SONA 2015: Aquino gov’t continues to underspend

Gerard Lim
SONA 2015: Aquino gov’t continues to underspend
A lower than target fiscal deficit could mean inability to provide better services and build better infrastructure. It could also bloat 'savings,' which could give the administration too much leeway to decide on where the money goes
MANILA, Philippines – With only 10 months left in its term, the Aquino government continues to struggle with underspending.
Earlier this year, the government announced it missed its fiscal deficit target by 66%.
This is not a recent development. Based on data collected by Rappler from the Department of Finance, the government has not been spending enough since 2012. (WATCH: Rappler Animate: How Aquino handled the economy)

While the government’s revenue and expenditures have seen steady increases since 2010, fiscal deficit has been decreasing since 2012. (READ: Gov’t underspending narrows deficit to 0.6% of GDP in 2014). A fiscal deficit is calculated by subtracting the expenditures from the revenues.

A lower fiscal deficit might sound good if you are an ordinary person.

In the case of government, however, economists say a lower than target fiscal deficit could mean the administration is unable to make use of the money collected from its citizenry to provide services and build better infrastructure. 

Underspending has been cited as the reason for the deceleration of economic growth. (READ: PH to miss 2015 economic growth target – economists)

Further, inability of agencies to spend budgeted amounts could also result in bloating “savings” – which could give the administration too much leeway in deciding where unspent resources go according to a former budget secretary.

Improved spending?

In a press release, DBM secretary Florencio Abad said “our spending levels from January to March show a very clear trend towards faster government spending. On first glance, spending in the first quarter may seem unremarkable, but the fact that it accelerated sharply by March gives us good reason to be optimistic.”

However, according to data from the Bureau of Treasury (BOT), while spending did increase in March, the government’s spending has actually slowed down at the end of April, even gaining a fiscal surplus wherein revenues or earnings exceeded expenditures by around P53.6 billion.

Government revenue, expenditures, and fiscal surplus/deficit as of May 2015*

Month

Government revenues (in millions of pesos)

Government expenditures (in millions of pesos)

Fiscal surplus/deficit (in millions of pesos)

January

166,652.00

173,124.00

-6,472.00

February

132,772.00

142,445.00

-9,673.00

March

171,106.00

188,478.00

-17,372.00

April

209,104.00

156,505.00

52,599.00

May

242,525.00

175,188.00

67,337.00

*Based on data from the BOT

The Department of Finance (DOF) released a statement citing revenue growth as the reason for the smaller deficit. In total, however, the government only collected around P471 billion which is P13.6 billion below the programmed revenue for the first quarter.

Meantime, in total, P504 billion was spent in the first quarter of the year, 4% higher compared to the first quarter disbursements in 2014 but still P78 billion below target.

According to the national government’s fiscal program, the government is set to have a total fiscal deficit of P283.7 billion by the end of 2015. As of the end of May, the government has P86 billion in surplus in total.

The problem with underspending

Former budget secretary Dr. Benjamin Diokno said in an interview with Rappler that the underspending results from DBM providing government agencies with more money than they actually need or are able to spend.

“I think the administration is deliberately making the budget bloated because they want to keep the savings,” Diokno said.

According to data collected by Rappler from DBM and Bureau of Treasury (BOT), the government has been on an upward trend since the presidency of Gloria Arroyo.

Expenditures have also been on the rise but ever since 2006, there has been a gap between the budget and expenditures. To date, the gap was at its largest last year in 2014 where the budget was at P2.268 trillion while expenditures were at P1.981 trillion.

 

According to data from the DBM, the government had almost P280 billion in unobligated balances at the end of 2014.

This is money that the DBM had allotted but the concerned agency had not spent, becoming savings for the next fiscal year.

“Too late the hero”

The DBM says the structural weakness of national government agencies and governance commissions is the primary cause for underspending.

To improve the bureaucracy’s ability to spend budgeted amounts, the Aquino initially employed what it called the Disbursement Acceleration Program (DAP) early during its term. 

The DAP was supposed to ramp up spending in order to accelerate economic expansion. It was introduced to increase government spending after “sluggish disbursements” that resulted in a Gross Domestic Product (GDP) growth of 3.6% in 2011. 

Following the controversy over the pork barrel funds, however, the Supreme Court struck down several features of the DAP as unconstitutional in mid-2014. This means the administration needs to explore other ways to accelerate spending.

In March 2015, as part of the government’s efforts to solve these structural weaknesses, President Aquino signed Administrative Order (AO) 46. The order is a directive to the heads of all government departments and agencies to “implement measures to facilitate budget execution.”

First, the order requires earlier submission of requirements such as project listings, release of allotments, and implementation plans to the DBM. In terms of compliance, the DBM reported that it has released a lump sum of P30.9 billion to the agencies.

This closes the gap with the missed disbursement target for the first quarter to P47.3 billion. For the second quarter however, it still has to reach its original P669.4 billion in disbursements.

Second, the Bids and Awards Committees (BAC) staff of government agencies will be expanded for improved procurement procedures. The JCOCPE report said 90 new BAC positions have been created.

Third, AO 46 orders agencies to create full-time delivery units (FDUs) for the purpose of monitoring program or project implementation. These are to be headed by an officer with a rank no lower than Undersecretary. So far, the circular for the creation of the FDUs has been circulated.

Fourth, departments and agencies are required to submit quarterly reports to the DBM with a copy furnished for the Office of the Cabinet Secretary containing project or program progress reports, troubleshooting measures, and catch up and alternative implementation plans.

Aside from the measures required by AO 46, the DBM is pushing for a number of additional measures.

Among these is the release of new guidelines on savings, augmentation, and realignment earlier in June, “increasing the financial management capacity” of local government units (LGU) through bottom-up budgeting (BUB), and providing direct releases of funding for location-specific LGU projects.

The DBM is also pushing for the following measures based on their assessment of the first quarter:

  • One-year lapsing of appropriations as opposed to two-years
  • Cash based budgets for improved predictability of the budget execution process
  • A government fiscal calendar for improved planning and preparation among agencies
  • Monthly financial performance reports for closer budget execution monitoring,
  • Outsourcing of operating maintenance and public services to fast-track specific programs and projects.

The DBM is also pushing for the various departments included in the Government Procurement Policy Board to conduct an assessment of the procurement capacities and improvement plans of the various agencies.

Overall, however, Diokno said many of the provisions in AO 46 were nothing new. He also questioned why these reforms are only being enacted now, when the administration only has months to go before its term ends, rather than when Aquino began his term.

“It’s too late the hero,” Diokno says. These supposed reforms on budget execution, according to Diokno, are nothing more than “a lot of song and dance.”

The new guidelines allow for realignment or changing details about the project before obligations are incurred.

“The budget should already be composed of ready-to-implement projects,”  he added. Instead, he said, the projects in the budget are neither identified nor ready.  

Economic effects

Despite the slowed spending, the Philippines had its credit rating upgraded to BBB+ by the Japan Credit Rating Ltd. (READ: INFOGRAPHIC: What a credit rating upgrade means for Filipinos) The upgrade may be a result of the Philippines having less debt at the end of the first quarter.

The president invited Japanese businessmen to invest in the Philippines earlier in June. 

According to data from the World Bank shown below, the Philippine gross domestic product (GDP) has been increasing which can be interpreted as a sign of economic growth. 

However, Diokno criticized the focus of this economic growth saying agricultural growth has been neglected in favor of urban-focused projects. Citing the Global Competitiveness Report for 2014-2015 by the World Economic Forum, Diokno said the underspending has costed the country so much in lost opportunities. The professor estimated the government has underspent by at least P529 billion from 2011 to 2014.

As a result, he said the Philippines ranks the worst in overall public infrastructure amongst the Association of Southeast Asian Nations (ASEAN) 5. (READ: A united region: The ASEAN Community 2015)

Global infrastructure quality score rankings (2014-2015)*

Country

Roads 

Railroads

Ports

Airports

Overall

Philippines

87th

80th

101st

108th

95th

Indonesia

72th

41st

77th

64th

72nd

Thailand

50th

74th

54th

37th

76th

Malaysia

19th

12th

19th

19th

20th

Singapore

6th

NA

2nd

1st

5th

The report also said an inadequate supply of infrastructure was the second most problematic factor for doing business, next to corruption and followed by tax regulations and an inefficient government bureaucracy.  

In total, the budget agency reported to Joint Congressional Oversight Committee on Public Expenditures (JCOCPE) that the national government has P2.606 trillion from the 2015 general appropriations act plus P90.5 billion in unreleased appropriations from 2014 and P186.2 billion in unobligated allotments for a total of almost P2.9 trillion to spend for 2015.

Unspent government assets (2011-2014)*

Year

Unobligated balance at the end of the year (in millions of pesos)

Obligation rate (% of obligations incurred to released allotments)

2011

164,174.00

84.28%

2012

244,950.00

79.91%

2013

165,757.00

87.77%

2014

279,867.00

85.62%

*based on available data from the DBM

President Aquino approved a budget worth P3.002 trillion for 2016 last July 6.

This figure does not include what might be left over savings from this year.

“Given that our proposed budget for 2016 stands at P3.002 trillion, it is crucial that agencies—especially those with big-ticket projects and still-unreleased allotments – ensure the timely implementation of their programs this year. This way, we can further strengthen service delivery in 2016 instead of catching up on the previous year’s program,” Abad said in a press release.

As far as the data is concerned, it’s going to have to be a last-minute rally if they want to achieve this goal.  – Rappler.com

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