Budget deadlock: Who’s to blame?

Aika Rey
Capital outlay for education and health facilities receive huge cuts in the 2019 National Expenditure Program. Is the budget department responsible?

MANILA, Philippines – There’s a budget deadlock and the stakes are high.

In what appears to be a standoff between the executive and the lower House, both branches do not appear to be willing to make any concessions on the proposed 2019 National Expenditure Program (NEP).

This led to budget deliberations being suspended both at the House and the Senate, with congressmen urging the Department of Budget and Management (DBM) to make changes on the proposed budget.

Lawmakers argued that the shift to a cash-based budgeting system in 2019 – an election year – “tightened” the P3.757-trillion national budget.

The House of Representatives also said that education and health budgets “suffered” the most in the proposed fiscal plan, adding that these agencies received “huge cuts.”

But is the budget department to blame?

Comparing 2018 and 2019 budgets

The P3.757-trillion national budget for 2019 amounts to 19.3% of the country’s projected gross domestic product for 2020.

At first glance, the 2019 amount seems to be “smaller” than the 2018 budget of P3.767 trillion. But the main difference between the two is that the 2019 NEP is supposedly the first “cash-based” budget of the Philippine government. (READ: What is cash-based budgeting?)

The proposed shift to a cash-based budget would limit both contractual obligations and disbursement of payments to goods delivered and services rendered within the fiscal year.

Meanwhile, the 2018 budget is still obligation-based which disburses payments as “obligations” or commitments to projects that are not necessarily completed within the year. For the longest time, this is how the Philippine budget system has worked.

According to the DBM, the cash-based equivalent of the 2018 budget stands at P3.318 trillion, making the 2019 budget still 13% higher at P433.3 billion.

The “cash-based equivalent” of the 2018 budget is derived from the agencies’ monthly disbursement program, which estimates how much funds a certain agency can actually spend for its programs and projects.

In other words, the monthly disbursement program shows how much agencies can spend in delivering services and building infrastructure, given their absorptive capacity. This set-up also discourages projects that are not “implementation-ready” from being part of the expenditure program.

And this matters because cash-based budgeting means projects need to be completed by yearend. The DBM said this would benefit the acceleration of the government’s centerpiece infrastructure program Build, Build, Build.

The table below shows the comparison of allocations per department between the proposed 2019 National Expenditure Program and the cash-based equivalent of the 2018 General Appropriations Act:

Just like the previous budgets, education and infrastructure received the biggest allocation in the proposed 2019 NEP. Funds for these two sectors alone cover at least a third of the P3.757-trillion proposed budget.

The education sector received the lion’s share of funds at P659.3 billion or P72.2 billion higher than last year.

The allocation of the education sector is distributed among the Department of Education, the Commission on Higher Education, state universities and colleges, and the Technical Education and Skills Development Authority.

It is followed by the Department of Public Works and Highways (DPWH) with an allocation of P555.7 billion for 2019. It is 68.29% higher than its P225.5 billion ($4.21 billion) budget for the previous year.

Meanwhile, the Department of the Interior and Local Government is a far third, receiving P225.6 trillion for 2019, or P53.3 billion higher than 2018’s P172.3 billion. The increase is attributed to the higher salaries for policemen.

The chart below ranks the top 10 government agencies with the highest allocation in the proposed 2019 budget:

Top losers

But what earned DBM the ire of the lawmakers were the supposed “deep cuts” in the capital outlay – or budget for infrastructure – of the education and health departments. 

Generally, the reduction in fund allocation can be attributed to agencies not spending it. In Budget Secretary Benjamin Diokno’s words: “Use it or lose it.”

The chart below shows the departments with the biggest cuts in the 2019 NEP:

Health

The Department of Health, despite ranking in the top departments with the most allocation, received the largest cut in funds for 2019.

The DBM clipped the DOH’s fund for the Health Facilities Enhancement Program (HFEP) to P50 million, down from the 2018 allocation of P30 billion, which lawmakers argued, is “equivalent to no new constructions of health facilities.”

The DBM said that the whopping slash in funds is attributed to the DOH’s “dismal spending performance.” 

The budget for HPEF increased to P119 billion in 2017 but spending for health facilities has been nowhere near the appropriated amount. Worse, the DOH was able to disburse only P7 billion out of its obligated amount of P114 billion for that year. That’s equivalent to only a little over 6%.

Based on DOH figures, the total unliquidated obligation from the program amounts to P57.5 billion, while the unobligated allotment stands at P27.4 billion, or a total of P84.9 billion.

Diokno said that the P50-million allotment for the program is intended for a review of HPEF. What the DOH can do, he said, is to use the obligation balance it incurred over the years to construct health facilities.

Education

Despite receiving the lion’s share of funds, lawmakers cited a huge cut in DepEd’s Basic Education Facilities Fund (BEFF) which amounts to P69.4 billion. From the 2018 allocation of P105.461 billion, funding for school buildings received only P34.742 billion for 2019.

The budget department explained that the slash in funds is due to the “administration’s policy of reducing underspending.” They also said that they also took into account the absorptive capacity of DepEd and the DPWH, the program’s implementing agency.

In 2017, the total appropriation for the program stood at P118.782 billion. DepEd was able to obligate roughly P114 billion, of which only P7.39 billion was disbursed, equivalent to only about 6.5%.

The Commission on Audit even found that some P326 million worth of school buildings constructed by the DPWH were either “incomplete or defective.” State auditors said the DPWH should “work closely” with DepEd in planning to avoid issues.

Elections

2019 is an election year and yet the Commission on Elections (Comelec) received only P10.28 billion for that year, P5.8 billion less than its 2018 allocation. The DBM said they had already included funds to prepare for elections in the 2018 budget.

Should a plebiscite on the Philippines’ shift to federalism happen in 2019, Diokno said they are preparing for it to coincide with the midterm elections in May 2019. But the Comelec said they would need an additional P6 billion to P8 billion for that.

Meanwhile, funds for the Bangsamoro Organic Law plebiscite are missing in the Comelec budget. Comelec commissioners estimated that it would cost P854 million should it happen in January 2019.

If nobody compromises, what will happen?

Despite the House’s clamor to increase the budget ceiling, economic managers maintained that the House cannot ask for that, as the expenditure program has already been submitted by President Rodrigo Duterte.

Diokno speculated that the reason behind the lawmakers’ plea for a higher budget for 2019 is because it’s an election year, and thus, “the lawmakers needed to show” their constituents that their districts have money for projects.

Without the DBM backing down, what the lawmakers can do is either pass or reject the proposed 2019 national budget. In the event that Congress rejects it, the government will have to reenact the 2018 approved budget.

Diokno said that the DBM is “ready” for that Plan B, and gave assurances there would be “no stoppage” of government work. The DBM, he said, has been reviewing the 2018 budget to “see which projects will survive” in 2019.

But that is not the most ideal set-up for Build, Build, Build projects as well. New projects that are set to be started next year won’t commence, unless the DBM requests for a supplemental budget.

Further, reenacted budgets are vulnerable to corruption and misuse because some items assigned to programs or projects have already been completed. The money will be there, but no old program to use it for.

During House Speaker Gloria Macapagal Arroyo’s 9-year term, budgets were reenacted 4 times – a “trademark” of her presidency to some.

Diokno downplayed the “worst case scenario,” saying “there are no dangers” with it. He said that the executive can “always come up” with a list of projects they deem needed for next year and have Congress approve the supplemental budget.

To solve the ongoing standoff, Duterte said he will meet with his economic managers “in the hopes of finding a compromise” between a proposed budget reform and concerns of lawmakers.

At this point, it is unclear which camp would buckle down.

When the budget deadlock comes to an end, whose wish will prevail? – Rappler.com

Add a comment

Sort by

There are no comments yet. Add your comment to start the conversation.

Aika Rey

Aika Rey is a business reporter for Rappler. She covered the Senate of the Philippines before fully diving into numbers and companies. Got tips? Find her on Twitter at @reyaika or shoot her an email at aika.rey@rappler.com.