Philippine deficits and debts

MANILA, Philippines - Each Filipino now owes P47,039 to local and foreign creditors, based on the national government's total debt stock as of September.

A month before that, each of the 92.2 million Filipinos owed P45,889.

The culprit: the widening budget deficit that prompts the government to borrow some more. Additional debts, which address current funding needs but could be paid in the future, translate to more debt burden for future generations.

The fact that the Philippines has been spending more than it earns is not earthshaking. Even the richest of countries have budget gaps. But prudence dictates that this deficit, which is a fiscal policy issue, has to be manageable.

Already, there are concerns about how the Philippines is faring as far as fiscal discipline is concerned.

The Philippines blew past its P250-billion fiscal gap target for 2009, recording a deficit of P272.5 billion with one more month to go before the year ends.

If this year's experience is any guide, analysts believe the country's 2010 budget deficit will also breach the government's official target.

Forecast

Weak revenues—due to slower economic growth, several revenue-eroding laws, the negative impact of typhoons on tax collection, and lackluster privatization of assets—have been blamed for the wider-than-targeted deficit this year.

Except for privatization, which is expected to pick up steam, the same factors are seen to push the budget deficit above goal in 2010.

Despite the continued deterioration in the government's fiscal position, analysts at some of the biggest banking institutions say it's not as bad as it seems.

The government had set next year's budget deficit ceiling at P233.4 billion, but the country's economic managers are looking to increase this "to incorporate realistic assumptions."

They said more revenue-eroding measures that will take effect next year as well as the lingering economic downturn will take toll on the collections of the government's main tax agencies, the Bureau of Internal Revenue and Bureau of Customs.

The government is also expected to spend more for reconstruction efforts following back-to-back typhoons.

Taking these into account, Finance Secretary Margarito Teves said the actual 2010 deficit figure may hit close to P300 billion, the same as their "worst-case scenario" for the 2009 budget gap.

Teves' forecast is in line with analysts' consensus.

Not alone

Viewed in the context of the current economic crisis, financial experts say the country's swelling budget shortfall is not worrisome at all.

Unlike in 2004, when the poor fiscal state of the country was a product of the government's own hubris, the recent global crisis has made a large deficit more acceptable.

According to Metrobank head of research Marc Bautista, the country needs to incur a deficit to be able to sustain economic growth by curing sluggish demand through increased spending.

He noted that other countries are doing the same thing.

"There is room for deficit spending in 2010, the markets all but expect it already, and the Philippines is not alone in this predicament," Bautista said.

DBS strategist Philip Wee, for his part, said the widening budget gap has not really affected the strength of the Philippines , given the country's steadily rising external liquidity, and the peso's stability.

Fiscal consolidation

Nonetheless, the Philippines is eyeing to wipe out its budget deficit by 2013.

The country first targeted to balance the budget in 2008, but pushed this goal back to 2010 due to adverse external developments, including the rise in commodity prices and the onset of the global financial crisis. The 2010 goal was pushed further to 2013 to accommodate deficit spending for the economy.

As the country consolidates its fiscal position, Teves said that the government’s debt as a percentage of gross domestic product will also drop to 46.1% by 2013 from the programmed 57.6% by end-2009.

Similarly, he said the consolidated public sector fiscal position—the combined fiscal positions of the government, state-owned agencies and government financial institutions—will post a surplus during that year.

In the end, the economic managers will be assessed on how they managed the country’s finances. After all, it is the future generations of Filipinos who will bear the burden of today’s folly. - Text and graphics by Judith Balea, abs-cbnNEWS.com; with reports from Business Mirror, The Philippine Star

Arroyo gov’t spent P36 billion in unauthorized expenditures in 2007

By Gemma Bagayaua, abs-cbnnews.com/Newsbreak

Critics preparing next year’s impeachment complaint against Pres. Arroyo may want to consider this: the administration spent over P36 billion in 2007, well above the sum approved by Congress for that year. This amount excludes funds they were not able to release in agency budgets including those transferred to over-all savings.

This is the finding in a budget study conducted by the International Center for Innovation, Transformation, and Excellence in Government (INCITEGov), a group of former senior Arroyo government officials who are critical of the administration. Former Arroyo budget Secretary Emilia Boncodin led the study.

The group examined sums spent and allocated by the national government in 2007 using the 2009 National Expenditure Program (NEP, the budget proposal the president sends Congress annually) as key reference.

What enabled the government to exceed its budget limits, according to Boncodin, is the fact that the budget for 2007 was approved late—after the fiscal year has already started. This gave the administration the power to reenact portions of the 2006 budget to finance government expenditures from January to March 2007.

When the 2007 budget was finally approved, however, the administration also used up the entire year’s appropriations, in addition to the reenacted portion of the 2006 budget that it used in the first quarter.

The 2009 NEP, for instance, showed that in 2007, the defense department’s Office of the Secretary (DND - OSec) was allowed to reenact practically its entire 2006 budget (around P592 million).

New General Appropriations for the DND – Osec in the General Appropriations Act (GAA) for 2007 (RA 9401) was only P576 million. But the reenactment of the 2006 budget allowed its available appropriations for 2007 to balloon to P1.286 billion. Of this amount, the DND – Osec spent P985 million—well in excess of the budget Congress authorized it to spend for that year.

Without the reenacted budget, the total available appropriations for the unit should have only been around P694 million. This already includes other appropriation sources made available to the unit for that year. In fact, for 2009, the total proposed obligations for the DND-Osec is only P532 million, according to the NEP.

This is true across almost all of the departments, Boncodin said. In some cases, departments even reenacted more than the equivalent of a quarter of the 2006 budget. "This is untenable," she said.

The Constitution provides that in cases when Congress fails to pass a budget law, the budget for the previous year is automatically reenacted. This practice, however, is a wrong interpretation of the constitutional mandate, according to Boncodin.

Since Congress eventually approved RA 9401 (2007 budget), the administration should have used it to determine spending limits. To avoid exceeding its authorized budget, the administration should have considered the re-enacted portion of 2006 budget as “advances” on the 2007 budget. This meant the amount spent for the first quarter of the year should have been deducted from the sum government agencies were allowed to spend for the entire year.

Budget authority given by Congress under the GAA, Boncodin pointed out, is good for one fiscal year. “A fiscal year is supposed to be 12 months. You cannot use the entire budget given for 2007 in just 9 months.”

To prevent similar incidents from happening in the future, Boncodin advised Congress to add a new provision in the budget law that prohibits the adding of reenacted appropriations to the current appropriations as this violates the one-fiscal-year concept of the general appropriations law.

Alternatively, Congress should pass a resolution in the event of failure to enact new appropriations.

Moreover, Boncodin said, Congress should make it a point to always approve a new budget on time, before the beginning of the fiscal year. “If the president fails to submit a budget (30 days after the State of the Nation Address), it can be a ground for impeachment,” she pointed out.

If the Constitution puts that much stress on the executive’s responsibility to submit a budget proposal on time, Congress should take it upon itself to give as much importance to approving the budget on time as well.
as of 12/11/2008 4:47 PM