Discussions with the authorities were held during September 5-18, 2001. The staff team, comprising Mr. Diamond (Head of Mission) and Messrs. Dixon and Olliffe, both Fiscal Experts, held meetings with Secretary of Budget and Management E. Boncodin, Undersecretary L. Pascua and a number of Assistant Secretaries and Directors of the various divisions of the Department of Budget and Management (DBM). Additional meetings were held with: Chairman G. Carague and staff of the Commission on Audit, Undersecretaries A. Bernardo and N. Osorio of the Department of Finance, Treasurer S. Edeza and Deputy Treasurers E. Mendiola and J. Tan of the Bureau of the Treasury, Deputy Director-General G. Llanto and staff of the National Economic and Development Authority, Undersecretary E. Pangan and staff of the Department of Education, Culture and Sports, together with senior officials of the Bangko Sentral ng Pilipinas, Bureau of Internal Revenue and senior officers of the Philippine Armed Forces. The mission also met with World Bank resident Principal Economist L. Mckay.
A large part of the remaining net lending has been a consequence of operational inefficiencies in managing own and National Government projects, including projects with private sector participation.
Although the LGUs have the right to borrow, they have no direct foreign loans. They obtain foreign funding through the DOF’s Municipal Development Fund Office for projects implemented by National Government agencies.
LGUs have been running small surpluses between 0.1 percent and 0.4 percent of GNP in the last few years.
These schemes are regarded as transitional arrangements to facilitate some LGU’s assumption of new devolved functions, such as rural roads and agricultural extension.
Equity contributions, subsidies, and net lending from the NG to the GFIs were less than 0.1 percent of GNP in the last three years.
The E-Commerce law (RA 8792) mandates the substantial computerization of government frontline services in 2 years. Notable examples are the government electronic procurements system launched in November 2001, the BIR e-filing for large taxpayers, and electronic filing of passports.
Under the New Central Bank law, these advances are supported by 5-years Promissory Notes from the NG which can only be renewed once.
Actual subsidies and equity investments to GOCC are detailed in the COA Annual Financial Report of the National Government, and also in the budget documents submitted to Congress.
Subsidies under the Tax Expenditure Fund which are endorsed by the Fiscal Incentives Review Board are reported by agency in the Department of Finance Statistical Bulletin.
This is supplemented by comprehensive Rules and Regulations Implementing the Local Government Code of 1991.
Under Book 6, Chapter 5 of the Code “The Secretary of Budget shall recommend to the President the year’s program of expenditure for each agency of the government on the basis of authorized appropriations. The approved expenditure program shall constitute the basis for fund release during the fiscal period, subject to such policies, rules and regulations as may be approved by the President.” (Section 34) Requests for allotment are also approved by the Secretary on the basis of appropriation cover and “the probable needs of the department or agency for the remainder of the fiscal year or the period for which the appropriation was made.” (Section 33).
The code is promulgated in Republic Act No. 6713 “An Act Establishing a Code of Conduct and Ethical Standards for Public Officials…”
Statements of the financial operations of major GOCCs are included in the annual Department of Finance Statistical Bulletin.
The financial position of the national government is reported by the COA in the Annual Financial Report based on a comparison of income collection on a cash basis and the expenditure obligations made during the year on an obligation/commitment basis. However, unlike the concept of the budget deficit, borrowing availments/proceeds generated during the year are also treated and reported as income. Hence, this picture of the financial position of the government approaches more the concept of an overall cash position which compares the total cash receipts and expenditures of government.
The price is 90 percent of the average price in the last three auctions for tax exempt agencies and 100 percent for the remainder. This could be viewed as a QFA, if, for example, an auction is cancelled and the price that agencies receive is based on past lower rates, not reflecting the rise in interest rates that caused the auction to be cancelled.
The budget papers report the current balance (revenue minus current operating expenditure), primary balance (current balance plus interest payments) and total surplus/deficit (current balance less capital outlays and net lending). They do not publish operational balance (incorporating inflation adjustment), underlying balance (removing financial transactions including asset sales) and structural balance (expenditure and revenue adjusted for cyclical effects).
The difference between the obligation figures would be the proportion of cash payments to be made for the current year’s obligations which are expected to be liquidated and the amount of accounts payable to be paid as a result of prior years obligations. Hence, the relative proportions of these two kinds of cash payments then will determine the difference between obligation and cash amounts.
For example, the 2002 budget on a obligations basis shows an increase in capital outlays of 46 percent over the previous year, however, on a cash basis this is likely to represent only a 1 percent increase.
Appropriations for capital outlays remain valid for obligation for a period up to one additional year; appropriations for maintenance and operations lapse at the end of the fiscal year.
Section 352 of the Code entitled “Posting of the Summary of Income and Expenditures” requires local treasurers, accountants budget officers and other accountable officers to post within 30 days from the end of each fiscal year, in al least 3 publicly accessible and conspicuous places in the local government unit a summary of all the revenues collected and funds received, including the appropriations and disbursements of such funds during the preceding fiscal year.
This medium-term fiscal plan is the basis on which annual budget ceilings are set. Budget documentation also provides detail on receipts and expenditures of LGUs (broken down by regions, municipalities, provinces, and cities) as well as their consolidated deficit. While this does not include their current balances or debt, this information is submitted to the Bureau of Local Government Finance.
There is limited evidence on the extent to which GOCCs undertake QFAs, although prevailing opinion is that this is not a major issue. However, there is anecdotal evidence of QFAs associated with government guarantees for projects operating under BOT arrangements, and lending by the Development Bank
The oversight agencies (the DOF, the NEDA, and the DBM) are focusing currently on the fiscal risks arising from GOCCs operations, BOT projects, and pension funds.
Reflecting Article VT, Section 25 of the Constitution.
In 2002 there was some move away from this practice.
In 2002, the Department of Interior and Local Governments, and the NEDA, the latter specifically for foreign loans, has strengthened its monitoring of LGUs. The DOF through its Bureau of Local Government Finance has also made substantial progress in monitoring the financial performance of LGUs.
It should be noted, however, that GFS classify the operations of the Social Security System as part of the national government.
Agencies provide only crude cash program estimates to the DBM (obligation level divided by 12), without reference to the seasonality of cash requirements and the time at which obligations become due and demandable.
It can be noted that national agencies have monitoring systems to measure their outputs.
Government financial statistics conform to the definition of General Government in the 1993 SNA. The same concept is being adopted for the Philippine System of National Accounts. The budget is not compatible with the new GFS 2001 standards.
The financial position of the national government is reported by COA in the Annual Financial Report based on a comparison of income collection on a cash basis and the expenditure obligations made during the year on an obligation/commitment basis. However, unlike the concept of the budget deficit, borrowing availments/proceeds generated during the year are also treated and reported as income. Hence, this picture of the financial position of the government approaches more the concept of an overall cash position which compares the total cash receipts and expenditures of government.
A report on the obligations undertaken by agencies, reported by the DBM are actual expenditure obligations reported by the agencies based on the unaudited financial statements the agencies submit to the COA for audit. The authorities have plans for a DBM Web site which would contain data on cash releases by agency and type, and would also cover the LGUs.
Under the old accounting standards expenditures were recorded upon incurrence of obligations (e.g., upon signing of the contract and issuance of purchase order for construction of buildings and other capital projects, and inventories, respectively). Data on unpaid bills or unliquidated obligations were reported in the annual financial statements for the current year (those obligations uncurred in the current year and remained unpaid at year-end) and prior year (those incurred in prior years and unpaid as of the end of current year). Moreover, obligations incurred or expenditures for the period were reported in the current year (funded by allotted continuing appropriations released in prior year but still valid until the following year).
These refer to the revised Implementing Rules and Regulations of Presidential Decree 1594, Series of 2000 for civil works; Executive Order (EO) 262, Series of 2000 for goods; EO 322, Series of 2000 on the EPS; EO 40, Series of 2001, for the consolidation and standardization of the procurement procedures for works, goods, and consulting services.
For example, with devolution of authority to agency heads to pay allowances and with a monitoring system which is not fully operative, there has been a tendency for agencies to grant unauthorized year-end benefits.
Administrative Order 5 issued in February 2002 called a stop to salary increases by GOCCs because of the general 5 percent government salary increase.
The COA is a fiscal autonomy agency for which the approved annual appropriation is automatically released.
However, the Chairman of the COA cannot be removed by the President once appointed, but can only be removed by impeachment by Congress.
The COA is a constitutional body and is therefore independent from the three branches of government. It has three commissioners with a fixed tenure of seven years who can only be removed by impeachment. These commissioners while being nominated by the President must be accepted by the Congress, by passing scrutiny and approval of its Committee on Appointments.
One notable example is the failure to provide timely in-year data on the economic composition of expenditures, another is the failure to provide a break-down between bank and non-bank financing.
The Board reviews survey proposals and ensures standard classification systems.