By Mikhail Franz E. Flores, Reporter

Philippines vows to fix underspending which is expected to have dented growth in 2014

Posted on January 16, 2015

AFTER several years of impressive expansion, the Philippine economy is seen to have missed the government’s 6.5%-7.5% gross domestic product (GDP) growth target last year, with economic managers conceding that the full-year figure most likely fell just between 6%-7%.

BW File Photo
At the end of the third quarter, 2014 GDP growth stood at 5.8%, with public spending barely contributing to economic expansion.

In the third quarter alone, the economy expanded by 5.3% as government spending contracted by 2.6% and dragged GDP growth down by 0.3 percentage points, according to data from the Philippine Statistics Authority.

Budget Secretary Florencio B. Abad blamed government underspending to “a confluence of events”, which he said “were both unanticipated and deliberate”: the realignment of spending priorities to the reconstruction of typhoon Yolanda-affected areas and “structural impediments” in bridging the gap between budget planning and execution.

“That has been a fundamental problem in the bureaucracy. From day one, that has been a challenge that we’ve trying to deal with,” Mr. Abad said in a recent interview.

“What compounded the two is the issue of PDAF (Priority Development Assistance Fund) and DAP (Disbursement Acceleration Program),” he claimed. “There was a lot of confusion. By its nature, the bureaucracy is conservative. Therefore, when there is uncertainty, the tendency of the bureaucracy is to be prudent and therefore, they pull back and say, only those who are certain [should push through], even if there was no injunction.”

The high court struck down last year “acts and practices” under the DAP for allegedly violating constitutional provisions on the transfer of appropriations and the doctrine of separation of powers.

The Supreme Court, voting unanimously, also ruled in 2013 that the “pork barrel” system is unconstitutional, a decision which ended the practice of lawmakers to nominate projects through lump-sum appropriations.

The PDAF or the pork barrel system, the high court said, violated the principle of non-delegation of legislative powers since it conferred the power of appropriation to individual lawmakers as they can fund specific projects at their discretion.

The high court noted that the congressional pork barrel created a system of budgeting where items are not specified, thus denying the President the power to veto appropriations.

For Socioeconomic Planning Secretary Arsenio M. Balisacan, last year’s state underspending is a temporary setback as he noted that reforms in the bureaucracy have yet to gain ground.

“Government spending for the year was restrained and thus held back growth. Nonetheless, there is reason to believe that the recent growth slowdown is merely transitory and part of the adjustment process associated with the recent reforms in public financial management,” Mr. Balisacan said during the yearend briefing of the National Economic and Development Authority last month.

The government’s fiscal performance in the first 11 months in 2014 settled at a P26.8-billion deficit, three-fourths lower than 2013’s P111.5-billion gap.

The end-November budget deficit was 89.9% short of the P266.246-billion gap programmed for the year, which is equivalent to 2% of GDP.

Mr. Abad said the government likely did not even hit a 1% deficit-to-GDP ratio last year due to the persistent underspending which marked most of 2014.

Quoting Mr. Balisacan, the Budget chief noted that the slowdown in government spending is part of the “normal process of reform”.

“Before things get better, it gets worse. I think that’s what we’re seeing now,” Mr. Abad said.

Last year, Mr. Abad said, the Department of Budget and Management (DBM) introduced reforms that he believes would help agencies fast-track their spending in 2015.

It includes allowing big-ticket agencies to outsource pre-construction activities, hiring full-time Bids and Awards Committees (BAC), adding BACs for the bigger implementing agencies and allowing contractors of public works to easily borrow money from banks so that they can accommodate as many projects as possible.

“I think the impact [of these reforms] may not be felt in the second semester (of 2014) but will be felt (this) year,” Mr. Abad said. “In fact you watch the first quarter of 2015, a lot of carryover appropriations are being disbursed, and then plus what is available during that period, and then a lot of relief [initiatives], like cash for work and fast-disbursing activities.”

Mr. Abad said allotment releases stood at around 97% at the end of last year, even as obligations settled at just around 70%.

“What will happen here is not that there will be no more disbursements, it’s just there is going to be delay.”

Budget execution comes in three phases: allotment, release and actual disbursement.

Allotment is an authorization from the DBM to an implementing agency to incur obligations. Once authorized, the amounts are considered released.

Disbursements, meanwhile, refer to the actual withdrawal of cash from the Bureau of the Treasury -- checks issued by the government agencies are encashed to pay for their obligations. Once an allotment release is made, the Budget department will still need to issue a disbursement authority to the agency.

Asked on what would drive public spending this year, Mr. Abad said: “It will continue to be infrastructure”.

By this year, he said, rehabilitating and reconstructing national bridges would have been completed and most of the arterial national roads already rehabilitated and paved.

The government, through its P2.606-trillion national budget, is likewise increasing investments in climate change adaptation programs this year, as well as in social services, particularly through the conditional cash transfer (CCT), in public health.

“I’m very positive about (this) year,” Mr. Abad said.

Public spending’s contribution to the economy’s growth this year, he said, should “be much more significant” than last year’s meager effort.