Philippine Government Budgetary Processes

West Visayas State University

La Paz, Iloilo City

Master in Public Governance 506: Public Fiscal Administration

C. Government Budgeting and Expenditure

1. Philippine Government Budgetary Processes

Student: Christine Liz V. Jimenea

Instructor:Prof. Jasmin L. Vargas

Objective:

At the end of the presentation, the class will be able to:

I. Understand important concepts involved in the Philippine Budgeting Process which will be guided by the ff. questions:

A. What is government budgeting?B. Why is government budgeting important?C. What are the major processes involved in

national government budgeting?*D. How is the annual national budget prepared?

E. How does the budget become a law?F. What is the General Appropiations Act? G. How is the budget implemented?H. Why are adjustments made on the budget

Program?I. What mechanism ensure that funds have been

properly allocated and spent?J. Is the role of the DBM in the budgeting

process limited to national government agencies?

II. A closer look on the Philippine Government

National Budget

III. OECD – Budgeting in the Philippines

A. What is government budgeting?

Government budgeting is the critical exercise of allocating revenues and borrowed funds to attain the economic and social goals of the country.

It also entails the management of government expenditures in such a way that will create the most economic impact from the production and delivery of goods and services while supporting a healthy fiscal position.

B. Why is government budgeting important?

Government budgeting is important because it enables the government to plan and manage its financial resources to support the implementation of various programs and projects that best promotes the development of the country.

Through the budget, the government can prioritize and put into action its plans, programs and policies within the constraints of its financial capability as dictated by economic conditions.

C. What are the major processes involved in national government

budgeting?

Budgeting for the national government involves four (4) distinct processes or phases :

1. budget preparation2. budget authorization or budget legislation 3. budget execution and control4. accountability

While distinctly separate, these processes overlap in the implementation during a budget year.

Budget preparation for the next budget year proceeds while government agencies are executing the budget for the current year and at the same time engaged in budget accountability and review of the past year's budget.

Who really holds the “power of the purse?”

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No. 2009-08 (December 2009

D. How is the annual national budget prepared?

Budget Preparation

This starts with the Budget Call and ends with the President’s submission of the proposed budget to Congress.

1. The Budget Call

At the beginning of the budget preparation year, the Department of Budget and Management (DBM) issues the National Budget Call to all agencies (including state universities and colleges) and a separate Corporate Budget Call to all GOCCs and GFIs.

The Budget Call contains budget parameters (including macroeconomic and fiscal targets and agency budget ceilings) as set beforehand by the Development Budget Coordination Committee (DBCC); and policy guidelines and procedures in the preparation and submission of agency budget proposals.

Early Preparation

Under the Aquino Administration, the DBM has established a new tradition of beginning the Budget Preparation phase earlier, to ensure that the National Budget is enacted on time.

Under the new Budget Preparation Calendar, the Budget Call is issued in December (versus around April in the past); and the submission of the President’s budget a day after the State of the Nation Address (in contrast to earlier practice where it is submitted during the late in the 30-day window that the Constitution prescribes).

2. Stakeholder Engagement

A new feature in budget preparations which seeks to increase citizen participation in the budget process, departments and agencies are tasked to partner with civil society organizations (CSOs) and other citizen-stakeholders as they prepare their agency budget proposals. This new process, which was piloted in the preparation of the 2012 National Budget, is now being expanded towards institutionalization.

Departments and GOCCs Mandated to Conduct CSO Consultations starting 2013: Department of TourismDepartment of Transportation and CommunicationDepartment of Interior and Local GovernmentDepartment of JusticeDepartment of Labor and EmploymentDepartment of Environment and Natural ResourcesLight Rail Transit AuthorityNational Electrification AdministrationNational Irrigation AdministrationNote: All other departments and agencies are highly encouraged to undertake the process.

“Bottom-Up” Budgeting

For the first time in history, the National Budget for 2013 will be prepared using a breakthrough “bottom-up” approach. As opposed to the conventional way of allocating resources from top to bottom, grassroots communities will be engaged in designing the National Budget.The Aquino government, through the Cabinet Cluster on Human Development and Poverty Reduction, has identified 300 to 400 of the poorest municipalities and will engage these in crafting community-level poverty reduction and empowerment plans. This initial salvo of “bottom-up” budgeting will focus on rural development programs and the conditional cash transfer program, and will thus involve DA, DAR, DENR, DSWD, DepEd and DoH. These agencies will then include the community plans in their proposed budgets.

3. Technical Budget Hearings

These are conducted after departments and agencies submit their Agency Budget Proposals to the DBM. Here, agencies defend their proposed budgets before a technical panel of DBM, based on performance indicators on output targets and absorptive capacity. DBM bureaus then review the agency proposals and prepare recommendations.

4. Executive Review

The recommendations are presented before an Executive Review Board which is composed of the DBM Secretary and senior officials. Deliberations here entail a careful prioritization of programs and corresponding support, vis-à-vis the priority agenda of the national government. Implementation issues are also discussed and resolved.

5. Consolidation, Validation and Confirmation

DBM then consolidates the recommended agency budgets and recommendations into a National Expenditure Program and a Budget of Expenditures and Sources of Financing (BESF). As part of the consolidating process, the deliberations by the DBCC will determine the agency and sectoral allocation of the approved total expenditure ceiling, in line with the macroeconomic and fiscal program. Heads of major departments are invited to this meeting.

6. Presentation to President and Cabinet

The proposed budget is presented by DBM, together with the DBCC, to the President and Cabinet for further refinements or reprioritization. After the President and Cabinet approve the proposed National Expenditure Plan, the DBM prepares and finalizes the budget documents to be submitted to Congress.

7. The President’s Budget

The budget preparation phase ends with the submission of the proposed national budget—the “President’s Budget”—to Congress. The President’s Budget consists of the following documents, which help legislators analyze the contents of the proposed budget:

President’s Budget Message (PBM)Budget of Expenditures and Sources of Financing (BESF)National Expenditure Program (NEP)Details of Selected Programs and ProjectsStaffing Summary

E. How does the budget become a law?

Budget Legislation*

This starts upon the House Speaker’s receipt of the President’s Budget and ends with the President’s

enactment of the General Appropriations Act.

1. House Deliberations

The House of Representatives, in plenary, assigns the President’s Budget to the House Appropriations Committee. The Committee and its Sub-Committees then schedule and conduct hearings on the budgets of the departments and agencies and scrutinize their respective programs and projects. It then crafts the General Appropriations Bill (GAB).

In plenary session, the GAB is sponsored, presented and defended by the Appropriations Committee and Sub-Committee Chairmen. As in all other laws, the GAB is approved on Second and Third Reading before transmission to the Senate.

(Note: In the First Reading, the President’s Budget is assigned to the Appropriations Committee.)

2. Senate Deliberations

As in the House process, the Senate conducts its own committee hearings and plenary deliberations on the GAB. Budget deliberations in the Senate formally start after the House of Representatives transmits the GAB. For expediency, however, the Senate Finance Committee and Sub-Committees usually start hearings on the GAB even as House deliberations are ongoing.

The Committee submits its proposed amendments to the GAB to plenary only after it has been formally transmitted by the House

.3. Bicameral Deliberations

Once both Houses of Congress have finished their deliberations, they will each constitute a panel to the Bicameral Conference Committee. This committee will then discuss and harmonize the conflicting provisions of the House and Senate Versions of the GAB. A Harmonized Version of the GAB is thus produced.

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4. Ratification and Enrollment

The Harmonized or “Bicam” Version is then submitted to both Houses, which will then vote to ratify the final GAB for submission to the President. Once submitted to the President for his approval, the GAB is considered enrolled.

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5. The Veto Message

The President and DBM then review the GAB and prepare a Veto Message, where budget items subjected to direct veto or conditional implementation are identified, and where general observations are made.Under the Constitution, the GAB is the only legislative measure where the President can impose a line-veto (in all other cases, a law is either approved or vetoed in full).

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6. Enactment

When the GAA is not enacted before the fiscal year starts, the previous year’s GAA is automatically reenacted. This means that agency budgets for programs, activities and projects remain the same. Funding for programs or projects that have already been terminated is realigned for other expenditures. Because reenactments are tedious and prone to abuse, the Aquino Administration—with the support of Congress—has committed to ensure the timely enactment of a new GAA every year.

F. What is the General Appropiations Act?

The General Appropriations Act (GAA) is the legislative authorization that contains the new appropriations in terms of specific amounts for salaries,wages and other personnel benefits; maintenance and other operating expenses; and capital outlays authorized to be spent for the implementation ofvarious programs/projects and activities of all departments, bureaus andoffices of the government for a given year.

G. How is the budget implemented?

Budget Execution and Control

This is where the people’s money is actually spent. As soon as the GAA is enacted, the government can implement its priority programs and projects.

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1. Release Guildelines and Program

The budget execution phase begins with DBM’s issuance of guidelines on the release and utilization of funds.

.2. Budget Execution Documents (BEDs)

Agencies are required to submit their BEDs at the start of budget execution. These documents outline agency plans and performance targets. These BEDs include the physical and financial plan, monthly cash program, estimate of monthly income, and list of obligations that are not yet due and demandable..

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3. Allotment and Cash Release Programming

To ensure that releases fit the approved Fiscal Program, the DBM prepares an Allotment Release Program (ARP) to set a limit for allotments issued to an agency and on the aggregate. The ARP of each agency corresponds to the total amount of the agency-specific budget under the GAA, as well as Automatic Appropriations. A Cash Release Program (CRP) is also formulated alongside that to set a guide for disbursement levels for the year and for every month and quarter..

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4. Allotment Release

Allotments, which authorize an agency to enter into an obligation, are either released by DBM to all agencies comprehensively through the Agency Budget Matrix (ABM) and individually via Special Allotment Release Orders (SAROs).

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ABM. This document disaggregates all programmed appropriations for each agency into two main expenditure categories: “not needing clearance” and “needing clearance.” The ABM is the comprehensive allotment release document for appropriations which do not need clearance, or those which have already been itemized and fleshed out in the GAA.SARO. Items identified as “needing clearance” are those which require the approval of the DBM or the President, as the case may be (for instance, lump sum funds and confidential and intelligence funds). For such items, an agency needs to submit a Special Budget Request to the DBM with supporting documents. Once approved, a SARO is issued.

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5. Incurring Obligations

In implementing programs, activities and projects, agencies incur liabilities on behalf of the government. Obligations are liabilities legally incurred, which the government will pay for. There are various ways that an agency “obligates:” for example, when it hires staff (an obligation to pay salaries), receives billings for the use of utilities, or enters into a contract with an entity for the supply of goods or services.

The GAA as Allotment Release

The Aquino Administration plans to design the annual General Appropriations Act as the

comprehensive allotment release document itself. This is being pursued in order to significantly

speed-up the process of releasing the Budget and implementing the programs and projects that it

funds.The 2013 National Budget, currently being prepared, is being designed in such way. This

entails the disaggregation of all budget items into full detail, as well as the elimination of all lump-

sum funds, save for a few exceptions such as the Calamity Fund. In other words, this reform significantly reduces the need for SAROs.

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6. Cash Allocation

To authorize an agency to pay the obligations it incurs, DBM issues a disbursement authority. Most of the time, it takes the form of a Notice of Cash Allocation (NCA); and in special cases, the Non-Cash Availment Authority (NCAA) and Cash Disbursement Ceiling (CDC).

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NCA. This is a cash authority issued periodically by the DBM to the operating units of agencies to cover their cash requirements. The NCA specifies the maximum amount of cash that can be withdrawn from a government servicing bank for the period indicated. The release of NCAs by DBM is based on an agency’s submission of its Monthly Cash Program and other required documents.Others Disbursement Authorities. In contrast to NCAs, NCAAs are issued to authorize non-cash disbursements. CDCs are meanwhile issued to departments with overseas operations, allowing them to use income collected by their foreign posts for their operating requirements.

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7. Disbursement

This is the final step of the budget execution phase, where government monies are actually spent. The Modified Disbursement Scheme is mostly used, where disbursements of national government agencies chargeable against the Treasury are made through government servicing banks,such as the Land Bank of the Philippines.The budget process, of course, does not end when government agencies spend public funds: each and every peso must be accounted for to ensure that is used properly, contributing to the achievement of socio-economic goals.

H. Why are adjustments made on the budget program?

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Adjustments are made on the budget even during implementation primarily because of the following:

• Enactment of new laws• Adjustments in macroeconomic parameters• Change in resources availabilities

I. What mechanism ensure that funds have been properly

allocated and spent?

Budget

Accountability This phase happens alongside the Budget Execution

phase. Through Budget Accountability, the DBM monitors the efficiency of fund utilization, assesses agency performance and provides a vital basis for reforms and new policies.

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1. Performance and Target Outcomes

Agencies are held accountable not only for how they use public funds ethically, but also on how they attain performance targets and outcomes using available resources. These performance measures are set alongside the preparation of the National Budget; and these are indicated in the OPIF Book of Outputs. Prior to the execution of the enacted National Budget, these performance targets are firmed up during the preparation of BEDs.

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2. Budget Accountability Reports (BARs)

Submitted by agencies on a monthly and quarterly basis, BARs are required reports that show how agencies used their funds and identify their corresponding physical accomplishments. These include quarterly physical and financial reports of operations; quarterly income reports, a monthly statement of allotments, obligations and balances; and monthly report of disbursements.

No Report, No Release

Starting 2012, the DBM will be withholding certain fund releases to agencies if these fail to submit their Budget Accountability Reports. In particular, these will be funds from the Miscellaneous Personnel Benefits Fund (MPBF) for compensation adjustments under the Salary Standardization Law, provisions for unfilled positions and employee clothing allowances. These funds to be withheld are only limited to agencies’ MPBF allotments so that only the agencies are penalized and that the implementation of critical programs and projects will not be disrupted. Errant and compliant agencies will also be posted online for public scrutiny.

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3. Review of Agency Performance

The DBM regularly reviews the financial and physical performance of agencies. Actual utilization of funds and physical accomplishments, as indicated in the agencies’ BARs, are evaluated against their targets as identified via OPIF and in the agencies’ BEDs. Agency Performance Reviews (APRs) are conducted quarterly or every semester, as the case may be. An annual Budget Performance Assessment Review (BPAR) is conducted to determine each agency’s accomplishments and performance by the year-end. The DBM regularly reports results to the President.

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4. Audit

Auditing is not within the DBM’s jurisdiction, and

is instead lodged under the Commission on Audit (COA). Nonetheless, auditing is critical in ensuring agency accountability in the use of public funds. The DBM uses COA’s audit reports in confirming agency performance, determining budgetary levels for agencies and addressing issues in fund usage.

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5. Performance-Based Incentive System

The DBM is also in the process of establishing a performance-based incentive system — which will recognize and reward good performance among government employees — to help improve the efficiency of service delivery across all government institutions

J. Is the role of the DBM in the budgeting process limited to national government

agencies?

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No, the role of the DBM in the budgeting process is not limited to nationalgovernment agencies. It coordinates all three levels of government:-national government department/agency-government owned and controlled corporations(GOCCs)-local government unit (LGU)

in the preparation, execution and control of expenditures of their corresponding component entities

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The DBM reviews the corporate operating budgets of GOCCs and ensures the proper allocation of cash. The DBM likewise formulates and recommends the budget policy covering the allowable deficit and the criteria for thedetermination of the appropriate subsidy and equity of GOCCs.

For LGUs, the DBM reviews the annual and supplemental budgets of provinces, and highly urbanized cities and manages the proper allocation and release of the Internal Revenue Allotment (IRA) of LGUs and their share in the utilization of national wealth.

A Closer Look on the Philippine

Government National Budget

How much is the national budget from 2011 to 2015?

2011- 1.645 Trillion pesos (DAP Introduced)

2012-1.816 Trillion pesos2013- 2.006 Trillion pesos2014- 2.268 Trillion pesos

2015- 2.606 Trillion pesos

Who really holds the “power of the purse?”the executive holds the power of the “sword”and the judiciary the “pen” while thelegislature has the power of the “purse.”

budget preparation is the domain of theExecutive

budget legislation belongs toCongress where the House of Representativesthen the Senate and, finally, the two chambers in a bicameral committee review the proposed budget, make their own adjustments, and pass the GAA.

versus

Budgeting in the Philippines

Meeting of OECD Asian Senior Budget OfficialsBangkok, 4-5 February 2010

Jón Ragnar BlöndalDeputy Head

Budgeting and Public Expenditures

A review....

Thank You.John 3:16