highest image)

While the Treasury’s Q1 2025 cash position reached historic highs, it returned to a deficit of Php 325.56 billion in March. This implies the need for increased short-term borrowing to meet immediate cash requirements.

If the deficit trend persists, full-year borrowing targets may need to be revised upward.

As evidence, Public debt surged by Php 319.257 billion month-on-month to a record Php 16.632 trillion in February 2025, marking a historic high. March data, expected next week, may reveal further escalation. (Figure 4, second to the lowest diagram)

This debt increase, driven by robust programmed spending and slowing revenue growth, underscores the deepening fiscal imbalance. 

Yet, the gap between the nominal figures of public debt and government spending continues to widen, reaching unprecedented levels and signaling heightened fiscal risks.

VIII. Foreign Borrowing: A Risky Trajectory

A notable shift in Q1 2025 was the increased reliance on foreign exchange (FX)-denominated share of debt servicing, which surged from 15% to 47.6% on increases in interest and amortization payments. (Figure 4, lowest pane)

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

-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. 

IX. Savings and Investment Gap: The Twin Deficits 

The Philippine economic development model continues to rely heavily on a Keynesian-inspired spending paradigm. This framework is a core driver behind the record-breaking savings-investment gap. 

A key policy anchor supporting this model is the BSP’s long-standing easy money regime, which provides cheap financing primarily to the government and elite sectors. This is intended to stimulate spending through a trickle-down mechanism—boosting GDP while funding government projects, including those often criticized as boondoggles. 

However, this approach comes at a significant cost: it depresses domestic savings. 

Fiscal spending is an integral component of this paradigm. 

During the pandemic recession, the government’s role as a "fiscal stabilizer" expanded significantly, shaping GDP performance in the face of private sector weakness. 

However, government spending does not come without consequences. It competes with the private sector for scarce resources and financing, diverting them in the process. The result is structural supply constraints, forcing the economy to import goods to fill domestic shortages created by demand-side excess. 

Furthermore, the BSP’s USD-PHP foreign exchange ‘soft peg’ has the effect of overvaluing the peso and underpricing the dollar. This policy further fuels demand for imports and external financing, reinforcing the external deficit. 

X. Twin Deficit Structure

Figure 5

Unsurprisingly, this credit-fueled, trickle-down model has produced a classic “twin deficit” scenario—wherein fiscal imbalances are mirrored by trade deficits. (Figure 5, topmost visual)

As the budget gap soared to historic levels during the pandemic, the trade deficit also expanded to record levels.

With the current political and economic thrust toward centralization, this dynamic is unlikely to reverse. This reality highlights a structural barrier that undermines potential benefits from global trade shifts, such as those arising from Trump’s protectionist tariff regime.

Under Trump’s regime, the Philippines, with one of the region’s lowest tariff rates, remains structurally unprepared to capitalize, due to policies that prioritize consumption over investment, perpetuating reliance on imports and external financing—as previously discussed. 

Although the trade gap widened by 12.8% year-on-year in Q1 2025—from USD 11.264 billion to USD 12.71 billion—the all-time high in the fiscal deficit points to an even larger trade gap in the quarters ahead. This will only deepen the twin deficit conundrum. 

XI. Mounting FX Fragility and Systemic Risks 

Even with support from external borrowings, the growth of BSP’s net foreign assets has largely vacillated following multiple spikes in 2024. This suggests emerging limitations in the central bank’s ability to manage its FX operations effectively. (Figure 5, middle graph) 

Despite a recent rally in the Philippine peso—driven by broad dollar weakness and BSP interventions—fragilities from growing external liabilities remain as explained last week. 

These vulnerabilities are likely to magnify systemic risks, even as establishment economists—fixated on rigid quantitative models—fail to acknowledge them. 

XII. Fiscal Strain Reflected in the Banking and Financial System 

Fiscal strains are increasingly impacting the banking system, a dynamic the public scarcely recognizes.

The BSP and its cartelized network of financial institutions have engaged in inflationary financing.  Philippine banks have been absorbing a significant share of government securities through Net Claims on Central Government (NCoCG). (Figure 5, lowest chart) 

These claims, representing banks’ holdings of government debt, peaked at Php 5.54 trillion in December 2024 but slipped to Php 5.3 trillion in February 2025, reflecting slight easing. 

Meanwhile, the BSP’s NCoCG, following the historic Php 2.3 trillion liquidity injections in 2020-21, remains elevated, fluctuating between Php 400 billion and Php 900 billion since 2023, underscoring its role in deficit financing.

Figure 6

Although the growth of NCoCG for Other Financial Corporations (OFCs), such as investment firms and insurers, has slowed since Q1 2024, it reached a record Php 2.491 trillion in Q3 2024 before declining to Php 2.456 trillion in Q4 2024. (Figure 6, topmost image) 

Notably, the surge in NCoCG for banks, OFCs, and the BSP began in 2019 and accelerated thereafter, coinciding with the "twin deficits." 

Essentially, the Q1 2025 fiscal deficit of Php 478.8 billion and trade deficit of USD 12.71 billion—highlights the financial sector’s entanglement with fiscal imbalances. 

XIII. Bank Liquidity Drain and Risky Credit Expansion 

Compounding this, the spike in the banking system’s record NCoCG has coincided with the all-time high in Held-to-Maturity (HTM) assets, government bonds held by financial institutions until maturity, which have significantly reduced banks’ liquidity. (Figure 6, middle chart) 

This led to the cash-to-deposits ratio hitting a historic low in February 2025, as banks locked funds in HTM assets to finance the government’s borrowing. (Figure 6, lowest graph) 

In response, the BSP has implemented a series of easing measures: two reductions in the Reserve Requirement Ratio (RRR) within six months, the doubling of deposit insurance in March 2025, and four policy rate cuts in eight months—officially marking the start of an easing cycle—as previously analyzed. 

In parallel, banks have ramped up lending, particularly to risk-sensitive sectors such as consumers, real estate, trade, and utilities. This credit expansion is often rationalized as a strategy to improve capital adequacy ratios in line with Basel standards. However, in practice, it raises sovereign exposure, increases sensitivity to interest rate fluctuations, and thereby amplifies credit, economic, and systemic risks. 

XIV. Conclusion: A Fragile Political Economy 

In sum, the buildup in fiscal risks is no longer confined to the government budget spreadsheets—it permeates into the broader economy and financial markets. 

As we concluded last March: "the establishment may continue to tout the supposed capabilities of the government, but ultimately, the law of diminishing returns will expose the inherent fragility of the political economy. This will likely culminate in a blowout of the twin deficits, a surge in public debt, a sharp devaluation of the Philippine peso, and a spike in inflation, reinforcing the third wave of this cycle—heightening risks of a financial crisis." (Prudent Investor, March 2025) 

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References 

Prudent Investor Newsletter, January 2025 Surplus Masks Rising Fiscal Fragility: Slowing Revenues, Soaring Debt Burden March 23, 2025, Substack 

Prudent Investor Newsletter, 2024’s Savings-Investment Gap Reaches Second-Widest Level as Fiscal Deficit Shrinks on Non-Tax Windfalls March 9, 2025 Substack 

Prudent Investor Newsletter, October’s Historic Php 16.02 Trillion Public Debt: Insights on Spending, Employment, Bank Credit, and (November’s) CPI Trends December 9, 2025 Substack 

Philippine Bureau of Treasury, Q1 Revenue Collections and Expenditures Sustain Growth, April 29, 2025 treasury.gov.ph