Core
Business World, 10 November 2015

The outgoing Aquino III administration has the bad habit of underspending what Congress has authorized it to spend — denying the economy of the much needed public infrastructure, its people of essential public services (good education, adequate health care, peace and security, and so on), and the victims of natural disasters the prompt attention and assistance that they deserve from a caring government.

From the looks of it, the fiscal year will close with much more serious underspending.

For the first nine months of the year, from January to September, the administration missed its expenditure target by a staggering P278 billion (planned spending of P1,907 billion versus actual spending of P1,631 billion).

During the same period, the Aquino III administration missed its deficit target by a whopping P204 billion (planned deficit for the first three quarters of P230 billion versus actual deficit of P26 billion). The actual deficit is a measly 11.1% of planned deficit. (See Table 1)

Fiscal performance
It would be a mistake to attribute the lower deficit to higher tax collection. In fact, actual revenues were consistently lower than planned revenues since 2011.

This pattern of government underspending and its negative effects on the economy and its people, especially the poor and the victims of natural and man-made calamities, has been the subject of so much criticism against the Aquino III administration in the past.

Having small deficits (or large surpluses) when the economy is doing well is desirable so it can help tide the economy over during bad times. But having low and less than planned deficits when the economy needs massive investment in public infrastructure to catch up with its more advanced neighbors, when it has to invest more heavily in its fast expanding human resource, when it has to address the needs of the victims of natural calamities, is unacceptable behavior on the part of the country’s leaders and economic managers.

What explains this poor fiscal behavior?

First, is ineptness on the part of the President and his men. They can’t seem to execute the budget as authorized by Congress. One can’t blame Congress, which approves the President’s budget on time, and with very little tinkering. What the President wants, the President gets.

Using the doctrine of command responsibility, the blame rests solely on the President and his men.

Second is the deliberate creation of budget slack.

The Budget Secretary got used to submitting a budget with huge slack in the hope that he can then slice, dice, and reallocate the budget after Congress has passed the budget as requested by the President. Fortunately, the Supreme Court, in its unanimous ruling on the Disbursement Acceleration Program, has put a stop to this unconstitutional practice. Yet, old habits die hard.

Third, it’s basically bad budgeting.

It is good budget practice to include in the ensuing budget proposal only programs and projects that are implementation ready, with few exceptions. The exceptions are those lump sum allocations for calamities and contingencies. There will be a built-in delay in implementation if projects that have yet to be defined, evaluated, and prioritized are included in the budget proposal. That’s common sense.

Or, all of the above could explain the poor fiscal behavior. (See Table 2)

Underspending

Now, back to the 2015 budget.

With barely seven weeks to go before the end of the fiscal year, there is near certainty that the target deficit of P284 billion (2% of gross domestic product; GDP) will not be met.

Under the best-case scenario, the deficit-to-GDP ratio might be 1.0%; under the worst-case scenario, it is likely to be 0.5%. Expect the Budget Secretary to frantically find ways and means to show higher disbursement than what it actually is.

For example, Mr. Abad might consider parking funds with government corporations, as he has done before. Unless it translates into real hard infrastructure being done, it won’t make any difference.

It’s good optics but it won’t help the economy.

What would change the economic landscape is when roads, bridges, airports and seaports, irrigation systems, water systems and other public infrastructure are actually built.