1. THE PROPOSED 2005 NATIONAL BUDGET THE PROPOSED 2005 NATIONAL BUDGET Senate Committee on Finance September 20, 2004 A Commitment to Reform and Responsible Development

2. 2 http://www.dbm.gov.ph Presentation Outline Developments in the 2003 and 2004 Budgets Medium-Term Fiscal Program The Proposed 2005 National Budget

3. 3 http://www.dbm.gov.ph Developments in the 2003 and 2004 Budgets

4. 4 http://www.dbm.gov.ph 2003 and 2004 Budgets (in billion pesos)

5. 5 http://www.dbm.gov.ph FY 2004 Budget (in billion pesos)

6. 6 http://www.dbm.gov.ph Status of FY 2004 Budget, as of July 2004 (in billion pesos)

7. 7 http://www.dbm.gov.ph Fiscal Performance, Jan-June 2004 (in billion pesos)  P80.1 billion deficit for the first semester is 0.7 percent higher than that of last year Deficit as Percent of GDP

8. 8 http://www.dbm.gov.ph Salary increase of uniformed personnel Additional requirements for pensions Conduct of elections in 2004 Additional utilization of Marcos wealth for CARP New Payment Scheme for accounts payables for public works Assessment: 2003 vs. 2004 (in billion pesos)

9. 9 http://www.dbm.gov.ph New Payment Scheme in accounts payables for public works Higher allocation for CARP Additional requirements for the conduct of elections Assessment: 2004 Actual vs. Program (in billion pesos)

10. 10 http://www.dbm.gov.ph Assessment: 2003 vs. 2004 2003 and 2004 Quarterly Disbursements (in billion pesos) 2003 and 2004 Quarterly Disbursements, Net of Interest Payments (in billion pesos)

11. 11 http://www.dbm.gov.ph  Accounts payable increasingly a burden  Introduced measures to improve accounts payable management Direct payment system for public works installed Payment predictability Assessment: Actual vs. Program (in billion pesos) ** * Reflects accounts payable under the new system. Comparison between the new and old system is as follows :

12. 12 http://www.dbm.gov.ph Fiscal Performance: Directions for S2 2004 (in billion pesos)  Monthly average of non-interest spending of P50 billion (August to December) manageable  Compression of expenditures will continue in the second semester  Interest payments to go up substantially in the second semester

13. 13 http://www.dbm.gov.ph Austerity Program Suspension of expenditure items such as foreign and local travels, purchase of motor vehicles, advertisements, etc. Reduction of at least 10% of services of non-permanent personnel e.g., consultants and consumption of supplies, utilities, etc. Suspension of tax expenditure subsidies Adoption of a scheme to compensate overtime services Strict prioritization of capital expenditures and realignment or use of savings to fund capital programs under the 10- point agenda Strict compliance with the Government Procurement Reform Act

14. 14 http://www.dbm.gov.ph Expenditure Risks for the Remainder of the Year Increased pressure on interest payments due to interest rates and foreign exchange Need to reduce aging of accounts payables Absorption of NPC debt Advances for guaranteed obligations

15. 15 http://www.dbm.gov.ph Medium Term Fiscal Program

16. 16 http://www.dbm.gov.ph Policy Objectives Balance the national government budget in 6 years Reduce CPSD to GDP ratio to 3% in 6 years Reduce Public Sector Debt to GDP ratio to 90% in 6 years

17. 17 http://www.dbm.gov.ph Deficit and Debt Targets, 2004-2010 (Percent of GDP)

18. 18 http://www.dbm.gov.ph AquinoRamosEstradaArroyo National Government Fiscal Position, 1986-2004 National Government Fiscal Position, 1986-2004 (percent of GDP)

19. 19 http://www.dbm.gov.ph NG Expenditures Trend, 1986-2004 AquinoRamosEstradaArroyo

20. 20 http://www.dbm.gov.ph Debt Service Burden, 1986-2004 (Percent Share) Interest Non- Interest 1986 1992 1998 2001 2004

21. 21 http://www.dbm.gov.ph Expenditures by Sector Net of Debt Burden, 1986-2004 (Percent Distribution)

22. 22 http://www.dbm.gov.ph BUDGET FLEXIBILITY MARGINS 1992 2004 1997

23. 23 http://www.dbm.gov.ph NG Expenditures, Total vs. Capital Outlays, 1986-2004 (percent of GDP)

24. 24 http://www.dbm.gov.ph Policy Objectives: Expenditures 1. Rationalize expenditures towards key strategic items of the 10-point agenda 2. Increase national government capital spending from 2.1 to 4.0 percent of GDP 3. Limit PS from 6.2 to 4.8 percent of GDP 4. Reduce interest payments and debt servicing as a percentage of GDP

25. 25 http://www.dbm.gov.ph Expenditure Targets, 2004-2010 (Percent of GDP)

26. 26 http://www.dbm.gov.ph Action Plan Administrative Measures A. Rationalization of Personal Services 1. Objectives Deactivation of functions no longer relevant Consolidation/rationalization of duplicating functions Strengthening of important functions 2. Mechanics Voluntary but time-bound separation opportunity but with option to (1) remain in government service; or (2) be separated with incentives

27. 27 http://www.dbm.gov.ph B.Creation of a Philippine Infrastructure Fund C.Improvement of Management and Control of GOCCs Improve operational responsibility of supervising departments/agencies Impose moratorium on establishment of subsidiary GOCCs pending assessment of subsidiary operations of all GOCCs Action Plan: Administrative Measures

28. 28 http://www.dbm.gov.ph D.Fully implement devolution provision of the LG Code MFC to be primary conduit for funds (except IRA and mandated shares to LGUs) E.Focus budget to 10-Point Agenda and increase safety nets F.Transfer to the General Fund of all balances of dormant accounts Action Plan: Administrative Measures

29. 29 http://www.dbm.gov.ph Legislative Measures A.Enactment of Fiscal Responsibility Bill Reduce public debt to more manageable levels by imposing debt cap No new expenditure without new revenue measure B.Enactment of Reorganization Bill to conduct major reorganization Action Plan

30. 30 http://www.dbm.gov.ph C.Rationalize government retirement and pension schemes Ensure sustainability of retirement and pension benefits Action Plan: Legislative Measures

31. 31 http://www.dbm.gov.ph D.Rationalize government compensation system Simplify position classification Improve compensation for highly competitive posts Simplify compensation structure and implement performance-based compensation system E.Remove automatic guarantee provisions in certain GOCCs Action Plan: Legislative Measures

32. 32 http://www.dbm.gov.ph The Proposed 2005 National Budget

33. 33 http://www.dbm.gov.ph The Proposed 2005 Budget is very conservative... Core budget Represents only expenditures that can be funded by existing revenues and targeted deficit financing Strictly adheres to the priorities of the 10-point agenda

34. 34 http://www.dbm.gov.ph 2005 Fiscal Program

35. 35 http://www.dbm.gov.ph Reconciliation of Disbursements to Obligation Program (in billion pesos) = P943.0 B CASH BUDGET = P907.6 B OBLIGATION BUDGET Paid Current Budget Obligations Paid Prior Years’ Payables P49.0 B P894.0 B Paid Current Budget Obligations Unpaid Current Obligation P894.0 B P13.6 B

36. 36 http://www.dbm.gov.ph Core Budget... P 907.6 billion Nominal (%) Real (%) Increase over 2004, including interest payments 5.30.8 Increase over 2004, excluding interest payments 2.7(1.8)

37. 37 http://www.dbm.gov.ph Budget Level by Expense Class (in billion pesos)

38. 38 http://www.dbm.gov.ph Increases in the Budget (in billion pesos)

39. 39 http://www.dbm.gov.ph Budget Level by Recipient Unit (in billion pesos)

40. 40 http://www.dbm.gov.ph Budget Level by Sector (percent share) 1998 2003 2005

41. 41 http://www.dbm.gov.ph Budget Level by Sector, Net of Debt Burden & IRA (percent share) 2003 2005 1998

42. 42 http://www.dbm.gov.ph Budget Level by Region (in billion pesos)

43. 43 http://www.dbm.gov.ph Budget Level by Region…con’t. (in billion pesos)

44. 44 http://www.dbm.gov.ph Budget Level by Region Per capita allocation

45. 45 http://www.dbm.gov.ph Budget Level by Region Per capita allocation

46. 46 http://www.dbm.gov.ph Top Ten Departments (in billion pesos)

47. 47 http://www.dbm.gov.ph Sources of Programmed Appropriation (in billion pesos)

48. 48 http://www.dbm.gov.ph Expenditure Policies 1. Focus on the 10-Point Legacy Agenda Among the major provisions are the following : Strengthening the agriculture, industry, services, and infrastructure sub-sectors to generate employment opportunities: AFMA -P18.9 B CARP -P14.7 B Trade and industry -P3.0 B Tourism -P1.4 B Using transportation networks to decentralize development to the countryside: total infra program - P56.5 B Education: Allocation for DepEd, SUCs, TESDA and CHED – P131.4 B P3.2 B to build 3,000 schoolbuildings increased student support from P2,500 to P4,000 (GASTPE – P1.8 B)

49. 49 http://www.dbm.gov.ph Expenditure Policies 2. Encouragement of agencies to raise/generate additional revenues to improve service delivery  Retention and use of excess income (Sec. 5 of the Gen. Provisions) The Permanent Committee may authorize agencies to retain and use income in excess of yearly targets  Clarification of items that may be constituted into Revolving Fund (Sec. 6 of the Gen. Provisions) Receipts from business-type activities, including sales of products by agencies, maybe constituted into a Revolving Fund as maybe authorized by the Permanent Committee. Income from rentals and fees imposed for board and lodging may be constituted into a Revolving Fund for the maintenance and other operating expenses or capital outlay requirements of said buildings and facilities.

50. 50 http://www.dbm.gov.ph Expenditure Policies 3. Institutionalization of the “streamlining the bureaucracy” program 4. Full implementation of Local Government Code  Proposed treatment of IRA as automatic appropriation  Conversion of MDFO to MFC  Transfer of DOF and DILG FAPs to MFC 5. Ensuring provision for ARMM in nationwide projects

51. 51 http://www.dbm.gov.ph 6.Recognition of earmarked revenues (in billion pesos) Expenditure Policies

52. 52 http://www.dbm.gov.ph 6. Recognition of earmarked revenues…con’t. (in billion pesos) Expenditure Policies

53. 53 http://www.dbm.gov.ph Thank You www.dbm.gov.ph THE PROPOSED 2005 NATIONAL BUDGET THE PROPOSED 2005 NATIONAL BUDGET