Business World, 23 May 2012


The national government incurred a budget surplus of P31 billion in April and for the first four months of year, it had a budget deficit of P2.9 billion. With a full year deficit target of P286 billion, should this expenditure-tax performance be a cause for glee or gloom?

The severity of government underspending last year is still fresh in the memory of policy makers. In 2011, the government committed to a budget deficit of P300 billion or 3% of gross domestic product (GDP). But even after a last-minute spending spree, sometimes even for low priority programs, actual deficit incurred was P198 billion or 1.9% of GDP.

At a time when faster, more focused government spending was needed, Malacañang continued to underspend. The reason given is to allow careful screening of projects and streamlining of procedures to fight corruption. The result was a slower, less inclusive GDP growth of 3.7%. Not surprisingly, many more people have become jobless, poor and hungry.

There is a strong and convincing argument for a larger deficit this year. The economy remains weak, there is fiscal space, and to make up government underspending last year. But Aquino III’s fiscal managers decide to play conservative once more. They decided to have a deficit of P286 billion or 2.6% of GDP in 2012, consistent with the plan to have a deficit-to-GDP ratio of 2.0% by 2016.

Apparently, his economic managers have abandoned Aquino III’s promise to balance the budget by the end of his term. Welcome to reality!

As I have argued many times before, it is not possible to deliver on Aquino III’s campaign promises of expenditure expansion in education, health, defense, and military spending, not pass any new tax measures, and have a balanced budget by 2016 simultaneously. The three promises are internally inconsistent.


Now back to the April surplus. Some analysts are now convinced that the Aquino III administration would not be able to meet its deficit target of P286 billion. That would be unfortunate. The deficit in itself is too small given the weak state of the Philippine economy, the poor state of public infrastructure, and backward state of disaster preparedness.

The economic managers have to get their priorities right. Do they want to boost the struggling Philippine economy by incurring deficits or do they want to generate a surplus?

Aquino’s finance managers make a big deal of the April surplus as if that is what truly matters. They brag about the double-digit growth in revenue collections, though there is really nothing spectacular about the performance of the two tax collecting machineries.

The Bureau of Internal Revenue (BIR) thus far has collected what it promised to collect. From January to April, BIR’s actual collections were recorded at P345 billion, 13.9% higher compared to the same period in 2011. For the entire year, BIR committed to increase tax collections by 13.4%.

Since tax collections are generally higher than in the first trimester of every year, BIR’s tax collection performance is just on target, not spectacular.

The Bureau of Customs (BoC) has collected P95 billion from January to April, 11.6% higher than last year.

But BoC committed to increase its tax collection in 2012 by 14.1%; hence, its collection performance is less than spectacular.

With tax collection slightly behind planned levels, the reason for the much-lower-than-planned budget deficit, or the April surplus, is government underspending once more.

No less than Budget and Management Secretary Abad acknowledged the slow implementation of projects and slow disbursement of funds. “[W]e acknowledge that government spending, especially on priority programs and projects of the Administration, needs to grow at a much faster pace in order to support our development targets. We in DBM will work closely with key departments in the remainder of the second quarter to troubleshoot implementation bottlenecks, address capacity constraints, and accelerate disbursements,” he said in a press release from the Department of Budget and Management (DBM).

In order to accelerate disbursement, Abad said the DBM is considering a range of interventions in cooperation with key departments. One such intervention is “that DBM and the departments are jointly identifying and determining solutions for implementation bottlenecks.” After two years in office, this looks like a pretty elongated learning curve.

Abad said that “DBM is also considering the realignment of unobligated allotments of agencies to faster-moving programs and projects.” This creates more problems that fixes. First, if one assumes that every project that is funded in the 2012 appropriations act has passed through “zero-based-budgeting” process, completely prioritized and approved by the legislature, then DBM is substituting its choice of projects for those earlier prioritized by the Executive and Congress. Such substitution is dubious.

The process penalizes potential beneficiaries of discontinued projects. The first best option is to fire the heads of departments who consistently fail to implement projects on time. Or at least strengthen the support staff of the head of the lagging agency.

Second, it makes monitoring of government programs and projects more difficult. Expenditure items listed in the General Appropriations Act (GAA) could be lost and new items emerge and funded. For a government that is strongly committed to fiscal transparency this is a major step back. Keeping track of all the realignments would be a nightmare for even the best organized nongovernment organization.

Third, the administrative process of realigning unobligated allotments of agencies from slow-moving projects to faster-moving programs and projects is itself time-consuming and could be a source of further delays. Issuing negative allotments to recover the unobligated allotments and issuing new allotments for fast-moving projects will only delay rather than speed up the process.

Fourth, the whole realignment process is open to abuse. Because the process will be a deviation from what is shown in the General Appropriations Act, DBM will have full discretion to slice and dice the GAA to suit Malacañang’s whims and caprices. With mid-term elections just around the corner, there is a risk that the realignment of funds may be made on the basis of political, rather than economic, considerations.