The 2011 Budget: A Straight Path to Where

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Copyright 2011 SRi Stratbase Research Institute. All rights reserved.

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THE 2011 BUDGET: A Straight Path to Where?

V4 2nd ISSUE

Copyright 2011 SRi Stratbase Research Institute. All rights reserved. www.stratbase.com.ph

2

achieving the Millennium Development Goals (MDGs), adopting a human rights based approach indevelopment planning, and responding to climate change, which are also concerns advocated by the UN.”1

Dr. Paderanga has been quoted as saying that under the upcoming MTPDP for 2010-2016 (or 2011-2017 as identified in some reports), key priorities would include “poverty reduction, nutrition, dietary energy requirement, primary education, maternal mortality and access to re-productive health services.” Moreover, NEDA Deputy Di-rector-General Rolando Tungpalan has expressed his hope

for the next MTPDP to “sharpen its focus” on addressing the concerns of the rural areas as the country aims at competitiveness.2 But the MTPDP is still being crafted. So where is the country going towards along the Daang Matuwid (straight path)? The 2011 National Budget may suggest some answers.

The expressed concerns for social and regional develop-ment should be reflected in the national budget for Fiscal Year (FY) 2011. But what do we see? Lifting from the President’s Budget Message, let us look at some highlights of this financial plan for the country.

WHAT’S THE PLAN?

Concerned sectors have been awaiting the release of the MTPDP—the Medium Term Philippine Development Plan, the country’s general plan for development for the next six years. In this six-year medium term plan, the Govern-ment is said to reiterate its commitment to the achieve-ment of certain international development targets. NEDA (National Economic Development Authority) Chief Cay-etano W. Paderanga, Jr., has assured that the new MTPDP would “integrate current and emerging concerns, such as

THE 2011 BUDGET: A Straight Path to Where?

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3THE APPROVED BUDGET: FEATURES AND HIGHLIGHTS

Following the so-called “zero-based budgeting”i approach developed in the experience of the US government, the 2011 budget was pegged at P1.645 trillion, 6.8 percent higher than the 2010 budget. This is 18.2 percent of the country’s Gross Domestic Product (GDP). Last year was 18.5 percent of the GDP, “indicating a smaller but more efficient government.”3

Notably, the first sentence in the past MTPDP (crafted under former President Macapagal-Arroyo) reads: “The ba-sic task of the MTPDP 2004-2010 is to fight poverty by building prosperity for the greatest number of the Filipino people.” Now, the approved budget for fiscal year FY 2011 is described by President Benigno Aquino III as a “reform budget” that has an explicit “bias for the poor and the vulnerable.”4

The President says in 2011 Budget Message that “ consistent with our bias for the poor, the social services sector is... the top priority... The social services sector will get some P560.8 billion or 34.1 percent of the total. The economic services sector comes next with P361.1 billion, 22.0 percent of the total budget. It is followed by our debt burden, with P372.1 billion (22.6 percent); general public services, with P273.5 billion (16.6 percent); and defense, with P77.5 billion (4.7 percent).”5 Looking at the exact figures from the Department of Budget and Management, this is what one actually gets:

Moreover, the top ten departments for 2011 in terms of having the biggest budget share are the same units that had the biggest shares last year. However, changes can be seen in their “program composition and ranking.” For in-stance, “the Department of Education, with P207.3 billion (including the Educational Facilities Fund) represents 12.6 percent of the total budget, and retains the top position. There has been a sharp increase of 18.4 percent (P32.3 billion) from its budget of P175.0 billion this year, attrib-uted to the construction of 13,147 classrooms and the creation of 10,000 teaching positions. This will be the big-gest increase allocated for education in over a decade.... The Department of Social Welfare and Development jumps to 6th from 8th this year, its budget increasing by P18.9 billion or 122.7 percent, from P15.4 billion to P34.3 billion. The remarkable increase provides for the second phase implementation of the KALAHI-CIDSS Project in 96 municipalities, conditional cash transfers to 2.3 million households, rice subsidy, and pensions for indigent senior citizens,” says the President.6

Furthermore, the President’s Budget Message for 2011 also points out that allocation to Local Government Units (LGUs) will increase to P300.0 billion. This is slightly higher than the P297.5 billion allocated in 2010. The increase is said to be due to the bigger share of LGUs from internal revenue taxes in 2011.7

i Zero-based budgeting or ZBB “reverses the working process of traditional budgeting. In tradi-tional incremental budgeting, departmental managers justify only increases over the previous year budget and what has been already spent is automatically sanctioned. By contrast, in zero-based budgeting, every department function is reviewed comprehensively and all expenditures must be approved, rather than only increases. No reference is made to the previous level of expendi-ture. Zero-based budgeting requires the budget request be justified in complete detail by each division manager starting from the zero-base. The zero-base is indifferent to whether the total budget is increasing or decreasing.” [Wikipedia as cited in Joachim Berendt, “Restructuring for Strategic Growth,” http://www.behrendt.com.tr/assets/oth/Restructuring%20Strategic%20Growth%20%2018.03.10.pdf]

Economic Services

Social Services

Defense

General Public Services

Interest Payments

Financial Services

Sectoral Distribution of Public ExpendituresPHILIPPINE BUDGET FY 2011

(in thousand pesos)

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4ISSUES AND CONCERNS

First off, let us note how former National Treasurer and University of the Philippines Professor Liling Magtolis Briones has already commented on the description of the 2011 budget as a “reform budget”: 8

The 2011 budget has two features which are cited as justification for call-ing it a “reform” budget.

The first is that it was signed into law before the end of the year.The pre-sent administration deserves to be commended for the timely passage of the 2011 budget. Worries about a re-enacted budget and all its attendant evils were laid to rest.

The second feature is the much vaunted use of zero-based budgeting as a basis for increasing or decreasing or even eliminating budget allocations. As pointed out earlier, ZBB was first introduced during the Martial Law rule of the late Pres. Marcos. It is a tool for ranking proposed budget allocations in terms of their responsiveness to the current priorities of the government.

During Marcos’ time, [it] helped that Marcos was a dictator and the DBM could cut and reduce budget allocations as it pleased. For all the hoopla attending ZBB, it had only limited application to the 2011 budget.

First, there was time limitation—hardly two months before the budget proposal could be submitted to Congress. Second and more important, not all items—especially the biggest items—could be subject to ZBB. Spe-cial Purpose Funds, lump sum appropriations, automatically appropriated items like the debt service, could not be ranked by ZBB. Thirdly and most important, as a tool for ranking and rating budget allocations, a national plan has to be the basis or framework for ZBB. In the case of the Philip-pines, it is the Medium Term Development Plan or the MTPDP. It must be pointed out that the budget was completed before the MTPDP. We now have a case where the budget is leading the plan. In other words, what we have is the cart leading the horse.

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5Still, others may say that the budget figures look good as presented in the President’s annual budget message. However, a closer review of the budgetary allocations and other program development concerns may suggest some crucial issues. For instance, the so-called “social services” are a cluster of items that include these: “Education, Culture and Manpower [sic] Development;” Health; Social Security, Welfare and Employment; Housing and Community Development; Land Distribution; Subsidy to Local Governments; and, “Other Services.” These items have to be decoupled and examined more closely (see Table 1).

Ostensibly, all the social services got budget increases. Education, culture and manpower development got a notable 13% increase (with about 271.7 billion pesos for 2011). Social Security, welfare and employment got even more with its 28% budget increase (getting 29.4 billion). Hous-ing and community development got a 5% increase (with about 5.74 bil-lion) while land distribution a very hefty 210% increase (to get an almost 4 billion peso budget for 2011). Local government units (LGUs) got an 8 percent increase as “Subsidy to Local Governments.”

Notably, “Other Services” got a 26% decrease in allocation while the health sector gets a 4% slash. That means 586 million was taken from other social services, and for health, a hefty 1.5 billion pesos.

Three key budget items need to be underscored too (see Table 2). The cluster “Agriculture, Agrarian Reform and Natural Resources” (under the Economic Services sector) will also get a budget slash. In 2009, the said cluster got 109 billion pesos. In 2010, it was to get about 153 billion pesos, but in 2011, it will have a budget of only 101 billion, the lowest in three years. There is a drop in its budget of 34%, which amounts to a 52.25 billion peso slash.

These budgetary cuts or increases take on a peculiar hue for some sec-tors considering that the interest payments alone for the country’s debts will amount to 357 billion pesos, an increase of 80 billion pesos from the previous year or an increase of 29%. Total National Government Foreign Debt Service Expenditures will be at 281 billion pesos, which means an increase of 35.76 billion (or 15%) from the previous year.

Government has to make every cent count and ensure a better tax collection system with no new taxes being proposed and a deficit level of 3.2% of the GDP being expected. In fact, the government is looking at financing the budget through more borrowings.

On top of revenue matters, the 2011 budget is faced with other concerns. Referred to as “problematic in many ways” by civil society groups, the budget has yet to address perennial criticisms about under

Source: Department of Budget and Management (DBM), Budget of Expenditures and Sources of Financing, FY 2011

Source: Department of Budget and Management (DBM), Budget of Expenditures and Sources of Financing, FY 2011

Table 1. Budget for Social Services, Philippines FY 2009-2011 (in Million Pesos)

SOCIAL SERVICES

Education, Culture and Manpower Development

2009 2010 2011Increase

(Decrease),2010-11

HealthSocial Security, Welfare and EmploymentHousing and Community DevelopmentLand DistributionOther ServicesSubsidy to Local Governments

TOTAL

Percent Increase

(Decrease)

208,71933,49575,620

8,4011,2861,849

92,496

421,866

240,58540,030

103,5705,4661,2792,236

98,347

491,513

271,67038,627

132,9705,7363,9661,650

106,169

560,788

31,085-1,40329,400

2702,687-586

7,822

69,275

13%-4%28%

5%210%-26%

8%

14%

Table 2. Budget for Social Services, Philippines FY 2009-2011 (in Million Pesos)

SOCIAL SERVICES

Interest Payments

2009 2010 2011Increase

(Decrease),2010-11

Total National Government Foreign Debt Service Expenditures

Agriculture and Agrarian Reform

Percent Increase

(Decrease)

278,866

213,052

81,442

276,212

245,235

89,220

357,090

281,001

66,048

80,878

35,766

-23,172

29%

15%

-26%

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6particularly unsettling to note the cut made in the budget for the indigent program of the government’s health insurance program Philhealth from P5.17B in 2010 to only P3.5B for 2011. 14

In the education arena, the government, through the years has drastically slashed the budget of tertiary public schools. For the 2010 national budget for SUCs, the budget for capital outlay, used for the procurement of new equipment/facilities and creation of new buildings, has been reduced to almost zero. From P2.92 billion in 2009, the 2010 budget for capital outlay was pared down to P24.21 million, a -99.17% decrease. For 2011, there is zero allocation for such capital outlay. Education officials have lamented how the Philippine budget for education is way below the international norm. In the past few years the Department of Education has only accounted between two to three percent of the Philippines’ GDP. To illustrate, latest available data show that the Philippines’ 3.1-percent-of-GDP-for-education, is trumped by Malaysia’s 8.1 percent, India’s 4.1, South Korea’s 4.2, Thailand’s 5.2, Hongkong’s 4.4, and Japan’s 3.6. 15

One Senator even labelled the 2011 budget as “plagiarized” and argued that it is a “stagnation budget.” To quote one news report: “While the budget of some departments had been reduced, [Sen. Joker] Arroyo noted what he described as an ‘overconcentration’ on the Department of Social Welfare and Development (DSWD), which was given an allocation of P21 billion for its conditional cash transfer (CCT) program alone. Four billion pesos or 19 percent of the CCT allocation, the senator said, would be spent for the gargantuan administration cost to distribute the P17 billion CCT fund to its beneficiaries. Arroyo said the distribution cost was more than the budget of the Department of Tourism (P1.5 billion) and the Department of Trade and Industry (P2.5 billion)... ‘The administration says it will not impose new taxes. Fine. But where will they get the monies to fund its programs? Through borrowings. The refuge of every administration,’ he said.” A proposal by Senator Arroyo to limit the total indebtedness of the national govern-ment and any of its agencies and offices to 55 percent of the latest GDP, unless it obtained prior consent from Congress, was turned down.16

investing in key factors for strategic and sustained growth. 11 The non-governmental network CODE-NGO has pushed in vain, for example, that an “automatic appropriations for education be pegged at 6% of GNP as recommended by United Nations Educational, Scientific and Cultural Organization (UNESCO), and for health to ensure total health expenditures at 5% of GDP as recommended by the World Health Organization (WHO).” The Philippines is very far from heeding these recommendations.12

Overall Philippine public spending on health for FY2011 compared to that of FY2010 has in fact been slashed by 4% and is clearly below the level of other similar-income countries (US$ 2112.3 in 2008). Past observations about health spending remains true—i.e., the “financial protection of the population against the costs of ill health has been deteriorating” and, “in terms of overall trends, out-of-pocket spending in the Philippines has been increasing, while public spending has been declining.” The trend in other Asian countries is different. Out-of-pocket payments account for almost half of all health spending in the Philippines and their share has been increasing (56.2% in 2008). 13 It is thus

Revenues. The 2011 budget will be supported by P1.41 trillion revenues. Of this amount, P1.27 trillion or 90% will come from taxes while the remaining P137.2 billion will be derived from non-tax sources such as fees and charges, income and foreign grants.

De�cit level. De�cit for 2011 will decrease to P290 billion or 3.2% of GDP, lower than the 2010 budget de�cit of P325 billion. This will be �nanced by P257.3 billion of domestic borrowings (83.9%) and P49.5 billion of foreign borrowings (16.1%).

2011 REVENUES AND DEFICIT at a GLANCE

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7THE PROBLEMATIC BUDGET AND ITS PROBLEMATIC CONTEXT

The “problematic-in-many-ways” pitch by civil society groups is not without substance. It should be appreciated with the national economic situation as background.

Dr. Mahar Mangahas, Social Weather Stations (SWS) Presi-dent, was quoted last year as having said “I don’t know his ideology but I hope he stops paying attention to Gross National Product or Gross Domestic Product and look directly at what’s happening to the poor and be guided.” 17 The SWS President was referring to the Philippine President.

Dr. Mangahas’ statement came precisely as members of the Philippine Congress were at the peak of deliberations on the 2011 national budget. The news report that carried his statement then aired the most recent survey results of SWS on Philippine hunger and poverty. The survey results become especially unsettling given that the budget for the National Food Authority (NFA), the Philippine agency re-sponsible for the purchase and sale of rice at subsidized prices, is one those that suffered the cutbacks to social spending under the 2011 budget.18

It may be pointed out that aside from subsidies like that which used to be provided by the NFA, government is sup-posed to have other mechanisms in place which may even be more effective, especially in the short run, in address-ing hunger and poverty — the conditional cash transfers program, for instance. But even this program has raised a number of questions, to say the least. At worst, the CCT is seen by the political opposition as new pork barrel. 19

However, government’s track record on dedicated anti-

poverty projects is certainly not sterling and gives even generally optimistic development workers and stakehold-ers not much hope. To cite a case in point, there is the case of the Kapit Bisig Laban sa Kahirapan Comprehensive and Integrated Delivery of Social Services (“KALAHI CI-DSS” or KC). Given so many challenges and weaknesses in its implementation, this flagship anti-poverty initiative of government, now almost a decade-old program launched in 2003, “has not made a significant dent in poverty reduc-tion efforts of the government” according to one reliable study done by a network of non-profit organizations.20 The very qualified accomplishments of the KALAHI CI-DSS project is clearly and tragically affirmed by official government statistics (which, it should be noted, are even considered by some as having been “massaged” to show a rosier picture of reality, as it were).

Data released very recently (February 8, 2011) by the Philippine National Statistical Coordination Board (NSCB)showed that at least 970,000 Filipinos joined the ranks of the poor from the year 2003 to 2009. The total number of the poor in 2009 rose to 23.1 million, from 22.2 million in 2006.21

Thus, we indeed direly need a budget for the poor. It seems only right that the 2011 budget has a bias for the poor. But let us be reminded by what even the World Bank itself has said about the poverty situation in the country. In a study it released late last year the Bank said: “The main problem has been that the sector that employs the bulk of low-skilled workers (agriculture) has been growing more slowly than the other sectors, while the sectors that have been contributing most to the ac-celeration of GDP growth (mostly manufacturing) have been very capital-intensive and have not generated many low-skill jobs” [underscoring provided]. 22

IN CONCLUSION

This brief review of the 2011 budget therefore closes with one key question on the budget plan, one major obser-vation, and a reiteration of some even bigger questions which have already been raised by other sectors. First off, given the figures highlighted above, why is there such a hefty cut in the agriculture, agrarian reform and natural environment item under the social services cluster? This does not align with what the people apparently need and with what even the World Bank is suggesting in its latest study on Philippine competitiveness.

Looking beyond the official figures, one may note how heavily the apparent national economic growth plan of the current government is premised on the putative workabil-ity of the Public-Private Partnerships or “PPP” approach. The PPP model has been shown to work in a number of cases in other developing countries but the govern-ment’s policy and program direction in this regard is still being sharpened. The budget plan however shows that the government is setting up a PPP Center attached to the NEDA.

The Center is purportedly to “provide technical assistance and help facilitate the development of PPP proposals for high impact projects.” Moreover, there is provision of P500 million to the Department of Public Works and Highways (DPWH) and P100 million for Department of Transpor-tation and Communications (DOTC) for the conduct of feasibility studies on PPP. In addition, P15 billion has been allocated under DPWH, DOTC, and the Department of Agriculture (DA) to comprise the national government counterpart requirements for PPP projects (e.g., for right of way).

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8Finally, bigger questions beg to be broached. How will the CCT be made to work with the other anti-poverty schemes of government? Vigilance is needed, and we must continue to ask: Where is the country going towards along the President’s proverbial Daang Matuwid (“straight path”)?

Endnotes:

1 NEDA. “Next MTPDP to guide U.N. priorities.” http://www.neda.gov.ph/press_releases/pr.asp?ID=1200

2 Philippine Trade and Investment Center in London. “NEDA pushes for rural sector development,” http://investphilippines.org.uk/newsroom/archived-news/388.html. See University of the Philippines Open University (UPOU), “Economic Reforms for Philippine Competitiveness,” 2010, downloadable from http://www.upou.edu.ph/downloads/2010%20downloads/philcompetitiveness.pdf

3 Office of the President (OP). Tungo sa paggugol na matuwid: The President’s Budget Message, 2011, http://www.dbm.gov.ph/index.php?pid=9&xid=31&id=1308. (Cf. OP. “Highlights of the President’s Budget Message for 2011,”Official Gazette. http://www.gov.ph/2010/08/31/highlights-of-the-president’s-budget-message-for-2011/. House of Representatives. Congressional Record, Vol.2 No.30a., 5 October 2010, http://www.congress.gov.ph/download/congrec/15th/1st/15C_1RS-30a-100510.pdf.)

4 Ibid. 5 Ibid.

6 Ibid.

7 Ibid.

8 Briones, Liling Magtolis, “A ‘reform’ budget for 2011?”, 30 December 2010, http://www.up-ncpag.org/press/a-%E2%80%9Creform%E2%80%9D-budget-for-2011/

9 Cf. http://www.dbm.gov.ph/BESF2011/B/B7.pdf

10 Cf. http://www.dbm.gov.ph/BESF2011/B/B7.pdf

11“Social Watch: 2011 budget ‘problematic,’” http://dateline.ph/2010/12/28/social-watch-2011-budget-%E2%80%98problematic%E2%80%99/

12 CODE-NGO. “Integrating the MDGs in the new MTPDP2011-2016,”17 August 2010, http://code-ngo.org/home/index.php?option=com_content&view=article&id=204:integrating-the-mdgs-in-the-new-mtpdp-2011-2016&catid=43:front

13 World Health Organization (WHO), Philippines’ Health System, http://www.wpro.who.int/countries/2010/phl/national_health_priorities.htm

14 Cruz, Tonyo. 13 September 2010. “Aquino’s 2011 budget for health services.” http://asiancorrespondent.com/40249/aquinos-2011-budget-for-health-services/.

15 Nationmaster.com. “Education statistics by country,” http://www.nationmaster.com/cat/edu-education

16 Ager, Maila., “2011 ‘anti-growth’ budget slammed in the Senate,” Philippine Daily Inquirer, 1 December 2010. http://newsinfo.inquirer.net/inquirer-headlines/metro/view/20101201-306446/2011-anti-growth-budget-slammed-in-Senate

17 Dizon, David. “Philippine slipping into a hunger trap,” abscbnnews.com, 21 July 2010. http://www.abs-cbnnews.com/nation/07/21/10/philippines-slipping-hunger-trap-%E2%80%93-sws

18 Alave, Kristine L. “NFA laments slash in budget.” Philippine Daily Inquirer, 17 September 2010. http://newsinfo.inquirer.net/breakingnews/nation/view/20100917-292786/NFA-laments-slash-in-budget

19 GMA News. “House minority: CCT savings may become ‘Aquino pork.’ 15 December 2010,” http://www.gmanews.tv/story/208453/house-minor-ity-cct-savings-may-become-aquino-pork; Cf. Shahani, Chanda Shahani, “Former National Treasurer Leonor M. Briones Expresses Reservations about P-Noy’s Conditional Cash Transfer Program,” 17 December 2010, http://diliman-diary.blogspot.com/2010/12/former-national-treasurer-leonor-m_17.html

20 Montemar, Louie C. “What Egypt reminds me of: growth with hunger,” www.lobbyist.biz. Cf. Official Development Watch (ODA). “Beyond Narra-tives and Numbers: A Closer Look into Kapit Bisig Laban sa Kahirapan-Comprehensive and Integrated Delivery of Social Services (KALAHI CIDSS) Program,” 03 January 2011.

21 Ferreras, Joel. “More Filipinos joined the ranks of the poor –NSCB.”www.thepoc.net, 10 February 2011. http://www.thepoc.net/breaking-news/business/11098-more-filipinos-joined-the-ranks-of-the-poor-ncsb.html, Cf. NSCB Press Release, 8 February 2010, http://www.nscb.gov.ph/pressre-leases/2011/PR-22011-SS2-01_pov2009.asp

22 World Bank. “Philippines: inclusive growth provides stronger platform for competitiveness,” 19 August 2010. http://go.worldbank.org/MINE7VX1A0

The 2011 Budget: A Straight Path to Where

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