The administration of President-elect Rodrigo Duterte plans a further hike in infrastructure spending to up to 7 percent of the economy this year, higher than the 5 percent target of President Benigno Aquino III’s government, as the incoming budget chief laments the present sorry state of infrastructure.
“The Duterte administration will not spend money for spending’s sake,” incoming Budget Secretary Benjamin E. Diokno told the Inquirer. “The economy is deficient in all types of infrastructure—highways and bridges, ports and airports.”
Specific infrastructure projects to be pursued by the Duterte government include “small, medium and large-scale projects [that] will be done in all regions—[both] highly developed and lagging—simultaneously, not sequentially,” Diokno said.
The University of the Philippines economics professor and former Department of Budget and Management (DBM) chief during the administration of former President Joseph Estrada also said they would address the problem of underspending on public goods and services that prevailed during the past two years.
“First of all, I will put a lot of effort in budget preparation. I know that underspending is partly due to poor budget preparation. Many programs and projects are included in the annual budget, yet they are not ready to implement. Some departments ask for a budget that they are unable to implement: they bite more than what they can chew,” Diokno said in an e-mail on Thursday.
“Second reason for the underspending is the ineptness or incompetence of some department chiefs,” he added. “I propose to correct this by giving an executive briefing for secretaries and undersecretaries in charge of finance separately on the budget process. I will strengthen the project monitoring system.”
Controversial DAP
Also, Diokno noted that “in the past, the budget planners provide slacks in the budget in the hope that they can play around with the slacks to finance projects not authorized by Congress,” which he said was what the controversial disbursement acceleration program (DAP) that the Aquino administration had put in place was all about.
“This practice has to stop. President-elect Duterte’s 2017 to 2022 budgets will be compliant with the Supreme Court decision on the DAP,” Diokno said. In 2014, a high court decision deemed DAP, which fast-tracked expenditures funded by government savings, unconstitutional.
The latest DBM data showed that while infrastructure spending jumped 52.8 percent to P104.8 billion in the first quarter, the government continued to underspend below the level it should to support faster economic growth.
DBM data released last week showed that expenditures on infrastructure and other capital outlays during the first three months grew from P68.5 billion a year ago, such that the government already used up 16.8 percent of the programmed amount for the year.
Total capital outlays, which include equity as well as capital transfers to local government units, amounted P145.8 billion, up 65.1 percent from P88.3 billon a year ago.
“Among the particular programs or projects that helped boost capital expenditures include completed works of the Department of Public Works and Highways (DPWH) from its regular maintenance, repair and rehabilitation operations of road networks nationwide, transport infrastructure projects of the Department of Transportation and Communications, implementation of local infrastructure development projects in the Autonomous Region in Muslim Mindanao, and the health facilities enhancement program of the Department of Health,” the DBM said in a report.
AFP modernization program
First-quarter expenditures on capital outlays also included “projects under the Armed Forces of the Philippines (AFP) modernization program such as purchase of ammunitions and acquisition of C130 aircraft; and construction of police stations and procurement of various equipment under the capability enhancement program of the Philippine National Police,” the DBM added.
Total government disbursements, including current operating expenditures, in the first quarter reached P591.5 billion, up 17.3 percent from P504 billion in the same period last year.
The DBM said the increase in expenditures was “the highest annual growth recorded for the first quarters in the last 12 years.”
However, the government failed to spend all P680.7 billion programmed for the period.
“Most of programs/projects are being obligated by line agencies during the first few months of the year but these are expected to be fully obligated in the succeeding months which will allow spending to catch up with the program,” the DBM explained.
While the economy grew at a better-than-expected rate of 6.9 percent in the first quarter, the economy could have expanded at an even faster pace had it been able to spend the programmed expenditures on public goods and services.
For the rest of the year, the DBM said “disbursements for the succeeding months are expected to gradually increase.”
Midyear bonus
“Higher personnel services spending is anticipated in May due to the release of midyear bonus equivalent to one month’s basic salary. This would be higher than the previous year’s levels as a result of the salary increase this year. Likewise, capital expenditures are likely to continue on its upward trajectory as suggested by spending trends during the second quarter owing to the DPWH taking advantage of the summer season for its construction activities, and programming of the Department of National Defense relative to the implementation of projects under the AFP modernization program,” the DBM said.
The government had programmed to spend P2.995 trillion in public goods and services this year, an amount equivalent to a fifth of the target gross domestic product (GDP).
In 2015, expenditures rose 12.6 percent to P2.231 trillion but the Aquino administration failed to spend all P2.559 trillion programmed as “underspending remained to be a challenge,” the DBM had said.
For infrastructure outlays, about P86.3 billion or 20 percent of last year’s programmed amount were not disbursed as the DBM had blamed “low obligations of agencies arising from procurement difficulties and weak planning capacities.”
Moving forward, the annual budgets to be proposed by the Duterte administration would prioritize the following: higher infrastructure spending of 5-7 percent of the GDP; investment in human resources (education, healthcare and nutrition) in order to develop a dynamic and nimble work force; agriculture modernization and rural development in order to make growth inclusive; raising rural incomes; and making food available and affordable, Diokno said.
The Aquino administration had been underspending on vital infrastructure during the past two years as same old challenges persist, DBM data showed.
In 2014, infrastructure expenditures accounted for only 2.74 percent of GDP, below the 3.5-percent target. As of the third quarter of last year, the infrastructure spending to GDP ratio was at 2.55 percent, also lower than the program of 4 percent. The government exceeded its infrastructure spending target only in 2013.
Implementation bottlenecks
The DBM blamed slower than programmed infrastructure spending to the following: lack of forward planning that affects the absorptive capacities of implementing agencies and the private sector; right-of-way and just compensation issues; the presence of obstructions involving electric power lines and posts, telecommunication lines, natural gas pipelines, and, water distribution lines; presence of informal settler families and the required investment for their relocation, housing and livelihood; difficulty in securing social acceptability of projects such as coal-fired plants, large multi-purpose dams, and sanitary landfills; and delays in securing permits from relevant government agencies.
“In order to meet the medium-term infrastructure spending targets, the government has to address the [aforementioned] implementation bottlenecks,” the DBM said in a recent report.
Asked what reforms the DBM would undertake under his leadership, Diokno said he “will continue the reform adopted by the Aquino administration of using the general appropriations act (GAA) as release document.”
“This is not novel. I’ve done this 16 years ago when I adopted the ‘what-you-see-is-what-you-get’ budget execution system. However, this was forgotten by [former president Gloria] Arroyo during her entire term and [President] Aquino during his first [few] years in office,” Diokno said. The DBM adopted the GAA as a release document scheme since 2014, scrapping the special allotment release order or Saro system.
Diokno also said that under his watch, the DBM would “revisit” the bottom-up budgeting (BUB) scheme, another program introduced by the Aquino administration that allows local government units as well as civil society and community groups to pitch the priority poverty-reduction projects and programs to be funded by the annual national budget.
“We may continue [BUB] but only for the poorest municipalities,” Diokno said.
Also, the Duterte administration “will revisit the CCT [conditional cash transfer] program with the intention of minimizing the leakages (giving benefits to those undeserving and not giving benefits to the deserving) and minimizing the administrative costs,” Diokno said, referring to the Pantawid Pamilyang Pilipino Program or 4Ps.
“We will adopt economic measures so that a bigger part of the budget will be used for projects that will truly benefit the Filipino people,” he said.