The President's Budget for 2001: Setting Priorities amid Depleted Choices by Ronald Yacat

THE PRESIDENT'S

BUDGET FOR 2001:

Setting Priorities Amid Depleted Choices

Speciat Paper Regional Budget Determination and Allocation: A Policy Revisit

THE PRESIDENT'S

BUDGET FOR 2001:

Setting Priorities Amid Depleted Choices Rosario G. Manasan

Speciat Paper Regional Budget Determination and Allocation: A Policy Revisit Ruben G. Mercado

II/ll Philippine Institute for Development Studies

for Development

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Table of Contents

Foreword ............................................................................................... The President's Budget for 2001: Setting Priorities Amid â&#x20AC;˘ Depleted Choices by Rosario Manasan .................................................................................

Introduction ......................................................................................... The National Government Fiscal Program ..................................... The 2000 Fiscal Program ................................. ...................................... Fiscal Program for 2001 ...................................................................... Revenue Program ................................................................................... Financing Program ............................................................................... Fiscal Impulse ...................................................................................... Fiscal Sustainability ............................................................................. The Expenditure Program ................................................... .............. Conclusion ........................................................................................... References ............................................................................................ Annexes ................................................................................................

1 2 3 4 6 10 12 15 16 27 29 30

Special Paper Regional Budget Determination and Allocation: A Policy Revisit by Ruben G. Mercado .............................................................................

Introduction ............................................................................................. 37 Objectives of the Study ...................................................................... .:i0 Overview of Regional Budgeting in the Philippines ..................... 40 Trends m Regional Allocation of Major Implementing Agencies in the Nineties ........................................................................ 46 Assessment of Regional Budget Allocation and Regional Development Situation ...................................................................... 84 Policy Issues and Recommendations .................................................. 104 References ............................................................................................ 109 ai-mexes ................................................................................................ 110 About the Authors

..............................................................................

129

List of Figures The President's Budget for 2001: Setting Priorities Amid Depleted Choices Figure 1.............................................................. _................................... 17 Aggregate National Government Expenditure (pel"cent to GNP) Figure 2 ................................................................................................. 19 National Government Expenditures, by Sector (percent to total budget) Figure 3 .................................................. ............................................... 21 National Government Expenditures, by Sector (percent to GNP) Regional Budget Determination A Policy Revisit

and Allocation:

Figure 1 .................................................................................................. DPWH Total and Regional Budget Allocation F_gure 2 .......... _.................................................... ................................... DOTC Total and Regional Budget Allocation Figure 3 ............................................................... ................................... DA Total and Regional Budget Allocation Figure 4 .............................................................. _.................................. DAR Total and Regional Budget Allocation Figure 5 ................................................................................................. DENR Total and Regional Budget Allocation Figure 6................................................................................................. DTI Total and Regional BudgetAllocation Figure 7............................................... .................................................. DECS Total and Regional Budget Allocation Figure 8.................................................................................................. DOH Total and Regional Budget Allocation

55 59 63 67 72 78 80 81

List of Tables

The President's Budget for2001: Setting Priorities Amid Depleted Choices Table 1.................................................................................................

National Government Fiscal Position (in billion pesos) Table 2 .................................................................................................

National Government Revenues as a Proportion of GNP (in percent) Table 3................................................................................................. Revenue Generation and Structure in the ASEAN-5

(m percent of GDP, 1990-1996 average) Table 4.................................................................................................

Level of Tax Evasion from the Individual Income Tax (1985-i999) Table 5............... :.................................................................................

Tax Evasion from VAT on Domestic Table 6........................................................

Sales (1985-1999) ..........................................

Percent Distribution of National Government Borrowings Table 7 ..................... , ...........................................................................

Fiscal impulse, 1995-2001 (retirement of accounts payable treated as expenditures), in percent of GNP Table 8.................................................................................................

Accounts Payable and National Government Fiscal Deficit, 1998-2001 (in billion pesos) Table 9.................................................................................................

Fiscal Impulse, 1995-2001 (retirement of accounts payable treated as debt amortization), in percent of GNP Table 10 ...............................................................................................

Sustainable Primary Deficit, 1995-2001 (in percent of GDP) Table 11 ...................................................................... ....................... ,.;. 22 Real Per Capit a National Government Expenditures on Social Services, 1975-2000 (in 1985 pesos) Table 12 ................................................................................................

Distribution of Education Budget by Level Table13 ...............................................................................................

Distribution

of DOH Budget by Function

vii

Table 14 ................................................................................................ I

National Government Expenditures as Proportion of GNP, by Economic Classification, 1975-2000 (in percent) Table 15 ................................................... ........... i................................. Expenditure Structure in the ASEAN-5 (in percent of GDP, 1990-1996 average)

Regional Budget Determination and Allocation: A Policy Revisit Table 1 .................................................................................................

Framework for Analyzing Policy Goals, Instruments and Institutions in Regional Budgeting Table 2-.................... .CC... ............... _.........................................................

Proposed Regional Allocable Fund (RAFj in the 1995 President's Budget Table 3 ............................................................... ..... ............................. Regional and Total Budget Allocation of Major Implementing Government Agencies (percent change) Table 4 ................................................................ i..... _........................... Regional Allocation of Major Implementing Government Agencies (in million pesos at constant prices) Table 5 ................................................................ _................................. Pearson Correlation Coefficients: Total Agency Budget and Regional Allocation, 1990-1999 Table 6. .............................................................. i................................. Department of Public Works and Highways Table 7 ................................................................................................ Department of Transportation and Conlmunications Table 8 ............................................................... ,................................ Department of Agriculture Table 9 ............................................................... _................................ Department of Agrarian Reform Table 10 ..............................................................................................

56 60 64 68 70

Department of Environment and Natural IResources Table 11 ..............................................................................................

Department of Trade and Industry Table 12 ...............................................................................................

Departa_ent of Education, Culture and Sports Table 13 ............................................................. i................................ Department of Health Table 14 .............................................................................................. l Department of Social Welfare and Develdpment Table 15 ................................................................................. Summary Results of Correlation and Socioeconomic Indicators

'............. 88

Between IRegional Budget viii

Table 16 ................................................................................................

Per Capita Budget, by Agency, by Region and by Island Group, 1990 and 1999 Table 17 ................................................................................................

Regional Budget by Agency-Specific Focus Factors Table 18....i .................................................................................... Summary Results of Correlation Between Regional â&#x20AC;˘Allocation of School Building Program and EducationRelated Indicators

,...... 101

List of Annexes The President's Budget for 2001: Setting Priorities Ani_l Depleted Choices Annex Table 1..................................................................................... Growth Rate of National Goverrm_ent Expenditures, by Sectoral Classification, 1975-2001 (in percent) Annex Table 2..................................................................................... National Government Expenditures as Proportion of GNP, by Sectoral Classification, 1975-2001 (in percent) Annex Table 3..................................................................................... Percent â&#x20AC;˘Distribution of National Government Expenditures. by Sectoral Classification, 1975-2001 (in percent) Annex Table 4..................................................................................... Growth Rate of National Government Expenditures, by Economic Classification, 1975-2001 (in percent) Annex Tabie 5..................................................................................... Percentage Distribution of National Government Expenditures, Obligation Basis, by Economic Classification, 1975-2001

Regional Budget Determination and Allocation: A Policy Revisit Annex A .............................................................................................. 110 Detailed Provisions of LOI Nos. 447 and 448 and PD 1177 Annex B.............................................................. [................................111 Comparison of BESF (Proposed) and COA (Actual) Distribution of Regional Agency Budget, 1995 and 1998 Annex C ........................... ................................................................... 115 Agency Functions Devolved to Local Government Units Per 1991 Local Government Code Annex D................................................................................................ 116 Agency Regional Budget Allocation Formula/Methodology Annex E.............................................................................................. 126 'Summary of Agency Responses Regarding the Status of the Regional Allocation Methodology Used in the 1990 Budgeting Exercise ix

Forc-_-o[d

No single document perhaps poses as much meaning and importance to the country as the annual President's Budget. For it serves as the major instrument by which Our Overall plans and programs run. Do we have enough resources? Can we manage to implement our projects so that they can help achieve the goals that our national leadership has set for us? Do we have enough options to consider to be able to adjust and ensure that financing will be adequate? Or are they simply limited? These are some questions to which answers may be provided and/or discerned from an analysis of the annual President's Budget. Precisely because the annual budget document is so critical in providing us with a picture of our nation's fiscal health, it is important that we are able to view it on a regularbasis. It is for this reason that I am proud and very happy to launch--with the issuance of this first volume--this new publication series of the Philippine Institute for Development Studies (PIDS), which we call "The Annual Budget AnalySis Series." Written and coordinated by PIDS senior researchfeilow, Dr. Rosario G. Manasan, the Series will present an analysis Of the President's Budget on a yearly basis. The analysis will have a special focus for every year, depending on how the budget for a particular year was prepared and put together amidst the developments in both the domestic and international scenes. A special paper featuring in more detail the theme or focus of the analysis for that specific year will accompany the general analysis. Our Series begins with the analysis of this year's President's Budget whose theme is: Setting Priorities Amid Depleted Choices. This theme indicates how limited our choices for improving the distribution of resources have become because resources are so little and how costly the tradeoff (based on the limited alternatives left at that) would be in terms of the citizens' wellbeing once a choice is made. The accompanying special paper is on regional budgeting. And while it may not directly expound on the concerns raised in the general analysis, it is nonetheless an approach that may help augment resources--what with more fiscal autonomy being granted to local government units----as well as distribute them more rationally across spatial and sectoral aspects.

I therefore hope that this maiden issue Of the Series, along with the subsequent ones, will help not only in furthering our understanding of our fiscal position but also in strengthening the resolve and will of all concerned to improve ment-the

whatever areas need to be look_d at so that this single key docubudget--will work for everyone;s benefit.

ac'

MARIO BJ LAMBERTE, '

November 19, 2001

xii

â&#x20AC;˘

President, IL

PIDS

Ph.D.

The President's Budget for 2001: Setting Priorities Amid Depleted Choices Rosario

G. Manasan

Introduction The government budget may be viewed as the financial mirror of society's economic and social choices. It is supposed to contribute to the attainment Ofthe overall objectives of economic policy, namely, growth, equity and stability. There is general consensus that these goals are complementary over the long term: economic growth provides the resources for poverty reduction; unstable macroeconomic policies undermine sustained growth and hurt the poor most 1; and stability with economic stagnation and worsening poverty is meaningless (ADB 1999). However, in the short run, these goals may be in direct conflict with one another and hard choices have to be made. For government to be able to function and fulfill the role assigned to it, it must collect sufficient resources and allocate and use those resources efficiently and effectively. This points to the integral relationship between revenue and expenditures, the two principal elements of fiscal policy. The President's budget for 20131 is therefore evaluated in terms of the two principal objectives of a good public expenditure management: fiscal discipline and strategic allocation of resources. In this context, the analysis covers both

1 Low growth (or worse, no growth) not only reduces the poor's access to jobs and other means of livelihood, but the inflation tax is also regressive.

The President'sBudgetfor 2001

the budget's expenditure and revenue programs. Specifically, fiscal discipline is assessed relative to the quality of revenue forecasts and the presence of aggregate expenditure controls while resource allocation is assessed in terms of 'its consistency with the government's policy pronouncements.' In particular, the second is appraised with regards to the manner by which government expenditures are programmed across sectors and categories in order to promote overall economic growth and equity. The National

Government

Fiscal Program

Evolution Dramatic improvement balance has been achieved

in the national government's fiscal between 1990 and 1996. The national

government's fiscal position was turned around from a deficit of 3.4 percent of gross domestic product (GNP) in 1990 to a surplus of â&#x20AC;˘ I 0.9 percent of GNP m 1994. This development resulted from stringent expenditure controls alongside significant strides in the government's revenue performance. National government's tax effort rose from 14.0 percent of GNP in t990 to 1.5.6 percent in 1994 while nontax revenues increased from 2.7 to 3.7 percent of GNP (largely on account of hefty inflows from privatization). Meanwhile, national government allocation for subsidies, interest payments and capital outlays were trimmed down from 6.6, 1.2 and 3.1 percent of GNP, respectively, in 1990, to 4.6, 0.4 and 2.4 percent of GNP in 1994. 2 I I The national government also succeeded in posting a surplus in 1995 through 1997 largely by keeping national government speding on maintenance and other operating expenses (MOOE) and capital items under a tight rein. This was achieved in spite of the weakened revenueperformance due to the decrease in privatization proceeds. However, when tax revenues took a plunge from 16.3 percent of GNP in 1997 to 14.8 percent of GNP in 1998 following the onset of the Asian financial crisis, the national government found itself in the red once again with a fiscal deficit ofl.8 percent of GNP despite

' It should be noted that national government transfe1's to LGUs rose from 0.7 percent of GNP in 1990 to 2,7 percent in 1994 because of the implementation of the Local Government Code of 1991.

Rosario G. Manasan

the cutbacks onMOOE and capital spending. Although the economy posted some recovery in 1999, the fiscal deficit deteriorated further to 3.5 percent of GNP as the tax effort continued to weaken. The 2000 Fiscal Program The national government fiscal deficit for 2000 was initially targeted to reach P62.5 billion or 1.8 percent of GNP (DBM/BESF 2001). However, by end of September 2000, the fiscal deficit for the first three quarters of th.e year had already reached P83.0 billion or P20.5 biltion higher than the initial estimate. Clearly, the government's fiscal deficit target is no longer attainable. What factors contributed to the ballooning of the 2000 deficit? One, the government's revenue projections for 2000 are ,overly optimistic (Box 1). Based onactual tax take of the Bureau of Internal Revenue (BIR) from January to September 2000, a P37.4 billion-P38.8 billion shortfall in BIR collections should be anticipated for the whole of 20003 (Table 1). This figure already includes some P1.5 billion in additional revenues that are expected to come from the tax on interest on T-bills because of the higher domestic interest rates in the fourth quarter: Similarly, the national government has not been successful in _disposing its shares in the Philippine National Bank, the Manila Electric Co. (MERALCO), and the PNOC-Energy Development Corporation. Only P1.9 billion had been realized as of the end of September out of the targeted P22.9 billion from privatization proceeds. Also, given current uncertainties in the market, it is projected that privatization proceeds in 2000 may reach only a total of P3 billion. In contrast, the Bureau of Customs (BOC) and Bureau of Treasury (BTr) are expected to exceed their revenue goals by P4.3 billion and P5.1 billion, respectively, based on the actual figures for the first three quarters:

Thefigurestakeinto accountseasonalvariabilityin taxrevenuesand actualGDPgrowth performanceto date. 4Withouttheincreasein thetaxtakebecauseofhigherT-billrates, totalBIRcollectionis projectedto beP38.8billionshortof theBudgetofExpenditures andSourceof Financing (BESF) targetfor2000. ThefigureforBOCtakesintoaccounttl_eestimatedP0.8billionlossin revenuearising fromthesuspensionof the3 percentduty on oil importsin Novemberand Decemberof 2000.

The President'sBudgetfor 2001

Two, the allotment advice that was comprehensively released in the beginning of 2000 (i.e., the so-called "what you see is what you get" expenditure management approach that was installed this year) leaves little room to maneuver for expenditure control this late in the year. 6 Thus, it is not. easy t Oreduce the aggregate expenditure level this late would be difficult except perhaps through the buildup of accounts payable or arrearages. This is so because regulating cash flows without regulating commitments would tend to generate arrears in a government where the revenue forecast is overstated and there is pressure to paint a less gloomy fiscal picture. (See related point in Fiscal Impulse.) Three, the unanticipated peso depreciation and the rise in domestic interest rates in the fourth quarter is expected to lead to an additional P9.4 billion in interest payments. Four, the recent Supreme Court ruling on the automatic appropriation of the internal revenue allotment (IRA) implies the transfer of an additional P7.5 billion to the local igovernment units (LGUs).7 However, the Department of Budget and Management issued a memorandum in October 2000 providing that the monthly IRA releases to LGUs will be released in the first week of the following month instead of the original practice of releasing in the first week of the current month. This means that one-twelfth of the aggregate IRA allocation for 2000 will be released in January 2001. Taken together, these twin developments will reduce the required expenditure releases for LGU transfers by P2.6 billion. However, should the LGUs succeed to challenge the Department of Budget and Management's (DBM) new IRA release schedule, the projected fiscal deficit in 2000 may go up by an additional P10,1 billion, reaching a total of P127.3 billion or 3.7 percent of GNP. Fiscal Program for 2001 The proposed 2001 President's Budget projects the fiscal deficit at P85 billion or 2.2 percent of GNP. It is I obvious that this target is unrealistic for two reasons. First, the macroecononuc assumptions are no longer relevant given recent developments particularly the

With the new guidelines on the release of spending authorization, about 80 percent Of the expenditure program is deemed released at the start of the year (de Vera 1999). 7 This amotmt should have been part of the LGUs' IRA in 2000 but it was initially with_held and classified under unprogrammed funds by Congress,

Rosario

G. Manasan

Box 1. Flawed Revenue Forecasts and Fiscal Discipline "It is possible to execute badly a realistic budget but impossible budget." - - ADB (1999)

to execute well an unrealistic

The BESFhas had a long tradition of proposing an expenditure program based on revenue targets that are unrealistic and unattainable. Box Table 1 highlights this point and shows actual national government revenues falling short of BESF revenue projections all throughout the 1990s except for 1991,1994 and 1995. This practice does not only u_dehnine fiscal discipline but also diminishes efficiency in resource allocation. An underfunded expenditure program tends to result in arrears and delays in payments. In many eases, overall fiscal discipline is typically not breached because expenditure controls (e.g., across-the-board budget cuts or imposition of reserves) are put into play during/budget implementation. However, these mechanisms necessarily weaken the link between planning and budgeting. They dispense scarce resources inefficiently across an excessive number of programs and/or activities. Moreover, they tend to politicize the prioritization process as the different stakeholders jockey for favors in the release of spending authorization and/or cash allocations. As such, the amount of resources available to the various departments/agencies becomes unpredictable, resulting in delays in program implementation. At the same time, the tedious process of fine-tuning spending levels for each and every agency every time adjustments are made on the revenue targets detracts the budget authorities from their more important function. The flawed revenue forecasts stem from three sources: the overly optimistic n'mcroeconomic forecasts, the inclusion of projected additional revenues from propos'ed tax measures that still requires legislative action, and poor revenue forecasting methodologies (Penner et el. 1994). On the one hand, there are pressures on the economic managers to project a more rosy picture of the overall maeroeconomic situation. Thus, there is a tendency for government to com e up with "fighting targets" as opposed to realistic targets. On the other hand, the fiscal managers tend to be excessively roseate in assuming that Congress will approve'proposed revenue measures in a timely fashion. In reality, Congress resists legislating additional/higher taxesmost of the time. Moreover, in instances where Congress does act on the proposed tax measure, it typically passes an alternative version whose revenue impact is diluted, if not the opposite of that in the original proposal. Recently, however, the fiscal managers have decided not to include the expected receipts from the new tax measures in reckoning programmed appropriation levels starting in 2000. Lastly, poor revenue forecasts may be traceabletoinadequacies intechnical capability ofthefiscal authorities withrespecttorevenueand macrdeconomlc forecasting, Inparticular, thetechnicians areseverely constrained inestimating the revenueimpactofchangesintaxpolicy becauseoftheabsenceofmierolevel taxpayer data.

Box Table I.Comparison of BESF Target NG Revenues with Actual NG (inbillionpesos)

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

BESF target

Actual revenues

206,381 278.901 284.183 319.169 350.228 417.216 485.110 540.920 550.496 597.666

220.787 242,714 260.405 336.159 361,220 410,449 471.843 462.516 478.504 514.563

% Difference 6.98 -12.97 -8.37 5.32 3.14 -1.62 -2.73 -14.49 -13.08 -13.90

Revenues

The President'sBudgetfor 2001

changes in the exchange rate and domestic interest rate. The pesodollar exchange rate is projected to settle at an average of P48 (instead of the BESF projection of P42) and the 91-day T-bill rate at 11 percent (instead of BESF's 9.5 percent). Also, the GNP is assumed to grow by 4.5 percent in real terms while inflation is assumed to reach 6.5 percent. As a result, the rise in the foreign exchange rate, the higher T-bill rate and the larger debt stock that is carried over to 2001 (because of the higher fiscal deficit in 2000) will shift the national government interest payments upwards by P28.2 billion. Second, the parameters underlying BESF's BIR tax projections appear to be overly optimistic. Consequently, the national government fiscal deficit is forecasted to rang_ from a low of P124.1 billion (or 3.2 percent of GNP) to a high of P143.3 billion (3.7 percent of GNP) in 2001 (Table 1). The difference between these two estimates stems from varying assumptions with regards to BIR tax collections. If the BIR tax effort ratio is assumed to:stay at the 2000 levelS, then BIR revenues are projected to reach P401.2 billion only. However, if the BIR tax effort improves somewhat 9, then BIR revenues may reach P420.4 billion. Comparing these figures with the BESF target of P441.6 billion, iris projected that BIR collections are likely to fall short by P16.9 billion to P36.2 billion in 2001. There are, however, indications Ofpossible upward adjustments in the government's revenue projection as a result of the peso depreciation. One, the BOC is likely to exceed its target revenue by P3.6 billion even with the estimated P0.4 billion losses in revenue from the suspension of the 3 percent d_ty on oil imports in January 2001. Two, the higher interest rate assumption for 2001 implies that BESF's projected BTr income will be exceeded by P3.6 billion. Revenue

Program

Significant gains in national government revenue performance have been achieved in 1986-1997. Tax _ffort rose from 11.3 percent of GNP in 1975-1985 to 15.9 percent in 1992-1997. Tax effort peaked at 6.3 percent of GNP in 1996 (Table 2), fallowing the Philippines to catch up with the performance of other Asian countries (Table 3). This assumption is actually somewhat optimistic given recent experience. The BIR tax effort ratio has continuously declined from 12.4 percent of GNP in 1997 to 12.1 percent in 1998 to 10,8 percent in 1999 mad 10.4 percent in 2000. It is assumed here that the BIR tax effort ratio rises by 0.5-percentage point in 2001 compared to the 2000 level.

Table 1. National

Government

Fiscal

Position

(in billion

pesos) Authors

Author's

BESF program 2001

projeciions (high rev.) 200I

Difference" 2001

projections (low rev.) 2001

Differe_x 2001

47.86 33.09 37.36

607.199 549.324 441.634

596.270 535.996 424.666

10.929 I3.328 16.968

577.004 516. 73 405.400

30.20 32.59 36.23

96344 4.771

(4.27)

100.470 7.220

104.110 7.220

-3.64

104.110 7.220

(3.64)

67.950 212259

53.178 21259

I4.77

5Z875 23..304

60.274. 23.304

-2,399

60.2 74 23.304

(2.40)

23.020 99.865 0.806

28.113 3.{X}O 0.806

(5.09) 19.87

15.194 19.000 0.377

17.593 19.000 0.37"7

:2.399

17.593 19.000 0.377

(2.40)

BESF program 2000

Author's projections 2(100

Recenues Tax reoenues BIR

56?-426 494.476 397.826

514.563 461,385 360.470

BOlE Other offices

91.879 4.771

Non-tax revenues Fees and charges BTr w_ome Privatization Others

Particulars

Differ_ce 2fl00

DiMmrsemen_ Current operaV.ng e_enditure Personal services MOOE Subsidy AIloiments to LGUs

624.926 545.423 223.272 67.283 6.208 113.863

631.826 552.323 223.272 67.283 6.208 111.248

(6.90) (6.90)

Interest payments Tax expenditures

129.797 5.000

139.312 5.000

79.503 74.022 0.721 3.500 1.260

Capital outlays Lrffra/Other capital outlays Equity CARP Net lending SURPLUS/(Defidt) (percent of GNP) , tTtJJerence = IJ_M- target less a_ttl_fs

720.356 630.205 244.104 71.262 7.119 134.656

-28.156 -28.156

720.356 630.205 244.104 71.262 7.119 134.656

(28.16) (28,16)

2.61

697-200 602.049 244.104 71.262 7.119 134.656

(9.52)

144.908

173.064

-28,156

173.064

(28.16)

90,151 84.303 0.496 4.475 0.877

90.15I 84.303 0A96 4.475 0.877

(62.500)

017.263)

54.763

(85.001)

1,805 projections.

3385

(1.580)

2.206

024.086) 3.219

90,151 84.303 0.496 4A75 0.877 39.065 (1.013)

043.352) 3.719

58.35 {1.513)

The President'sBudget for 2001

Table

2. National

Government

Revenues as a Proportion Average

1975-1985 19.86-1991 1992Z1999 12.90 15.97 17.44

Total revenues Tax revenues

of GNP (in percent)

1996 18.15

1997 18.66

1998 16.43

1999 15.16

11,26

13.12

15128

16.27

16.30

14.80

13.68

6,72

8.86

11114

11.64

12.44

12.09

10.82

Income and profit

2.85

4.07

5,85

6,03

6.49

6.53

5.83

Corpo[ate Individual Others Excise

1.46 1.10 0,23 2.02

1.75 1.30 1.02 2.59

2i69 2101 1116 2_22

3.01 1,93 1.09 2.62

3.24 2.16 1,10 2.49

2.66 2.18 1.70 2.23

2.49 2.16 1.18 1.96

VAT/Licenses

BIR

1.48

1,76

2131

2.99

1.87

2.41

2,45

BOC

4.04

4,08

4102

4,62

3,76

2,70

2.74

Other offices

0.51

0.20

0_12

0.11

0.12

Nontax revenues

1,64

2+84

2J16

1,88

2.36

1.63

1,48

Table

3. Revenue

Generation

and Structure

1996 average) , Tax revenues Taxes on income, profits, and capital gains of which: corporate income tax Domestic taxes on goods and services Taxes on international trade and trartsaction Nontax revenues Total revenues

in the ASEAN-5

(in percent

of GDP, 1990-

Indonesia

Korea

Malaysia Thailand

15.6 '

15.8

16.6

20.4

16.7

5.3 2.1

9.3 4.9

5.9 2.4

9.2 6.8

5.2 3.0

4.8 4.8

5.0 0,9

6.3 1.4

6.0 3.9

7.5 3,3

I Philippines

2.7

1.9

2.6

6.8

2.0

18.3

17,7

19.2

27.2

18,6

Source: International Monetany Fund

However, the Asian financial crisis exacted a heavy toll in national government tax revenues. Ta x effort plummeted from 16.3 percent of GNP in 1997 to 14.8 percent in 1998 and down to 13.7 percent in 1999 despite the turnaround in economic activity (Table

2). The overall tax elasticitym'the ratio of percentag e change in tax revenues to percentage change in GNP ...also went down from 1.32 in 1986-1996 to 0.46 in 1996-1999. The iprincipal transmission channels for this problem appear to be the presence of corporate foreign currency debt and the elastic demand for imports. For instance, revenues from corporate income tax declined from 3.2 percent of GNP in 1997 to 2.7 percent in 1998 to 2.5 percent in 1999 (Table 2). This could be attributed partly to the 10wet tax liabilities of corporations with foreign currency debt following the peso depreciation during the period. Similarly, BOC revenues dropped from 3.8 percent of GNP in 1997 to 2.7 percent OfGNP in 1998, which could

RosarioG. Manasan

be traced not only to the lower imports arising from the weak peso but also from the slowdown in economic activity in 1998. With the turnaround in gross domestic product (GDP), a small increase in BOC collections is evident in 1999 (2.7 percent of GNP) and 2000 (2.8 percent of GNP) despite the continued devaluation of the peso. Excise taxes likewise exhibited a persistent downtrend from 2.6 percent of GNP in 1996 to 2.0 percent of GNP in 1999. The problem with the excise taxes is structural and is largely the result of the change in the form of excise taxes on cigarettes and alcoholic beverages from ad valorem to specific under the Comprehensive Tax Reform Package. Meanwhile, the fluctuations in the "other income and profit tax" follow that of the T-bill rate Considering that the bulk of these taxes come from the tax on interest income. In addition, there are additional risks on the revenue generation side that will have serious implications for the 2001 revenue program. First, recent estimates of tax evasion indicate a deterioration in the evasion rate for the individual income tax and the value added tax on domestic sales starting 1995 (Table 4 and Table 5). Second, various groups have pressed for the reduction of the â&#x20AC;˘income tax base. In the Lower House, a bill authored by Congressman Dante Suarez has called for the reduction of excise tax on petroleum products by 20 percent; the passage of the bill could lead to a revenue loss of P6 billion. Meanwhile, Senator Juan Ponce Enrile

Table 4. Level of Tax Evasion from the Individual Income Tax (1985-1999) Year Evaded taxes Evasion rate (P n_dllion) (%) 1985 16,037.60 73.10 1986 9,564.70 61.70 1988 19,940.30 71.50 1990 29,994.30 64.90 1991 29,599.46 60.04 1992 37,108.14 63.71 1993 31,743.61 57.62 1994 24,529.98 46.20 1995 35,651.09 51.74 1996 51,997.67 54.35 1997 79,830.80 59.41 1998 86,842.50 58.60 1999 105,740.00 60.81 Sources: 1985-1995, Manasan (1998); 11996-1999,Manasan (2000).

The President's Budget for 2001

Table

5. Tax Evasion

from VAT on Domestic

Sales (1985-1999)

Year

Evaded taxes Evasion rate (P million) (%) 1985 6,432.00 6K20 1989 26,279.50 77.20 1990 . 26,315.70 66.80 1991 30,347.30 66.80 1992 37,290'.00 67.31 1993 32,982.00 59.24 1994 36,620.00 58.99 1995 43,377.00 60.08 1996 67,151.00 62.13 1997 67,722.00 58.89 1998 79,769.00 62.66 1999 92,357.00 62.61 b Sources: 1985-1995, Manasan (1998); 199&1999, Ma_nasan(2000).

has filed a proposal to increase the personal exemption level and the marginal rates for the individual income tax, which Could result in a revenue loss of around P69 billioI_) Â°

Financing

Program

In 1999, the national

government

started

to rely more

on foreign

borrowings to finance the fiscal deficit. That year, 45.6 percent of the total national government borrowing was sourced externally compared to only 16.7 percent in 1986-1991 and -7.4 percent in 19921997 (Table 6). This reliance persisted in 2000 as 51.3 percent of total borrowing was programmed to come from external sources. However, because of the peso depreciation and the already large yY_s-Â˘aIdeficit in the last half of 2000, tt_e government shift back to domestic financing. This Shift is carriedâ&#x20AC;˘ I 71.6 percent of total national government come from domestic sources.

"' It is estimated

that if personal

exemption.leve!ls

borrowing

are increased

is expected to over in 2001, as , is estimated

without

changing

the

margh_al tax rates, the revenue loss would be P38 billion. I However, the revenue loss would be P50 billion if the tax rates are cut but personal exemption levels remain unchanged.

Table 6. Percent

Distribution

of National

Government

Borrowings

Average 1975-1985

Net domestic financing Net foreign fioanchlg

(%) (%)

Total borrowh_gs Total borrowhlgs

(hi million pesos)

1986-1991

I992-1997

1996

1997

1998

1999

2000

2001 Proposed

81.28

83.23

107.35

113.86

74.85

86.11

54.43

48.69

71.56

18.72

16.77

(7.35)

(13.86)

25.15

13.89

45.57

51.31

28.44

100.(30

100,00

100.00

100,00

100.00

100,00

100.00

100,00

12,474

33,609

23;703

43,319

(27,113)

88,896

181,698

108,587

92,238

P_,

The President's Budget for2001

Fiscal Impulse I

Fiscal impulse is a measure of the first-round contribution of fiscal policy (i.e., expenditure-cum-ta x policy) to the growth in aggregate demand (Heller et al. 1986)1_. A positive fiscal impulse implies an expansionary fiscal _policy relative, to the previous y ear. Conversely, a negative fiscal impuls e implies a contractionary fiscal policy. Net fiscal impulse may be decomposed into two parts: expenditure impulse and revenue impulse. A positive revenue impulse arises in a situation where actual revenues are lower relative to output than what it was in _he base year. SimilarIy, a positive expenditure impulse occurs @hen actual expenditure is lower relative to potential output relati_Ie to what it was in the base year. Table

7,Fiscal Impulse,, 1995-2001 (retirement 0f accounts as expenditures}, in vercent of GNP I Revenue Expel!diture impulse iml._ulse 1995 0.62 -0.82 1996 0.06 0.08 1997 -0,66 0,_7 1998 2.03 -0.87 1999 1.30 0.07 2000 a -0.94 -1.46 2001 a 0,53 -0.76

2000 b 0.44 2001 b -0.43 ,.Based on 8ESF projections. J'Based on author's projections.

-1.26 -0.20

payable

treated

Fiscal impulse -0.20 0.13 -0.39 1.16 1.36 -2.40 -0.22 -0.82 -0_63

As shown in Table 7, the BESF expenditure program exhibits a fairly contractionary fiscal policy (with fiscal impulse Of 2.4 percent of GNP) in 2000 and a more neutral but Still slightly contractionary fiscal policy (with a fiscal impulse of 0.2 percent of GNP) in 2001. However, given the projected shortfall in government revenue in

11The net fiscal impulse measure (FI) is defined rI _ (A G - g,, A Y ,) - (A T - t,,a Y) where

_ ( x ) is the change m x between G is government expenditures; Yp is potential output; _ G 0 is the rati Oof government T is government revenues; t, is the ratio of government Y is actual output,

as:

year_ and year i.1;

expenditures revenues

to!potential

to actual output i

output in the base year; 3 in the base year;

RosarioG. Manasan

those years, deviations between intended and actual fiscal impulse is expected. Although the fiscal impulse projected for 2000 (taking into account the likely nonachievement of target government revenues and the overshooting of programmed expenditure levels) is still contractionary, it is significantly less so than what is intended ih the BESF. On the other hand, the projected fiscal impulse for 2001 is more contractionary than what is programmed in the BESF. Use of accounts payable as a financing instrument In 1998, the national government accumulated a substantial amount of accounts payable; estimated by DBM at P151.1 billion as of yearend (Table 8). This amount was reduced by P15.7 billion in 1999, P28.5 billion in 2000 and is programmed to be trimmed down further by P53 billion in 2001. However, the cash budget does not adequately reflect the true state of national government fiscal position and the stance of fiscai policy. For instance, while a PS0 billion fiscal deficit was reported for 1998 in the Cash Operations Report (COR) of the BTr, the national government in reality had a fiscal deficit of P201.1 billion, P151.1 billion.of which was financed by arrearages from suppliers and contractors. In contrast; the official level of the fiscal deficit (Pl11.7 billion) in 1999 overstates the fiscal deficit by P15.7 billion because said amount was actually used to retire government arrearages and should not have been treated asan expenditure but rather as debt amortization and placed below the line. In this sense, delaying the payments of goods and services that have already been contracted and delivered translates government arrearages into a financing instrument. Table

8. Accounts

Payable

(in billion pesos) Stock as of yearend 1998 1999 2000 2001

151.1 b 135.4 _ 106.9 53.9

and National

Government

Fiscal Deficit,

Change in accounts payable

Fiscal deficit as per COR

151.1 -15.7 -28.5, -53.0 b

50.0 111.7 62.5 a 85.0 a

â&#x20AC;˘ Accumulation ofaccounts payable is treatedas part offiaancing. . _BESF (2001), p. 35. BESF (2001) p, 29. ,i Targets in BESF (2001).

1998-2001 Fiscal deficit adjusted for accounts payable, 201.1 96.0 34.0 32.0

The President's Budget for 2001

Table 9. FiscalImpulse, 1995-2001(retirementof accountspayable treated as debt amortization),in percentof GNP Revenue Expenditure Fiscal inwulse impulse impulse 1995 0.62 43.82 -0.20 1996 0,06 0,08 0.13 1997 -0.66 0.27 -0.39 1998 2.03 i,49 6.53 1999 1,30 -5.22 -3.92 2000a -0.94 -_.83 -2.77 2001a 0.53 -_.39 -0.86 2000h 0.44 -_.63 -L19 2001b _0.43 -0.84 -i.27 oBased

on BESF

_'Based

on author's

Similarly, impulse

projections, projections.

one

depending

would

obtain

on whether

different one

treats i

estimates

of the

accounts

payabl_

fiscal as a

financing item or not. For example, if unpaid obligations were not treated as part of national government;expenditures (as is done in the COR), the fiscal impulse

is estimated

GNP in 1998 and 1999, respectively

to be 1.2 and 1.4 percent

(Table

7). In contrast,

obligations were treated as part of national, tures and accounts payable as part of deficit impulse percent

if unpaid

government expendifinance, then the fiscal

is estimated to be 6.5 percent of GNP in 1998 of GNP in 1999 (Table 9). If this alternative view

and -3.9 is taken,

then the national government expenditure program is seen as contractionary in 1999, rather than expansionary as many believe. Note further that once the planned retirement of accounts payable are netted out of the expenditure pr6gram and treated as debt repayment then the estimated fiscal impulse for 2000 (-2.8 percent of GNP) and for 2001 (-0.9 percent of GNP) is even more â&#x20AC;˘ I contractionary than what the earher discussion would indicate (-2.4 and -0.2 percent of GNP, respectively, as per BESF). Moreover, 1 I f both the programmed reduction inlaccounts payable and the expected shortfall in revenues are taken into consideration, then the estimated

fiscal impulse

for 2001 becomes

even more contractionary:

-1.3 percent of GNP. This analysis-indicaies that the use of arrearages as a financing tool diminishes the transparency of national government

accounts

and makes

policy

analysis

difficult.

RosarioG. Manasan

Fiscal Sustainability This section discusses the sustainability of fiscal policies in terms of their ability to stabilize the debt-to-output ratio. Specifically, the assessment follows the analysis of Anand and Van Wijnbergen (1989) and Catsambas and Pigato (1989) 12, whereby fiscal sustainability is evaluated by comparingthe actual primary deficit with the sustainable primary deficit. The government's fiscal stance is said to be sustainable if its debt Servicing requirement does not exceed its primary surplus. In this.sense, fiscal sustainability is indicated if the difference between the actual primary deficit and the sustainable primary deficit is negative.

12Theirframeworkfocuses on the interrelationship among fiscal deficit, domestic and foreign debt, and key macroeconorrdc variables such as rate of inflation, GDP growth rate, interest rate, and exchange rate. A sustainable fiscal deficit is defined as one which mainrains the government's debt-to-output ratio. The analysis derives the following expression for the sustainable primary deficit, (sus pdef): sus pdef_ -(r-g) b-(i*+A(E)/E-x-g)b" (1) where g is the growth rate of real GDP; r is the real domestic interest rate; b is the ratio of national government domestic debt to GDP; b" is the ratio of nafional government foreign debt to GDP; i* is the nominal foreign interest rate; A (E)/E is the proportional rate of change in the exchm_ge rate; and n is the domestic inflation rate. Fiscal sustainability (fs) is measured by comparing the actual primary deficit (act pde_ with the sustainable primary .deficit. Thus, fs = act pdef - sus pdef (2) Equation 2 suggests that sustainability requires the actual primary deficit to be less than the estimated sustainable primary deficit. In particular, if fs is positive, then the actual deficit exceeds the sustainable primary deficit and the debt-to-GDP ratio will increase. Conversely, if fs has negative sign, then the actual deficit is less than the sustainable deficit and the debtto-GDP ratio will decline. In other words, the government's fiscal stance is sustainable if its debt servicing requirement does not exceed its primary surplus.

ThEPresident'sBudgetfor 2001

â&#x20AC;˘Table

10. Sustainable

Primary Deficit, Actual Primary Deficit % GDP

1995 1996 1997 1998 1999 2000" 2001" 2000 _' 2001 b ,'Based on BESF projections. I, Bos('d oli allthor'$

1995.2001 (in percent Sustainable Primaa'y Deficit %;GDP

-4.392 -3.811 -3.277 -1.86_ 0.179 -2.059 -1.648

2_516 2!259 i -21334 -10_309 21361 -3.051 -2J031

-0.683 -1.349

-3J051 -21031

of GDP) Actual Less Sustainable Primary Deficit

%CDP

-6.909 -6,070 -0.944 8.449 -2.182 0.992 0,383 2.369 0,682

projections.

The derivation of the sustainable plllmary deficit for 1995-2001 is shown in Table 10. Except in the crisis year 1998, the national government deficit was sustainable in ihe period 1995-1999, with fiscal deficit in 1995 and 1996 smaller than the estimated sustainable levels. However, the picture for 2000 and 2001 is not as rosy as i the estimate of the sustainable primary deficit for both years is positive regardless of whether one uses the t_ESF projections or the more conservative estimates of this author that takes into accoufit recent movements in key macroeconomic variables. calls for a more contractionary stance on the Since both the MOOE and capital expenditure low, the only way the government can achieve cutting back on expenditures is by improving The Expenditure

The situation, thus, part of government. levels are already this without further its revenue effort.

Program

The proposed President's Expenditure Program for 2001 amounts to P725 billion. The Estrada administration's battlecry is ,Erap Para sa Mahirap" (Erap for the Poor), with poverty alleviation as its centerpiece program. Similar to the 1999 and 2000 budgets, the proposed budget appears 0oapproach poverty reduction from the perspective ofâ&#x20AC;˘ sustaining overall economic growth through productivity improvements in the agriculture sector. Thus, while the social service sectors continue to capture.the lion's share in aggregate national government expenditures, the proposed expenditure program for 2001 shifts ire.sources in favor of the economic service sectors and general p_blic services (i.e., general public administration plus peace and 9rder) and away from the social service sectors.

The President'sBudgetfor 2001

As debt service rose from 3.1 percent of GNP in 1997 to 3.7 percent of GNP in 2000, national government expenditure net of debt service exhibited a persistent down trend in 1997-2000 from 16.4 percent of GNP in 1997 to 14.9 percent in 2000. Since the debtservice-to-GNP is projected to remain constant in 2001, total national government expenditure net of debt service will increase, although marginally, to 15.0 percent Of GNP, a l_vel that is not substantially different from the 15.1 percent average during the Ramos years. In contrast, the IRA will grow by 18.]0percent in 2001 compared with the 11.6 percent growth of total national government expenditure net of debt service (Annex Table 1). This is similar to the 19931998 experience when the IRA grew b_ 24.9 percent yearly on the average despite the 16.2 percent 13 rise i_ the total national government budget net of debt service. Consequently, the IRA expanded from 2.8 percent of GNP in 1997 to 3.7 percent in 2000 and 2001. This represents a 28 percent increase rdlative to the 2.7 percent of GNP average in 1993-1998 (Annex Table2). Because the IRA (i.e., transfers to local government units or LGUs) is growing at a pace faster than aggregate national government expenditure (Annex Table 1), the contraction in central government spending net of debt service and transfers to LGUs is even more pronounced: from 13.6 percent of GNP in 1997 to 11.7 percent in 2000 and 11.6 percent in 2001. _Thefigure for 2001 is markedly lower than the average level of 12.4 percent in 1986-1998 (Figure 1). Consequently, the size of the budget over which the central government is able to exercise some level of control has been eroded over time. Allocation

across sectors

On the whole, the public services sector is the second fastest growing major item in the proposed 2001 President's budget, next to the IRA. The national government allocation for general public services is projected to increase by 15.5 percent over the 200D expenditure level. Outlays for general public administration are expected to increase by 15.0 percent over the previous year's level while outlays for peace and order will grow by 16.4 percent (Annex Table 1). Thus, the share of general public services in the aggregate national government expenditure program will rise from 17.5 percent in 2000 to 1811 percent in 2001 (Figure 2). 13Contrary to popular perception, the IRA has been rising at a faster rate than the budgets of the devolved agencies during the same period.

The President'sBudgetfor2001

_4nnex Table 2). However, this level is just about equal to its average allocation in 1993-1998. The programs/projects which receive higher allocations in 2001 are fprest management (particularly the implementation ofâ&#x20AC;˘the Forestry Sector Project Loan), the Southern Mindanao Integrated Coastal Management Project, the new Land Administration Project and the Mindanao Rural Development Project. As the implementation of the Agriculture and Fisheries Modernization Act enters its second year, the agriculture/agrarian reform subsector continues to post _ome gains. Althoughthe outlay for the agriculture/agrarian reform subsector in 2001 (1.01 percent of GNP) is not substantially _ifferent from the previous year s budget (0.99 percent of GNP), itis significantly higher than the average allocation for this subsecto_in 1993-1998 (0.8 percent of GNP). The budget support for the agriculture/agrarian reform subsector includes the P23.7 billion allocation for the agrarian reform fund and the Department of Agriculture under the Agricu !ture Fisheries Modernization Fund. The proposed 2001 allocation for the infrastructure subsector (composed of power/energy, water l_sources development and transportation/com_rnunication), which is 2.03 percent of GNP, is slightly lower than the 2000 level of 2.04 percent of GNP. This situation is worrisome considering that the proposed national govern= ment spending on infrastructure in 2001 is considerably lower than the 2.5 percent average in 199.3-1998 and 4:5 percent of GDP average in East Asia in the 1990s. This resultholds trueeven if one adjusts for increased private sector finance of infrastructure projects through the build-operate-transfer (BOT) schemes. Nevertheless, the infrastructure subsector Continues to capture over 50 percent of the total national government allocation for the economic services sector despite some contraction relative to the period 1993-1998 when the subsector received over 60 percent of the total economic services budget (Annex Table 3), Within the subsector, transportation and communications receives the biggest share of the budget while power arid energy registers the highest rate of increase. Meanwhile, the nominal increase in total social service â&#x20AC;˘sector spending of the national government in 2001 is not even sufficient to keep pace with inflation; National $0vernment expenditure on aU the social' services sectors combined I is projected to register the â&#x20AC;˘

Table 1L Real Per Capita National

Government

Expenditures

on Social Services,

1975-2000

(in 1985 pesos)

Average 1975-1985

1986-1992

1993-1998

1996

389.42

522.74

5i6.59

230.14

359.54

.Health

70.62

Social welfare, labor and employment Housing and communiiy

Totalsocial

servk-es

Education

development

1997

1998

1999

7_0_P

2001F

567.35

637.24

612.86

â&#x20AC;˘590.68

598_59

580.45

393.10

414.20

486.44

481.55

451.21

459.71

447.25

87.44

54.69

58.28

67.85

55.18

55.58

50.31

46.06

3Z33

28:11

53.87

68.86

70.09

62.70

66.86

70.24

77.08

56.54

47.64

14.93

26.40

12.85

13.42

17.02

18.33

10.06

rÂĽ "0

b,l

RosarioG. Manasan

Table12.DistributionofEducationBudgetbyLevel 1996 1997 1998 Basiceducation 78.32 80.49 81.45 Technical/vocational education 2.90 3.48 1.55 Highereducation 17.17 14,71 15,47 TotaP 100.00 100.00 100.00 Total includes Note: 1996-2000

miscellaneous

1999 81.75 1,99 15.02 100.00

2000 81.75 1.94 15.11 100.00

2001 82.63 2.48 13.69 100,00

education and culture institutions,

based on actual obligations; 2000-2001

based on proposed obligations,

The health and the education subsectors are also badly hit by the contraction of the social service sector budget. For instance, the allocation for education alone drops from 3.4 percent of GNP in 2000 to 3.2 percent in 2001 compared to an average of 3.3 percent in 1993-1998 (Annex Table 2). Similarly, the share of the health subsector in 2001 is down to 0.3 percent compared to 0.4 percent in 2000 and the same figure for 1993-1998. As a result, national government expenditures on health and education will post marked reductions in real per capita terms in 2001 .8.4 and 2.7 percent lower that their 2000 levels, respectively (Table 11). On a positive note, however, the intra-sectoral allocation in 2001 for the education subsector is encouraging. The budget share of higher education declines to 13.7 percent in 2001 relative to its 2000 level of 15.1 percent but lower than the 15.6 percent average in 19961998 (Table 12). This is in line with the thrust toward performancebased budgeting and increased cost recovery in the state universities and colleges (SUCs). As for the share of the technical/vocational education, it goes up from 1.9 percent in 2000 to 2.5 percent in 2001. The share of basic education expands from 81.8 percent in 2000 to 82.6 percent in 2001, higher than the 80.5 percent average in 19961998 (Table 12). Moreover, although the basic education budget continues to be lopsided in favor of personal services (at the expense of MOOE and capital outlays), the share of personal services slips from 87.7 percent in 1999 to 86.5 percent in 2001. More significantly, the 7 percent nominal increase in national government spending on basic education is not sufficient to compensate for the increased budgetary requirements arising from the expansion in school enrollment and rising inflation. Thus, the real per capita spending on basic education decreased from P399 in 1997 to P370 in 2000 and P365 in 2001.

The President'sBudgetfor 2001

Table

13. Distribution

Preventive care Curative care General administration Total

of DOH Budget

by Function

1996

1997

1999

2000

2001

30.76 58.23

1998 i 23,53 6_,31

36.38 53.57

32.18 56.67

26.44 61.67

24,29 62.20

10.06 100.00

11.01 100.00

19,16 100.00

11.15 100.00

11,89 100.00

13,50 100.00

Note: 1996-2000 basedon actual obligations;2000-2001 basedon proposed o_ligations.

On the other hand, the reduction in ithe allocation for the health subsector is largely due to the reformsl aimed at making hospitals more financially independentâ&#x20AC;˘ Sadly, however, funding for public health programs has also been downgraded. Thus, curative care is given more emphasis than preventiv6 health care services. The latter's share in the Department of Health s (DOH) total budget contracted from 32.2 percent in 1999, 26.4 in 2000 and 24.3 in 2001 while that for curative care rose from 56.7 percent in 1999 to 62.2 percent in 2001 (Table 13). Moreover, real per capita allocation for basic health services has been declining since 1997. The only subsector within the social services sector that is programmed to have positive growth fin real per capita terms in 2001 is social welfare, labor and employmentâ&#x20AC;˘ This is due to the rise in government spending for the subsector from 0.5 percent of GNP in 2000 to 0.6 percent in 2001 (Annex Table 2), higher that the average subsector budget of 0.45 percent of GNP in 1993-1998. Notable in the 2001 budget of the Department of Social Welfare and Development is the expansion of allocation for the Comprehensive and Integrated Delivery of Social Services. As for the national defense budget, it remains practically unchanged in 2001 as it grows only by 0.5 percent (Annex Table 1). Relative to GNP, expenditures on national defense decline from 1.2 percent of GNP in 2000 to 1.1 percent in 2001. This figure is well below the 1.4 percent of GNP average in 1993-1998 (Annex Table 2). I

Allocation across economic categories Maintenance and other operating expense (MOOE) is the fastest growing major 1tern m the budget, increasing by 14.5 percent in 2001 (Annex Table 4). In comparison, national government spending on personal services rises by 12.3 p_rcent while that for capital outlay increases by 10.8 percent.

Table

14. National

Government

TOTAL I. Current

operating

A, Personal

expenditures

sevices

B, MOOE a, Interests b. Transfer c, Other IL Capital

MOE

outlay

A. Capital

expenditures

B. Investment C, Loans

outlay

Expenditures

as Proportion of GNP, by Economic Average 1975-1985 1986-1992 1993-1998 1997

Classification,

1975-2000

(in percent)

1998

1999

2000P

2001 F

15_07

18,70

18.92

19.45

19_09

18.39

18,67

18_72

9.82

15,05

15.85

16.19

1632

15,89

16.49

16,32

4.08

5,47

6.29

7.08

7,30

6.82

6.85

&64

5,74

9.58

9,55

9.11

9.02

9.07

9.64

9,68

1.47

5.52

3,78

3,08

3.54

3,37

3,73

3.75

1.25

1.56

3,49

3.61

3.35

3.70

3.81

3.94

2.95

2,50

2.28

2.42

2,12

2.00

2.09

2.00

5.25

3,65

3.08

3.26

2.77

Z50

2.18

2.41

2,49

2.45

2.65

2.89

2.57

2.25

2,10

2.32

1.96

0.46

0.29

0.22

0.15

0.06

0.05

0.04

0.81

0.75

0.14

0,15

0.05

0.19

0.03

0.05

_The President's Budget for 2001

The growth in MOOE results from the expansion of interest payments and transfers to LGUs. Although subsidies to government corporations are cut from 0.3 percent of GNP in 2000 to 0.2 percent in 2001, nonmandatory, expenditure (other MOOE) slips

recurrent national government from 2.1 to 2.0 percent of GNP,

level that is below the 2.3 percent average in 1993-1998, (Table 14). At the same time, the share of other MOOE in the aggregate expenditure program in 2001 (10.9 percent) is lower than the 12.1 percent average in 1993-1998 (Annex Table 5). This situation is reflective of the reduced flexibility in the national I government expenditure program. On a positive

note,

expenditure

for ipersonal

services

declines

from 6.8 percent of GNP in 2000 to 6_5 percent in 2001 despite a proposed 5 percent across-the-board _alary increase (Table 14). However, these figures are still higher t_an the 6.3 percent of GNP average in 1993-1998, the 2.6 percent of [GDP average in Indonesia and

the 5.0 percent

of GDP average

in Thailand

in 1990-1996

(Table

15). Similarly,

capital

2.2 percent of GNP than the 3.1 percent

outlays

of the national

government

in 2000 to 2.4 percent average in 1993-1998

climbs

from

in 2001, which is lower (Table 14). It is notable

that the share of capital outlays to total national government capital spending expanded from 85.7 percent in 1993-1998 to 96.2 percent in 2001. This is attributable to tight control on investment and loan outlays to government corporations. Compare the allocation for national government investment and loan outlays GNP in 1993-1998 to the 0.1 percent level in 2001.

Table

15. Expenditure

Structure

in the ASEAN-5 Philippines

Current expenditures Wage Bill Purchase of goods Interest bill Subsidies Capital

and

services

transfer

expenditures

Net lending Total expenditure Source: International

Monetan./ Fund

(in percent Indonesia I

of 0.5 percent

of GDP,

1990_96

Korea

Malaysia

averase), Thailand

16.5 5.6 2.8 5,8

8,7 2.6 1.7 1.8

14.4 2,2 3.1 0.6

20,9 7.9 4.3 4:3

11.0 5.0 3.9 0.9

2.3

2,7

8,4

5.1

1,2

2.7

7,.7

2.8

5.1

4.4

0.4 19.5

0.4 16,9

2.2 19.4

0.3 26.3

0.2 15.6

RosarioG. Manasan

The bulk of national government capital spending in 2001 goes to infrastructure (over 61 percent), followed by the agriculture/agrarian reform subsector (some 18 percent). Meanwhile, general public administration receives some 9 percent of total national government capital spending while the environment and natural resource subsector and the education subsector each obtains 4 percent. Conclusion The President's budget for 2001 highlights the difficult choices that confront policymakers in the face of clear tradeoffs between the key goals of economic policy. The consolidation of national government's fiscal position in 1990-1996 was impressive. From a fiscal deficit equal to 3.4 percent of GNP in 1990, the national government accomplished a major turnaround and posted a surplus of 0.9 percent of GNP in 1994. Perhaps, what is even more significant is the fact that the national government replicated this achievement for another three consecutive years: 1995, 1996 and 1997. However, following the onset the Asian financial crisis in 1997, the national government found itself in the red once again as its tax effort deteriorated and continued to slip despite the recovery in economic activity in 1999. Consequently, fiscal deficit rose from 1.8 percent of GNP in 1998 to 3.5 percent of GNP in 1999. Given the flawed revenue forecasts, it is likely that the fiscal deficit targets for 2000 (1.8 percent of GNP) and 2001 (2.2 percent of GNP) will not be met and instead the actual fiscal deficit for the said years will persistently hover around 3.5 percent of GNP. On the one hand, our estimates of the fiscal impulse(which is a measure of the first-round contribution of the expenditure-cumrevenue program on aggregate demand and growth) after taking into account the likely changes in the macroeconomic assumptions and revenue forecasts indicate that the proposed budget for 2001 is more contractionary than what is programmed in the BESF. On the other hand, our estimates also suggest that the fiscal deficit (both the BESF target and the our own forecast) is not sustainable and may lead tO an explosive situation where the large stock of government debt leads to an ever-increasing debt service burden and consequently, to a vicious circle of high fiscal deficithigh debt burden-low growth. Thus, some tradeoff between growth

The President'sBudgetfor 2001

and sustainability becomes apparent in the 2001 expenditure program. Consequently, there is a need to improve the revenue effort as it would be unwise to further reduce government expenditures at this time (particul_u_ly, MOOE and capital outlays which are at sub-optimal levels even now) if only to put the national government's fiscal position on the path to sustainability. On the expenditure program, although the social service sectors continue to receive the biggest share in aggregate national government spending, there is an apparent shift of resources in favor of the economic service sectors and general public services (i.e., general public administration plus peace and order)and away from the social service sectors. The incremental resources going' to the economic services sector are largely bein_ allocated to productivity improvements in the agriculture sector, in accord with the national government's growth and equity objectives given that the incidence of poverty is high in the rural areas. However, the allocation in the 2001 President's budget for the infrastaucture sector (ta'ansportation and conununication, power/energy and mater resources development) has continued to decline despite th_fact that poor infrastructure support is one of the major bottlenecks to overall economic growth. Moreover, it is sad to note the decline in real per capita national government expenditures on basic education and basic health care despite the reallocation of resources within the social services sector toward basic social services. This development would tend to undermine the government's poverty alleviation efforts since poor families are largely dependent on publicly provided basic ! social services. Lastly, it is important to highlight additional risks to fiscal consolidation and sound public expenditure management. First, recent estimates of tax evasion lin/ticate that the rate has gone up since 1995 especially in the individual income tax and the value added tax. Second, there are increasing pressures from various groups to reduce the tax base such as the bill to reduce the excise tax on petroleum products by 20 percent (Suarez bill) and the proposal to increase the personal exemption level and the marginal tax rates for the individual income tax (Enrile bill). Third, the use of arrearages as a financing tool diminishes the transparency of national government accounts and makes policy analysis more difficult.

RosarioG. Manasan

REFERENCES Anand, R. and S. Van Wijnbergen. 1989. Inflation and the Financing of Government Expenditure: An Introductory Analysis with an Application to Turkey. The World Bank Economic Review 3(1):17-38. Campo-Schiavo, S. and D. Tommasi. 1999. Managing Government Expenditure. Mandaluyong City, Philippines: Asian Development Bank. Catsambas, T. and M. Pigato. 1989. The Consistency of Government Deficits with Macro Adjustments: An Application to Kenya an&Ghana, Policy Planning and Resea_'ch. PPR Working Paper Series 287. Country Economic Department. Department of Budget and Management. 1999. Budget of Expenditures and Sources of Financing, Fiscal Year 2000. Manila: Republic of the Philippines. Department of Budget and Management. 2000. Budget of Expenditures and Sources of Financing, Fiscal Year 2001. Manila: Republic of the Philippines. Heller, P., R. Haas and A. Mansur. 1986. A Review of the Fiscal Impulse Measure. IMF Occasional Paper No. 44. Washh'Lgton, D.C.: International Monetary Fund. Manasan R. 1998. Fiscal Adjustment in the Context of Growth and Equity, 1986-1996. PIDS Discussion Paper Series No. 98-11. Makati City: Philippine Institute for Development Studies. Manasan, R. 2000. Improving Tax Administration: A New View for the Theory of Tax Evasion in a Corrupt Regime. PIDS Policy Notes Series No. 2000-11. Makati City: Philippine Institute for Development Studies.

Annex

Table 1. Growth

Rate of National

GRAND TOTAL

Government 1975-1985 15.66

Expenditures, by Sectoral Classification, 1975-2001 Average 1986-1992 1993-1998 1996-1997 1997-1998 18.07 13.09 18.18 9.28

{in percent) 1998-1999 7,99

1999-2000 1L91

2000-2001 11.63

4,14

14.70

0.61 136,86 11.01 10,70 16,52 37.67 -80,09 -55.70 5.95 -84.12

11.94 17.36 57.35 20.91 19.07 2.59 56.90 -25.00 10.32 14:37

Total economic services

14.05

8.03

11.50

27,66

-4.94

7.64

Agriculture Agrarian reform Natural resources Industry Trade Tourism Power and energy Water resources development Trarasportahon and communication Other economic services

9.84 3,72 10,83 18,90 2,76 8,54 -3.02 35.48 9.02 38.95

13.51 29.22 19.11 3.98 -5,16 2L10 22,67 5.18 16.98 -36,60

10.38 17.43 12.02 14.73 8.78 22.22 -2.40 -7.87 11.63 33.56

52,64 44.92 65.98 Z04 3,83 28,48 120,59 18.57 19,48 -15,59

-28,05 10.37 -30,39 30_04 -14,45 17.26 -18.11 -50.61 10,04 -44,57

34.05 1,45 -5.47 -38,21 31,39 " -30,25 196.38 17.65 0,55 -13.31

Total social services

15.60

19,52

17.47

21,73

8,82

6,33

9.07

5.36

Education •Health Social welfare, labor and

16.02 14.45

21.29 20.64

18.81 3.92

27,28 26,17

IZ01 -7,98

3.37 11.12

9.66 -2.57

5.71 -0.53

7.63

22..34

24.88

10,97

17.65

13.07

!9_23

39.85

15.94

-40.35

employment Housing and community development National defense

1_21

25,75

-18.50

42.24

-47.24

18.16

_'q :=-

5.81

_5.25

16.43

20.22

12.03

2.78

-2.09

2.92

17.28

22.66

14,62

14.62

10.31

-0.18

12.69

15,45

Public administration

13.89

23.89

14,44

14.99

9.91

-4.32

1Z51

14,98

Peace and order

30.73

20.01

15.05

13.74

11.26

9,59

13,04

16.40

• 17.90

22.33

25.15

22.32

8,87

24.44

19.34

17.08

3.85

1.89

2Z99

6.51

22.12

11.64

"* t,a o

Total public Services

Others Debt service MEMO ITEM:

36.21

27,34 •

IRA

18,61

29,19

24.86

25.54

8.29

23.85

17.30

18.02

Grand total- debt service

13,77

15.25

16.24

21.85

5.76

8.33

9.62

11.62

r,. _"

Annex Table 2. National

Government

GRAND TOTAL

Expenditures 1975-1985 15.07

as a Proportion of GNP, by Sectoral Classification, Average 1986-1992 1993-1998 1997 1998 18.70 18.92 19.45 19.09

1975-2001 (in percent) 1999 18.39

2000P 18.67

2001F 18,72

Total economic services

6.20

4.51

3.99

4.31

3.68

3.53

3.34

3.44

Agriculture Agrarian reform Natural resources Industry Trade Tourism Power and energy Water" resources development Transportation and communication Other economic services

0.79 0.08 0,25 0,31 0,04 0.03 0.77 0.14 2.71 1.08

0.75 0.27 0.29 0.16 0.01 0.02 0,31 0.08 2,14 0,48

0.67 0.15 0.27 0.12 0,01 0.03 0.18 0.04 2.29 0,24

0.92 0,18 0,37 0,11 0,01 0,04 0.10 0.05 2.34 0.21

0.59 0_1.7 0,23 0.13 0,01 0,04 0,07 0.02 Z31 0.10

0.71 0.16 0,19 0,07 0,01 0,02 0,20 0.02 Z07 0,08

0.65 0.34 0.20 0.07 0.01 0.03 0.04 0.01 1.99 0.01

0.65 â&#x20AC;˘0.36 0.28 0.08 0.01 (_.03 0.05 0.01 1.97 0.01

Total social se:'vices

3.16

3,94

4.27

4.85

4.74

4,50

4.45

4.21

Education Health Social welfare, tabor and employment Housing and community development

1.87 0,57

2.74 0.67

3.25 0.44

3.70 0.52

3.73 0.43 _

3.44 0.42

3.42 0_37

3 _25 0,33

0,24

0.23

0,45

0.53

0.49

0.51

0.52

0,56

0.47

0,30

0,12

0,10

0.10

0.13

0.14

0.07

National defense

1.78

1,31

1.41

1.48

1.49

1.36

1.21

1.12

Total public services

1.70

2,53

2.76

2.89

2.87

2.55

2.61

2.71

1.16 0.54

1.94 0.59

1.95 0.81

2.04 0.85

2-01 0.85

1.72 0.84

1.75 0.86

1.81 0.90

Others

0.82

0.90

2.72

2.83

2.77

3,08

3.33

3.50

Debt service MEMO _:

1.41

5,52

3,78

3.08

3.54

3, 37

3.73

3.74

0.62 13.66 3.62 3.62

0.81 13,19 2.53 2`59

Z66 15,14 15.18 3.92

2.81 16,37 2`49 4.32

2.73 15.55 2.40 3.49

3.02 15.02 2.29

3.21 14.94 2`04

3.41 14.98 2.03

Public administration Peace and order

IRA Grand total- debt se/vice Infrastructure before BOT Infrastructu_ after BOT

Annex Table 3. Percent Distribution

GRAND TOTAL

of National

Government Expenditures, by Sectoral Classification, Average 1975-1985 1986-1992 1993-1998 1997 1998 100.00 100.00 100.00 100.00 100.00

1975-2001

(in percent)

1999P 100.00

2000P 100_00

2001F 100.00

Total economic services

41.17

24.10

21.11

22.15

19,27

19.21

17.88

18.37

Agriculture Agrarian reform Natural resources Industry Trade i Tourism Power and energy Water resources development Transportation and communication Other economic services

5,21 0,56 1 _67 Z05 0.30 0.21 5.11 0.92 17.99 7.14

3,98 1,43 1.54 0,85 005 0,12 1,66 0,43 11.45 2.58

3.53 0.80 1.40 0.63 0,05 0.17 0,95 0,23 12,11 1.24

4.92 0.90 1.90 0.56 0.04 0.19 0.52 0.24 12-02 1.06

3,11 0.91 1,21 0,67 0,03 0,21 0,39 0.11 12.10 0.54

3.86 0.85 1.06 0.38 0.04 0.13 1.06 0.12 11..27 0.43

3.47 1.81 1.05 0.38 0.04 0.16 0.19 0.05 10.67 0.06

3.48 1.90 1.48 0,41 0,05 0,15 0,27 0,03 10_54 0,06

Total social services

20.94

21.05

22_55

24.94

24.84

24.45

23.84

22.50

Education Health Social welfare, labor and employment

12.42 3.76 1.62

14.64 3.59 1.21

17,19 2.35 2.37

19,04 2, 66 2_74

19.52 2:24 2,54

18.68 2.30 2.77

18.30 2.00 2.80

17.33 1.79 2.99

3.14

1.61

0_65

0,50

0,54

0.70

0.73

0,39

Houg'mg and commum_y development

,.]

National defense

11.78

7.00

7,43

7,60

7,79

7.41

6.49

5,98

Total public services

11.27

13,54

14.59

14.88

15,02

13.88

13.98

14.46

7,71 3,55

10,36 3,18

10.33 4.26

10.48 4.39

10.54 4.47

9.34 4.54

9.67 4.78

_" _.

Public adanin/stration Peace and order

9.39 4_59

Others

5:47

4,81

14.35

14.57

14.52

16.73

17.84

18.71

Debt service

9.38

29.49

19.97

15.85

18.57

18,31

19,98

19.99

4.09 90.62 87.13

4.34 70.51 67.38

14.04 80.03 79.66

14.45 84..i5 83!86

14.32 81.43 81.37

16.42 81,69 81,14

17,21 80.02 79.95

18.20 80.01 79.89

19.34

10.18

11.69

1i.99

12.26

11.95

11.07

10.76

MEMO ITEM: IRA Grand total- debt service Grand total - debt service - net Iendin Defense and peace and order

o_ t,o c_ _"

Annex Table 4. Growth

Rate of National

Government

TOTAL I. Cummt operating expenditures

Expenditures,

by Economic

Classification,

1975-2001 (in percent)

1975-1985 15.66

Averaf_e 1986-1992 18.07

1993-1998 13.09

1996-1997 18,18

1997-1998 9.28

1998-1999 7.99

1999-2000 11.91

2000-2001 11.63 10.16

16.65

22.30

13.30

17,10

12.22

9.17

14,38

A_ Personal services

16.71

20.40

17.63

29.35

14.81

4.83

10.63

7.88

B. MOOE

16.61

23.46

10.49

9.08

10.22

12.69

17.20

11.78

36.21 12.06

27.34 26,05

3.85 23.33

1.88 15.90

27,99 3,35

6.51 23.77

22.25 13.55

11.63 14.89

(2.38)

(85.17)

487.41

(100,00_

a. Interests b. TransIers c. Loan repayment and sinking fund conifibulion d. Other MOE lI. Capital outlay A. Land, land improvement

and structure outlays

10.33

15.67

10.30

9.36

(2.24)

5,54

15.44

639

13.98

5.57

11.88

23.83

(5.31)

1.05

(3.81)

22.68

(0.08)

22.08

18.26

26.59

21.38

(4.80)

(18.36)

57.22

18.48

6.78

7.06

(28,26)

(19.11)

(24.12)

43.78

13.61

2.46

42.44

(43.17)

51.44

136.13

(42.87)

B. Buildings and structures C. Equipment (others and livestock and equipment Outlay starting 1992) D. Investment outlay E. Loans outlay

13.97

9.89

(8.31)

879

33.62

(21.67)

(3433)

(18.46)

0.99

94.04

(16.84)

(13.73)

18,53

(62.45)

321.08

(82.07)

65.26

Annex Table 5. Percentage

Distribution

of National

TOTAL I. Current operating expenditures

Government 1975-1985

Expenditures, Average 1986-1992

Obli_jation

Basis, by Economic

Classification,

1975-2001

1993-1998

1997

1998

1999P

2000P

2001F

100.00

65.13

80.46

83.74

83.23

85.47

86.40

88.31

87.15

A. Personal services

27.05

29.25

33.25

36.38

38.22

37.10

36.68

35.45

B. M(X)E

38.09

51.21

50.49

46.84

47.24

49.30

51.63

51.70

9.78 8.28

29.52 8.32

19.97 18.46

15.85 18.57

18.57 17.56

18.31 20.12

20.01 20.42

20.01 21.02

4.46 1_53 Z29

4.58 1.87 1.87

14.91 2.43 1.12

15.23 2.23 1.11

14.74 1.91 0.90

16.86 Z22 1.04

17.80 1.44 ,1.18

18.80 0.98 1.24

0.46

0.01

0.00

a. Interests b. Transfem 1. to Iocal government 2. to all government corporations 3. to otherg c. Loan repayment ormtnlmlion d. Other MOE

and sinking fund

19.57

13.36

12.06

12.42

11.11

10.86

11.20

10.68

H.-Capital outlay

34.87

19.54

16.26

16.77

14.53

13.60

H.69

12.85

A. Land, land improvement and s_-uclure outlays B. Buildings and struchn'es C Equipment (others and livestock and equipment

10.66 4.02

7.24 4.15

8.73 3_34

8.87 3.57

9.85 2.34

8_6_ 1.75

6.34 1.19

8.92 1.53

1.85

1.71

1.91

2.44

L27

1.78

3.75

1.92

12.99

Z44

1.55

1.12

0.81

0,34

0.25

0.22

F:_

0.00 1Z40 0.58

0.01 Z30 0.13

0.00 1.32 0.23

0.02 0.62 0.48

0.00 0.35 0.45

0,00 0.26 0.08

0,00 0,17 0.08

0.01 0.07 0.14

5.35

4.00

0.73

0.78

0.27

1.04

037

0.25

0.01 5.01 0.33

0.09 3.32 0.58

0.06 0.46 0.21

0.08 0.37 0.32

0.04 0.07 0.15

0.09 0.92 0.04

0.06 0.06 0.04

0.12 032 0_00

outhy _

lW2)

D. lnvestmpnt outlay a_ to local government b. to all government corporations e to others E Loans outlay a. to lfl_l governnumt b. to all guvernment corporations c to others

_q =_ "_

_'_ " bo c_

SPECIAL Regional Allocation:

Budget A

PAPER Determination Policy

Revisit

and

Regional Budget Determination and Allocation: A Policy Revisit Ruben

G. Mercado

Introduction Over the past three â&#x20AC;˘decades, regional development has been recognized by the different national administrations as an important policy thrust and strategy for national development. To enhance it, the practice of regional allocation was installed as an integral part in the national government budgeting system. This has helped national government agencies to spend their limited resources effectively and efficiently to be able to respond to the diverse needs and priorities of the country's regions. Unique transformations and modifications also took place in those decades in terms of the policies and practices of regional â&#x20AC;˘ budgeting. In general, the system of regional budgeting adopted by each administration can be classified along a continuum of centralized-decentralized system in accordance with the budgeting authority and powers vested in the various government levels in the entire regional budgeting process framework. A summary comparison of the policy goals, instruments and institutions adopted by the past administrations in regional allocation is shown in Table 1. The practice of regional budgeting in the Philippines was an innovation introduced by the Marcos administration, which initiated .the division of the country into 12 administrative regions and the creation of regional offices of its executive departments.

Table 1. Framework for Analyzing Continuum of Budgeting Authority and Powers CENTRALIZED

Policy Goals, Instruments and Institutions in Regional Policy goal Policy instrument/measure

Meet nalfional priority

Agency-determined

Achieve regionalallocafive efficiency and

Agency-determined budget Using regional allocation

responsiveness

Criteria/methodology

Achieve regional allocative efficiency and responsiveness with subnat/onal consultation and budget flexa"oility

Agency-determined budget Using regional allocation Criteria/methodology

thrusts/ol_ectives

Towards

a more decentralized budgeting :system and process

budget

Budgeting Insfitution/s

involved

Leadership regime

Agency Central Office (ACO)

Marcos

ACO Agency Regional Offices (AROs)

.Aquino Ramos

ACO in consultation with ( AROs ) and Regional Development Councils (RDCs)

Aquino Ramos

Budget _ at the national and regional levels

_" = P_"

Regional Block Fund to be allocated by the regional body according to the region's pririty needs and development objectives

RDC in consultation with ACOs and AROs

CDF/CIA of Congressmen

Congress/omal Representatives consultation with LGUs

Ramos

_" _. o in

ta O

RubenG. Mercado

This eventually paved the way for regional allocation of the agency budget. The CY 1978 budget was the first effort at regional budget preparation and set the stage for the adoption of regional budgeting and its further enhancement in succeeding budget exercises. Regional budgeting during this period, though, was determined by the central agency and participation of subnational institutions was insignificant. In contrast, the Aquino government, which adopted a democratic and decentralized policy framework, pursued a top-down bottom-up approach in the budgeting process. Key principles include greater consultation at the lowest: possible level and more equitable and efficient allocation of resources, putting into consideration the agency thrust and the regions' level of development and needs. Allocation criteria were formulated and defended by the agencies before the Regional Development Councils (RDC) in finalizing their budgets for the 14 administrative regions. Meanwhile, the Ramos administration continued the decentralized budgeting approach of its predecessor but with much less fervor as regional budget consultation was not given emphasis. For instance, the Agency-RDC consultations in Malacafiang and in the regions were no longer held, and instead, a regional block fund was pursued _rough the Regional Budget Allocation Scheme (RBAS). Through the RBAS, it was envisioned that the RDC would have more'substantial participation. This is because instead of just reviewing the allocation determined by the agency central office, they were vested authority to determine what programs and projects should be funded and implemented in their regions in accord with and in support of their region's development plan and investment program. The recently ousted Erap administration also envisioned regional development as a means for and end of national development. All three leaderships shared the same belief, although in different intensities and modes of operationalization. The question is, were the end results truly reflective of the socioeconomic needs of the regions? To answer this question, it is but necessary to assess regional budget allocation, not only in terms of the processes involved but also its responsiveness to the diverse social and economic conditions of the regions. Lessons can be learned from the rich experience of regional budgeting during the past three decades that could help greatly the President's 2001 budgetmas well as future President's budgets--to be ,more responsive of regional needs and priorities.

RegionalBudgetDeterminationandAllocation

Objectives

of the Study

This study has sought ,to evaluate!past and current policy and practice in regional budgeting with the end goal of suggesting policy directions to improve the same in succeeding budget'exercises. In particular, the paper aimed to: a. b. c. d. e.

Document in more detail the country s experience in regional budgeting since its operationalization; Analyze trends in regional allocatibn of selected implementing agencies over the recent years; Assess the method or allocation formula used by the executive agencies in regional budget determination; Evaluate the responsiveness of the Iagency regional budgetto regional economic and social conditions in recent years; and Discuss areas for policy intervention relative to improving regional budget determination in general and the 2001 President's budget in particular.

Overview

of Regional

Budgeting

in the Philippines

Through the years, the practi4e of regional budgeting transcended the programmatic approach and took a more holistic and development-oriented perspective. This was institutionalized in later years with the fuller integration of subnational budgeting in the Synchronized Planning Programming and Budgeting System (SPPBS) initiated during the Aquin o administration. Initially, regional allocation was just an add-on procedure in the government budgeting system through mere allocation of an agency's budget to its regional offices. Eventually, a less simple procedure was adopted in an attempt to take into account national development goals and regional differences in priorities and needs. Pre-Martial

Law Years _

The 1935 Philippine Constitution provided the basis for fiscal process and decisions prior to the Martial Law period, Under the framework set by the 1935 Constitution i budget initiative came from

1 The historical accounts of the budget process and dynamics during the Pre-Martial Law i and Martial Law years discussed in this section drawlheavily from Montes (1992) and Laya (1979),

Ruben

G. Mercado

the executive branch while budget approval was lodged with Congress. The Congress had absolute power and authority over project approval or disapproval, as the budget was subjected to lineby-line scrutiny. It could even virtually abolish an agency by providing it with an extremely low appropriation that would make its existence unviable. Political maneuverings in the Congress affected the budget process to the extent that the real development requirements of the country were often ignored in the final budget. Martial Law Regime During the Marcos years, attempts were made to reform the fiscal process to avoid its being used for political gain arid vested interest by powerful groups and for a higher pursuit of making the budget more responsive to development policies and programs. With the proclamation of Martial Law, Congress was dissolved and this eliminated the biggest obstruction to the budget process. With the authoritarian government at the helm, the executive branch assumed full authority in the revenue and expenditure program. The budget was still reviewed by the legislative branch (National Assembly) but it had limited powers and authority than the Congress such that it did not have the power to make budget increases, only reductions. It could not abolish an agency, as it was only empowered to reduce its budget to a positive value that would allow, at least, for its existence. While this reform remedied the inefficiencies of the previous democratic process, it virtually stripped the legislature of substantial fiscal powers. 2 The Marcos government laid down the basic foundation of regional budgeting. The first major presidential issuance under Martial Law (Presidential Decree No. 1) became the take-off point for regional budget allocation. PD No. 1 entitled "Integrated

2 Montes (undated) in summarizing the budget process approaches in the two _storicad periods, differentiated the pre-Martial Law years as adopting the democratic approach while the Martial Law period as utilizing the corporate approach: The former approach vested the legislature with absolute powers to appropriate funds while the latter approach was characterized by the lack of control of the legislature on the fiscal decisionmaking process. Under the corporate approach, "all conflicts were resolved within the executive branch or within smaller groups where affected parties are compensated in another economic area..."

Regional.BudgetDeterminationandAllocation

Reorganization Plan" reorganized the executive branch of the national government creating offices, or units in the newly created administrative regions of the couniry. In consonance with this decree, budgeting was supportive ofa region-based government structure. Initial efforts in regional budgeting began to be carried out through Letter of InstructionsNo. 447 and .448 issued on August 12 and August 18, 1976, respectively. LO1447 provided the basic institutional arrangements to guide regional budgeting. LOI 448 further stressed the inclusion of regionalbudgets in the national budget preparation as well as. strengthened the administrative capacity for regional operations by providing for a set of minimum administrative powers of the regional directors of departments, bureaus and agencies of the executiv e branch. The Budget Reform Decree of 1977 (Presidential Decree !1177) entitled "Revising the Budget Process in Order to Institutionalize the Budgetary Innovations of the New Society" defined in stronger terms the national budget formulation within the context of a regionalized government structure, a national long-term plan and a long-term budget process. The. introductory portions Of the decree stipulated the budget policy as well as the goals t9 effect (1) a close operating relationship between budgeting and internal agency management; (2) a regionalized budget that is supportive of a region-based government structure; (3) a recognition that the national budget is only part of the integrated whole of. a total national resource budget; and (4) the need to prepare annual budgets as one step in implementing the national long-term plan and a long-term budget program. Annex A provides the specific sections of LOI Nos. 447 and 448 and PDl177 that relate specifically to regional budgeting. Post-Martial Law Regime Aquino Regime. Regional budgeting remained a vital part in budget preparationafter the Martial Law regime. During the Aquino administration, it was given importance in view of the democratic framework that the government installed. -However, while the Marcos regime set the policy of the planning and budget linkage, the Medium-Term Philippine Development Plan and the MediumTerm Public Investment P!an initiated under the Aquino administration did not serve as major inputs to the annual budget. As a result, the annual budget, not the pla_, carried the burden of program prioritization, project selection and scheduling, [

â&#x20AC;˘

Ruben G. Mercado

On May 20, 1990, President Aquino issued Memorandum Order No. 295, entitled "Directing the Adoption and Implementation of a Synchronized Planning and Programming and Budgeting System (SPPBS)," to provide the system and institutional framework fo'r coordinating planning, programming and budgeting at the national, regional, sectoral, agency and local levels. The SPPBS is an integrated and coordinated approach to planning, programming and budgeting activities. It involves the establishment of an institutional network, process and schedule that will govern the preparation and coordination of the content, form and manner of preparation of plans, investment programs and budgets at the national and subnational levels. In the past, these outputs were undertaken separately, resulting in investment programs not being fully consistent with the plans and annual budgets not being fully supportive of the investment programs. This is evident, for instance, in the bias of investment programs toward the National Capital Region (NCR i, despite the thrust for regional development and dispersal, and the lack of local counterpart funds for some priority projects under the Medium-Term Public Investment Program (MTPIP). One of the major causes of this problem was the fact that the planning, programming and budgeting functions of the government were undertaken separately by various agencies or units, principally the NEDA, DBM and various NEDA Board Committees with each agency or unit following its own timetable or calendar. The inconsistencies in their calendars or deadlines as well as the inadequacy of venues for integration and reconciliation of the various outputs also contributed to the problem. The participation of regional and local government officials in planning and decisionmaking have been also inadequate. The objectives

of the SPPBS are the following:

• to formulate an MTPDP which is operational and realistic based on existing resources; • to coordinate development plan and investment program formulation with annual budget preparation; • to establish the institutional framework for synchronized planning, programming and budgeting activities at all levels; and • to decentl"alize planning, programming and budgeting powers and authority.

RegionalBudgetDeterminationandAllocation

The need for the system was in the light of the affirmed policy of the government for decentralization, with the recognition that greater participation of the RDCs and local government units (LGUs) in planning, programming and budgeting will ensure better delivery and greater accountability and publi c service. Thus, the SPPBS promotes a participatory approach to th_ overall development process by encouraging greater involvement 9f RDCs and LGUs in planning, programming and budgeting and Of central agency offices to assume stronger roles in policy formulation and performance assessment. The outputs expected to be_'produced by the system include the MTPDP, MTPIP, Regional D_velopment Plans (RDPs), Regional Development Investment Programs (RDIPs), Local Development Plans (LDPs), Local Development Investment Programs (LDIPs) and budgeting outputs such as the National Expenditure Program (NEP), Regional Expenditure Program (REP) and the Budget of Expenditure and Sources of Financing (BESF). The full implementation of the SPPBS was expected to result in more realistic planning targets consistent with the investme_ programs, more transparent, rational, Isystematic and focused process for resource allocation, and in, proved accountability of government entities for their respective l_rograms. With the enactment of the 1991 Local Government Code, revised guidelines for the implementation of the SPPBS _ere formulated, guided by the principle that national plans and investment programs shall be consistent with and complementary to regional Or local plans and programs. The Aquino administration initiated lthe budget consultations between the Agency Central Office and the RDCs held in Malacafiang and in the regions. Each agency was required to present its budget allocation for the region s and the methodology used for such allocation. Ramos Regime. The Ramos admiriistration continued the I regional budgeting process of the past regime. The RDCs were tasked to review and approve the annual and multiyear sectoral programs in the regions requiring national funding. These investment programs were used as basis for the preparation and review of the budget proposals of the Agency Regional offices (AROs). The RDCs endorse the proposed ARO budgets to the DBM and the central offices for inclusion in the nationa]l budget.

Ruben G. Mercadc¢

Many RDCs, however, raised the concern that actual budget allocations for the regions of the government agencies were not consistent with the annual investment program of their regions and the regional budgets they have endorsed. In view of this and in an effort to provide greater role to the RDCs in budget preparation and review process, the Regional Budget Allocation Scheme (RBAS) was approved for adoption starting in the 1995 budget exercise. Under the RBAS, the Development Budget Coordination Committee (DBCC) shall set aside a Regional Allocable Fund (RAF) from the proposed budget ceiling for each year. This amount shall be allocated to the 15 regions to fund programs and projects deemed by the RDCs as priority in their respective regions. Theseprograms cover priority interprovincial and int4rregional projects that are not usually selected for funding by the local government and/or national line departments. The scheme allowed the RDCs to have more control of resources to address the region's most immediate concern or where they think investments can bring the greatest return or benefit. Allocation of the RAF was proposed to be done using the following allocation formula agreed upon by the RDCs: 50% - poverty incidence 25 % - population 25 % - equal sharing Projects to be funded were determined based on the provisions of the National Budget Memorandum No. 65 dated 9 March 1994. In particular the following are the minimum requirements for RBAS funding: • regional impact and covers two or more provinces; • supportive of and consistent with priority subsector activities (PSAs) identified in the Regional Development Investment program (RDIP) of the concerned region and the 1993-1998 Medium Term Investment Program (MTPIP); • should not entail recurring costs, e.g., maintenance and operating costs to the national government; • should be completed within one year;

RegionalBudgetDetermination,andAllocation

â&#x20AC;˘ no acquisition of equipment and motor vehicles or construction of buildings shall be allowed as a result of the proposed project; and â&#x20AC;˘ should be implemented by the national government agency's regional offices. The share of each region and the agencies under the proposed P600 million RAF for the CY 1995 budget are shown in Table 2. This was the result of multisectoral consultation meetings conducted by the RDCs with the LGUs, government agencies, NGOs and the private sector representatives. However, the RAF did not meet a favorable reception from the legislature, as it was perceived to be a form of election fund for the 1995 local poll despite efforts to explain the development objectives of the proposed fund. Attempts were made to pursue the scheme in the succeeding budget exercises but were stalled in the process. i Trends in Regional in ,the Nineties

Allocation

of Maior Implementing

Agencies

Data Agency regional budgets from 1990 to !999were deflated using implicit price index based on 1990 prices to analyze regional budget trends and distribution. The agency regional budgets studied have included those of I major agencies dealing with economic !and soaal services, namely: Economic

Agencies:

Department Department Department Department Department Department

of of of of of of

Public Works and .Highways (DPWH) Transportation and iCommunication (E)OTC) Agriculture (DA) Agrarian Reform (DAR) Environment and Natural Resources (DENR) Trade and Industry !(DTI)

Social Agencies: Department of Education and Sports (DECS) Department of Health (DOH) Department of Social Welfare and Development

(DSWD)

Ruben

Mercado

Table 2, Proposed

Regional

Region I II III IV

Allocable

Amount

Fund (RAF) in the 1995 President's

(in P miUior0

Agency

40,00 35.80 41.20 50,50

DA DECS DENR DOH

V 43,30 VI 46.30 VII 41,50 VIII 40.30 IX 34.60 X 41.20 XI 42.10 XII 32.05 CAR •34.60 NCR 44.50 ARMM 32.05 TOTAL 600.00 "Don Severino Agricultural College •*Autonomous Regional Government in Muslim Mindauao

DPWH DOTC DOT DTI DSAC" ARGMM**

Amount

Budget (in P million) 48.580 2,000 11.990 8,700 401,453 91,950 5.600 8,800 3,927 17,000

600,000

•Data used for the study were the regional distribution budget from 1990 to 1999, by agency, as contained in the Budget of Expenditures and Sources of Financing (BESF) for each of the 10 years under study. 3 Analysis Relative to the 1990 budget, in real terms, the 1999 budget of the DPWH, DOTC, DA and DECSincreased while those of DAR, DENR, DTI, DOH and DSWD declined (Table 3). In terms of allocation to the regions, all agencies increased their allocations during the 10-year period except for DPWH, DOH and DSWD.

For lack of actual armual regional budget or expenditure data to undertake the required m_alysis, the BESF data, wlxich contain tlie proposed budget for each year, were utilized, The Commission on Audit (COA) started m 1995 to include a regional breakdown of allotment, obligations and liquidation incm'red by national government agencies. However, there have been problems of incomplete reporting, as some regional financial reports do not meet the deadline for COA to publish its report in April of each year. A more complete report is published in September of each year but it contains a continuing regional budget and does not reflect the annual budget. Also, in both of these COA reports, the budget for central office and nationwide projects are usually lumped with the National Capital Region (NCR) • budget, thus bloating the region's allocation. Nevertheless, the use of the BESF data, while it is arguably a proposed budget and neither the approved nor the actual budget reported in the COA ;eport, is justified based on a comparative analysis of the COA and the BESF data shown in Annex B, which revealed that the shape of the regional distribution using tliese sets of data, in general,

is significantly

similar.

Â˘ Table 3. Regional and Total Budget Allocation of Maior Implementing REGIONAL ALLOCATION (amount in millions at constant prices ) Agencies

Government

Agencies

(percent

change)

1990

1991

1992

1993

1994

1995

1996

1997

1998

I999

Average

DPWH

11789

11033 -6.4

8070 -26.9

6734 -16.6

3616 -46.3

8729 14I .4

10711 22.7

13417 25.3

10785 -19.6

11625 7.8

9651 9.0

DOTC

1345

,1626

1913

960

326

1482

1295

1089

1161

1449

20.9

17,6

-49.8

-66.0

354.4

-12.6

-15.9

6.6

24.8

Stfl, Dev,

Economic

DAR

DENR

DTt Sociat .., DECS

DOH

DSWD

Average

1693

338

2892 54,8

0.2996 6.0597

1265

429

0,3390

31.1

125.3

4.0264

2915

1334

486

1111

432

501

512

558

1999

1154

837

0.7250

72,2

-54,2

q53.6

128.6

-61.1

15,9

2.3

8.8

258.6

34.2

105.6

3,0904

484

341

348

395

426

463

485

642

623

454

109

0.2404

43.2

-29.5

2.0

13.5

7.8

8_6

4.7

32.5

-3.0

8.9

20.7

2.3351

1355

2357 73,9

1262 -46.4

997 -21 _0

1308 31.2

1401 7.1

1736 23.9

2067 19,0

1773 -14.2

1703 -4_0

1596 7.7

410 34.8

0.2568 4.5057

182

428 135.2

148 -65:_

168 -I3z9

7"8 52.4

0.3545 4.0348

19503

22238 14.0

20249 -8.9

20140 -0.5

22974 14.1

25670 11.7

26894 4.8

4879

5137 5,3

4963 -3_4

1380 -72.2

2008 45.5

3005 49.6

445

41529

180 6.9

217 20_3 -

209 -3._5 -

206 -1.2

237 14.9

227 - 4.2

220 13.0

30106 11.9

39252 30.4

37155 -5.3

26418 8,0

7063 12.0

0.2674 1.4980

2978 -0,9

3696 24.1

3711 0.4

3626 -7-3

3538 5.1

1249 35.6

0.3531 6,9378

516

494

122

116

145

158

224

183

0.8196

16,1

-4.4

-82,8

-17,2

19.9

44.4

-4.5

24.5

9,2

0,6

36,2

63.6622

46734 12.5

38774 _17.0

31298 -19,3

31988 7-2

41446 29.6

44909 8.4

51695 i5.1

58566 0.5

44520 117.6

13250 477.4

3.6555 96.1500

58265 17_7

o" TOTAL AGENCY

BUDGET (ammmt in millions at constant prices)

Agencies

1990

1991

1992

1993

1994

1_995

1996

1997

1998

1999

Economic DPWH

Average

Std. Dev.

15523

13469 -13.2

17058 26.6

14687 -13.9

12750 -13.2

14102 10.6

18193 29.0

20660 13.6

23206 1Z3

17153 -26.1

16680 2.9

3313 19.8

0.1986 6.9362

DOTC

4574

5540 21.1

5571 0.6

4882 -12.4

3875 -20.6

4052 4.6

3890 -4.0

6386 64.2

5703 -10.7

5387 -5.6

4986 4.1

868 25.4

0.1740 6.1549

4710

6666 41.5

5681 -14.8

5540 -2.5

4449 -19.7

4184 -6.0

1193 -71.5

1398 17.2

1426 2.0

6488 355.0

4174 33.5

2114 124,4

0.5065 3.7145

DAR

1072

971 -9A

595 -38.7

551 -7.5

503 -8.7

518 3.1

545 5.2

695 27.5

733 5.5

696 -5.1

688 -3.1

195 17,6

0.2830 -5.6230

DENR

7109

5461 -23.2

3901 -28.6

3836 -1.7

3100 -19.2

3042 -1.9

2413 -20.7

3238 34.2

2861 -11.7

-2702 -5.6

3766 -8.7

1457 18.7

0.3868 -2.1581

DTI

1151

1064 -7.6

731 -31.3

837 14.6

1485 77.4

1161 -21.8

700 -39.7

824 17.7

778 -5.6

804 3.3

953 0.8

253 34.7

0.2649 44.4221

28178

28268 0.3

27450 -Z9

26204 -4.5

26467 1.0

29259 10.6

29096 -0.6

39467 3fi.6

40712 3.2

40036 -1.7

31514 4.6

5993 12.4

0,1902 2,7292

7828

8359

8569

42_27

4717

5426

5197

7115

6151

5376

6296

1565

0,2486

6.8

2.5

-50.7

11.6

15.0

-4.2

36.9

-13.5

-1Z6

-0.9

24.2

-26.5067

Social DECS

DOH

DSWD

Average

853

70998

795

1127

352

435

631

580

836

801

732

714

224

0.3140

-6.8

41.7

-68.7

23.4

45.1

-8.1

44.1

-4.2

-8.6

6.4

36.8

5.7158

70595 -0.6

70683 0.1

61116 -13.5

57780 -5.5

62376 8.0

61808 -0.9

80620 30.4

82370 Z2

79374 -3.6

69772 39.5

15981 314.2

25665 35.3850

el_ o

RegionalBudgetDetermination andAllocation

Experience in regional allocation of implementing agencies during this period showed that except for DA, DOTC, DTI and DSWD, more than half of the total budget of these agencies was allocated to the various regions (Table 41. These four agencies had, on the average, less than 30 percent of _heir budgets going to the regions. High coefficients of _ariation,ihowever, were evident in all agencies implying significant deviation or fluctuation from the average regional budget over the 10-year period (Table 3). For instance, DA budget for the regions registered an all-time low of 8.8 percent in 1993 and a relatively high regional allocation in 199.1of 43.7 percent. DENR had the lowest allocation of 19.1 percent in 1990 and improved its allocation in 1996with 71.9percent. DSWD Showed the highest variability in terms of total regiona! allocation ranging from 70 million in 1994 to 494 million in 1992. Meanwhile, DAR, DENR and DECS showed the lowest varlability in both the regional budget and percentage share to total agency budget. A significant positive relationship is shown to exist between regional allocation and total agency budget during the 10-year period as shown by the high Pearson correlation coefficients (Table 5) except in the case of DAR, DENR and DTI. In other words, regional allocation moves in the direction of either the increase or decrease of total annual agency budget. However, as shown by weak correlation coefficients between percent! change in regional allocation and total agency budget in succeeding budget years for some agencies like DOTC, DENR and DTI, the rate of increase or decrease I in the regional budget of agencies has bern unequal with respect to that of the total agency budget. Thus, in the case of DOTC, even though regional and total budget show slgnificantpositive relationship, the rate at which total agency budget increase (or decrease) does not match with that of the budget allocated to the regions. Low regional allocation across agencies occurred in the period 1992-1994. The decrease can be attribute d to the nominal reduction in regional budget of the agency as a result of the full implemen[ation of fiscal decentralization in accor4ance with the 1991 Local Government Code (see Annex C for list of agency functions devolved to LGUs). During the period, LGU allocation increased considerably from 10 percent in 1992 to 134 percent in 1993 and 42 percent in 1994 relative to the respective previous year's allocation (Table 4).

Cr"

Table 4. Regional

Allocation

of Maio_ Implementing

Government

A_e_tcJes ('m milllon

pesos at constant prices)

A_encies

1990

1991

1992

1993

1994

1995

1996

1997

19Â˘_

1999

Ewnorra'c DPWH

11789

13417

DOTC DA DAR DENR DTI Soda/ DECS DOH DSWD Average

Average

Std. Dev.

11033

8070

6734

3616

8729

10711

I07B5

11625

9651

2892

0.2996

1345 1693 3.38 1355

1626 2915 484 2357

1913 1334 341 1262

960 486 348 997

326 1111 395 1308

1482 432 426 1401

1295 501 463 1736

1089 512" 485 2067

1161 558 642 1773

1449 1999 623 1703

1265 1154 454 1596

429 837 109 410

0.3390 0.7250 0.2404 0.2568

182

428

148

168

180

217

2fl9

206

237

227

220

0.3545

19503 4879

22238 5137

20249 4963

20140 1380

22974 2fl08

25670 3005

26894 2978

30106 3696

39252 3711

37155 3626

26418 3538

7063 1249

0.2674 0.3531

445

516

494

122

116

145

158

224

183

0.8196

4614

5193

43_

3478

3554

4605

4990

5744

6474

6507

4947

1472

0.4062

14070

8798 -37.5

9664 9.8

22636 13&2

32059 41.6

25717 -19.8

33225 ' 299_

38684 16.4

40372 4.4

43615 8.0

26884 20.7

12803 48.7

0.4762 Z3512

LGU Allocation Amount (in million pesos) % Change * Correlation _ent

_f Regional Allocation and Total Agency Budget

k.n

Table

4 (contlnued)

(As Percent Agencies

to Tota!

Agency

Budget) 1990

1991

1992

1993

1994

1995

1996

I997

1998

1999

DPWH

75.9

81.9

47-3

45.8

28.4

61.9

DOTC DA

29.4 35.9

29-3 43.7

34_3 23.5

19.7 8.8

8.4 25.0

36.6 10.3

DAR DENR

31.5 19.1

49.8 43.2

57.3 32.4

63.2 26.0

78.6 42.2

DTI

15.8

40.2

20.2

20.1

Social DECS

69.2

78.7

73.8

DOH

62.3

61.5

57.9

DSWD

52.2

64.9

43.8

Average

43.5

54.8

43.4

Average

5td, Dew

58.9

64.9

46.5

67.8

57.9

16,1

0.2775

33.3 42.0

17.1 36.6

20.4 39.1

26.9 30.8

25.5 29.6

8.9 12,5

0.3495 0.4215

_'0 __

82.3 46.1

85.0 71.9

69.7 63.8

87.6 __62.0

89.5 63L0

69,4 47-0

18.9 - 17._

0.2728 0.3797

I_ _L

12.1

18.6

29.8

25.(_

30.5

28.3

24.1

8,3

0.3461

76.9

86.8

87.7

92.4

76.3

96.4

92.8

83.1

9.3

0.1119

32.6

42.6

55.4

57.3

51.9

60.3

67.4

54.9

10.3

0.1876

24.1

16.2

13,4

21.0

13.9

18.1

21.6

28.9

18.]

0.6258

3512

37.8

45.8

54.6

46.6

51.2

54.2

46.7

13,4

0.3303

_. O m

E Â˘o no m ic

g0 n _ 0

Ruben G. Mercado

Table

5. Pearson Correlation CoeffiCients: Allocation 1990-1999

Agency

Total Agency Budget

Based on levels

and Regional

Based on percent changes

Economic DPWH

0,5722

0,2338

DOTC

0.3404

0.0673

0.7726

0.7828

DAR

0.0693

0,4263

DENR

0,0034

-0.0029

DTI

0.0900

0.0855

DECS

0,9235

0.2594

DOH

0.9420

0.8578

DSWD

0.7113

0.4798

Social

In the 1999 budget, the budgets of all the agencies under study were reduced relative to the previous year's, except for DA and DTI (Table 5). The DA's budget, though, could have exhibited a decreasing trend as well had funds for GATT activities were excluded. The decline in the total agency budget seems to reflect in the declirte m the 1999 regional allocation except in the case of DPWH, DOTC, DA and DSWI). In terms of proportion to total agency budget, however, all agencies except DA, DTI and DSWD increased their allocation to the regions. All nine agencies studied exhibited varying trends in their allocation to the 14 regions of the country. However, some generalizations could be made with respect to the major island groupings, i.e., Luzon, Visayas and Mindanao. For all social agencies, the distribution conformed more or less to a 50-20-30 sharing for Luzon, Visayas and Mindanao, respectively, except for DOH that showed a 50-25-25 distribution. For economic agencies, the shares had been variable every year. Nevertheless, Luzon, in most cases, consistently received half or more than half of the total allocation while Visayas and Mindanao shared the remaining haft. Both islands also at some point interchangeably shared in the reductions whenever the share of Luzon increased beyond 50 percent. The following discusses in detail the regional allocation of each of the nine agencies under study.

RegionalBudgetDeterminationandAllocation

Department of Public Works and Highways (DPWH) For budget year 1990, total DPWH regional budget was Pll.8 billion, representing about 76 percent Of the total agency budget (Table 6). In 1991, total budget slipped by 13 percent with regional allocation only slightly reduced and thus, its share to total budget registered an increase to an all-time high of about 82 percent. Regional allocation declined in the following years relative to total agency budget, the lowest being in 1994 when it registered at P3.6 billion, which comprised only 28 percent of the total budget during that year. In 1999, total regional allocation returned to its 1990 level of Pll.6 billion but this was 68 percent of the total budget and seven percentage points lower compared w_th the 1990 total agency allocation. Except for the years 1992, 1998 and _1999, there is a direct relationship between regional allocation and total agency budget (Figure 1). In other words, when DPWI-I budget increases, regional budget increases. NCR and Region IV have constantly ireceived the largest shares in the DPWH budget (Table 6). One can observe a distinct discrepancy in allocation across regions as NCR and Region IV have received more than other regions--from about 20 to 50 percent of the regional budget in contrast to less than 10 percent received by the others. Regions II and IX received less than 6 percent all throughout the 10-year period. However, Region VIII received 13.3 percent in 1994 and 14.1 percent in the 1999 budget. NCR got the biggest share in the DPWH budget especially from 1992 to 1994 when it received more than a third of the total regional allocation. From 1995 to 1997, NCR received about a quarter Of the total allocation to the regions. ! Luzon consistently received more than half of the DPWH budget over the 10-year period. From 1992 to 1997, it obtained more than 60 percent of the total regional allocation. Visayas received 15 to 20 percent of the total regional budge_ from1990 to 1998. Its share in the 1999 budget increased to 28 percent (almost similar to what Mindanao received in 1998), which mostlyhadgone to Region VIII. From 1992 to 1997, the years when agency allocation favored Luzon (largely NCR investments), Mindanao'si share was only between 11 and 19 percent, lower than the 1990 an_ 1991 allocation of 25 percent. Its biggest share of 27.8 percent came in 1998 but plummeted to 18.3 in 1999.

Table 6. Department

of Public Works and Highways

Regional anocatic0n at constant prices (hi migions) 1990

1991

1992

1993

1994

1995

1996

1997

1998

lXICR I

14-00 672

1833 529

3276 288

2382 387

1453 152

2075 448

3033 647

3903 639

1226 504

CAR lI

512 687

516 534

204 233

119 152

135 49

398 326

316 334

529 439

757 409

llI IV V

988 1224 841

963 1162 686

765 525 413

463 1066 206

27B 262 142

621 1209 649

831 1276 540

810 2149 840

440 1695 646

Vt VII

702 836

746 791

248 441

203 490

100 174

490 453

656 48 1

732 532

973 498

VIII IX X

788 676 729

583 619 650

711 141 306

518 172 294

480 34 114

504 216 571

5,54 328 728

609 397 718

637 489 691

XI XII CARAGA

902 832 0

857 563 0

399 122 0

209 -74 0

158 84 0

466 302 0

550 436 0

521 476 123

981 682 159

RA:

11789

11(133

8070

6734

3616

8729

10711

13417

10785

TOTAL % RA

15523 75.9

13469 81.9

17058 47.3

14687 45.8

12750 28.4

14102 61.9

18193 58.9

20660 64.9

23206 46.5

-6.41 -13.23

-26.85 - 26.64

-16.56 -13.90

-46.30 -13.19

141.40 10.61

22.71 29.01

25.26 13.56

-19.62 12.32

% Change-RA % Change-Total

_onal

percen_ 1990

1991

1992

1993

1994

1995

1996

1997

1998

NCR I

11.9 5.7

16.6 4.8

40.*6 3.6

_.4 _7

CAR II

4.3 5.8

4.7 4.8

2-5 Z9

III IV

8.4 10.4

8.7 10.5

7.1 6.0 7.1

_II X

5.1

_.3 6.0

_.1 4.8

11.4 4.7

1.8 2.3

3.7 1.4

4.6 3.7

3,0 3.1

3.9 3.3

7.0 3.8

9.5 6_

6.9 15.8

Z7 7.3

Z1 13.9

7.8 11.9

6.0 16.0

4.1 15.7

6.2 6.8 7.2

5.1 3.1 5.5

3.1 3.0 7.3

3.9 2.8 4.8

7A _6 _2

5.0 6.1 4.5

6.3 5.5 4.0

6.0 9.0 4.6

6.7 5.7

5.3 5.6

8.8 1.7

7.7 2.6

13.3 _9

5.8 2-5

5.2 3.1

4.5 3.0

5.9 4.5

6.2 .7.7 7.1

5.9 7.8 5.1

3.8 4.9 1.5

4.4 3.1 1.1

3.2 4A Z3

6,5 5.3 3.5

6.8 5.1 4.1

5.3 3,9 3_

6.4 _1 _3

CARAGA

0.0

0.9

1.5

1_.0

1_,0

TOTAL LUZON VISAYAS MINDANAO

1_.0 53.6 19,7 26,6

1_.0 56.4 19.2 24.4

70.7 17.3 IZ0

70,9 18,0 11.1

1_,0 68.4 20.9 10.8

1_.0 65.6 16.6 17.8

1_.0 65.1 15.8 19.1

1_.0 69.4 14.0 16.7

1_.0 5Z6 19.5 27.8

RegionalBudgetDeterminationandAllocation

Department of Transportation and Communication (DOTC) Total regional budget of DOTC ranged from P1.1 to P1.9 billion during the 10-year period except in 1993 and 1994 when regional budget plunged to P960 milhon and P_26 million, respectively (Table 7). About P1.5 billion was allocated to theregions in the 1999 budget representing 27 percent of the total agency budget. This is close to the average regional allocation of the agency during the period under study. The highest recorded share was 36.6 percent in 1995 while the lowest was 8.4 percent in 1994. Except for the period 1996-1999, regional budget allocation followed an increasing-decreasing trendrelative to the total agency budget (Figure 2). Noteworthy is the 64 percent increas e in the total agency budget from 1996 to 1997 but this did not translate to a concomitantincrease in regional allocation. Rather, a reduction of two million in regional allocation w0s evident in the 1997 budget from previous year's allocation. Unlike DPWH, regional distribution of the DOTC budget does not follow a distinct pattern. In othe r words, regions getting large shares in the agency budget vary fro m year to year 1990: NCR (16 percent); 1991: NCR (19 perce_nt), Region I (10.6 percent) and Region IV (10.2 percent); 1992: NCR (27.3 percent); 1993: Region VII (63.4 percent); 1994: NCR (14.5 percent) and IV (12.4 percent); 1995: Region VII (61.8 percent) and Region I (21 percent); 1996: Region I (31.4 percent) and Region XI (28.2 percent); 1997: Region I (44.7 percent); 1998: Region IV (12 percent)_ and 1999: NCR (35.3 percent) and Region XI (14.8 percent). Luzon had consistently received not less than half of the total regional budget except in 1993 an_ !995, when more than 60 percent went to Visayas (specifically iRegion VII) while Mindanao received its a!l-time low budget of less than 10 percent. Unlike Luzon, the share of Visayas and Mindanao differed each year; however, Visayas experienced peak shares of more than half of the total regional allocation of the agency compared with Mindanao which received its peak share of only 35 percent in 1996.

Table 7. Department

of Transportation

and Communications

Regional allocation at constan t prices (in millions) 1990

1991

1992'

1993

1994

1995

1996

1997

1998

1999

220 63 43 54

306 172 36 60

521 85 39 64

63 25 11 21

47 22 1 19

15 312 3 20

80 406 8 22

82 487 7 33

105 70 12 61

511 52 17 46

IV V VI VI1

117 83 121 112

166 108 112 131

133 129 151 172

37 24 26 609

41 22 24 27

37 23 26 915

51 121 29 59

64 59 41 98

139 103 105 104

97 59 68 69

VIII

107-

107

1O0

IX X XI

84 81 108

88 100 82

116 106 110

18 24 28

17 21 20

19 25 21

26 45 365

32 36 36

__ 67 79

XII

NCR I CAR LI

CARAGA

_46

0[_. o P-" I:= o_o

96 214

Â˘_

RA TOTAL

1345 4574

1626 5540

1913 5571

960 4882

326 3875

1482 4052

1295 3890

1089 6386

1161 5703

1449 5387

% RA % Change-RA %Change-Total

29.4

29.3 20,87 21.13

34.3 17.65 0.55

19.7 -49.82 -i2_37

8.4 -66.03 -20.62

36.6 354.36 4.57

33.3 -12.61 -4.00

17.1 -15.86 64.17

20.4 6.58 -10.70

26.9 24.85 -5.55

o o

Re_l

s__re

percent) 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

16.4 4,7 3.2

18.8 10.6 2.2

27.3 4.4 2_0

6.6 2.6 1.2

14.5 6.8 0.2

1.0 21.0 0.2

6.2 31.4 0.6

7.5 44.7 0.6

9.1 6.0 1.0

35.3 3.6 1.2

II IlI

4.0 6.8

3.7 5.9

3.4 5.1

2.2 3.3

5.8 8.1

1.3 1.8.

1.7 2_4

3,0 4.1

5.3 5.9

3.2 4.2

IV V VI

8.7 6.2 9.0

10.2 6.1 6.9

6.9 6.7 7.9

3.9 2.5 2.7

12.4 6.6 7.5

2_5 1.5 1.8

3,9 9.3 2_2

5.8 5.4 3.8

12_0 8.9 9.0

6.7 4.1 4,3

VII VIII

8.3 7.0

8.1 6.6

9.0 5.6

63.4 2.6

8.3 7.3

61.8 1.6

4.5 2.7

9.0 4.0

9-0 8.6

4.7 43

IX X

6.2 6,0

5.4 6.2

6.1 5,5

1.9 2.5

5.2 6.4

1.3 1.7

2.0 3.5

Z9 3.3

6.9 5.7

3,2 6.6

XI XII CARAGA

8.0 5.5 0.0

5.0 4.3 0.0

5,7 4.3 0.0

3.0 1.7 0.0

6.0 4.8 0.0

1.4 1.1 0.0

28.2 1.4 0.0

3.3 Z3 0.0

6.8 4.1 1.6

14.8 Z5 1.4

TOTAL

100.0

LUZON

49.9

57.5

55.9

2Z2

54.6

29.4

55.5

71.3

48.2

58.1

VISAYAS

24.3

21.6

22_4

68,8

23.0

65.2

9.5

16.8

26.6

13.4

MINDANAO

25.8

20.9

21.7

9.0

22.4

5.4

35.0

11.9

25.2

Z8.5

NCR I CAR

b_ o

RegionalBudgetDeterminationandAllocation

Department of Agriculture (DA) DA showed the largest variation in regional allocation among the economic agencies studied as revealed by the high coefficient of variation during the period 1990-1999 i(Table 3). The highest allocation in 1991 was 2.9 billion representing 4v.7 percent of the total budget while the lowest in terms of v0lue was 432 million in 1995 and the lowest in terms of share was 8.8 percent in 1993 (Table 8). The big surge in the 1999 budget, both total and regional component, could be attributed to additional funds intended for GATTrelated activities that were not included in the preparation'of the expenditure program in the previous years. In Spite of the large component of the GATT funds in the 1999 DA budget,-the two billion regional allocation in 1999 was almost a billion lower than that allocated in the1991 budget. Except in 1994 and 1996, regiona! allocation followed consistently the movement of the total agency budget during thd 10-year period under study (Figure 3). Regional allocation increased despite a reduction in the total agency budget. A large portion of the DA budget for the regions had consistently been given to Regions III and IV (except in 1999) (Table 8). For Region III, the highest allocation was in the 1999 budget (30.3 percent). Region IV had been allocated more than 10 percent of the total regional allocation but the allocation shrank to 5.7 percent in the 1999 budget. Other regions that received a large chunk of the budget during the 10-year period include Regions VI (25.5 percent in 1994), Region VIII (15.8 percent in 1994 and 10.3 percent in 1999), Region XI (11.5 percent in 1993) and Region XII (14.1 percent in 1999), While there was a large variation in the total regional allocation during the 10-year period, the share oi each major island grouping was relatively consistent except in 1994 and 1999. The trend in allocation was 50-20-25 for Luzon, Visayas and Mindanao, respectivelY. In 1994, there was a surge in the hllocation for Visayas, largely Region VIIL which reduced the share of Luzon and Mindanao to 41 percent and 13 percent, respectively, i In nominal terms, however, this did not translate to areduction in the budget because the regional allocation during that year rose more than twicefrom the previous year. In 1999, Luzon held on _oits 50 percent averageshare. However, the share of Visayas decreased to about 18 percent while Mindanao's share rose to 33 percent.

Table

8. Department

of Agriculture

Regional allocation at constant prices (in millions) 1990

1991

1992

199"3

1994

1995

1996

1997

1998

1999

NCR

I CAR

129 140

249 13.5

101 57

24 25

84 25

28 15

33 16

33 18

34 19

52 45

I] []

99 143

209 355

81 122

31 34

33 47

35 33

58 33

39 37

43 39

102 605

240

358

219

106

238

113

_._0

V VI

121 I34

221 264

I13 103

37 28

30 283

29 31

36 32

40 35

40 41

66 53

_.o

VII VIII

107 121

183 176

91 94

38 28

48 175

39 33

46 36

47 40

52 43

93 207

_90

105

X XI

126 111 105

178 213

91 96

24 56

51 33

32 32

33 33

34 35

31 39

71 75

XII

117

178

CARAGA RA TOTAL

0 1693 4710

0 2915 6666

0 1334 5681

0 486 5540

0 1111 4449

0 432 4184

0 501 1193

1 512 1398

9 5.58 1426

% RA

35.9

42.0

36.6

39.1

30.8

15.88_

Z26

8.81

258.61

17.17

2.00

355.04

%Change-RA % Change-Total

23.5

8.8

25.0

10.3

72_19

43.7

-54.24

-63.58

128.63

-61.08

41.53

-14.77

-2.49

-19.68

-5.96

-71.48

[mma

282 131 1999 6488

_. _. o

199s

1996

19,n

1998

19_

NCR I CAR

1990 0 7.6 8.3

1991 0.2 8.5 4.6

1992 0 7.6 4.3

1_ 0 4.9 5.2

I_4 0 7.6 2_3

0 6.6 3.5

0 6.6 3.2

0 6.5 3.5

0 6.1 3.4

0 2.6 2.2

l] []

5.8 8.4

7.2 12__2

6.1 9.2

6.4 6.9

3.0 4.3

8.0 7.7

11.5 6.7

7.5 7.2

7.7 7.0

S3 30.3

IV V VI

14.2 ZI 7.9

12.3 7.6 9.1

16.4 8.5 7.7

21.8 7.5 5.8

21.4 2_7 25.5

15.3 6.7 7.1

15.6 7.1 6.3

16.6 7.7 6.8

I6,4 7.2 7.4

5.7 3.3 2.7

VII VIII

6.3 7.1

6.3 6.0

6.9 7.0

7.8 5.7

4.3 15.8

9.0 7.7

9.1 7.3

9.2 7.7

9.4 7.8

4.6 10.3

IX X XI

7.4 6.6 6.2

6.5 6.1 7.3

6.4 6.9 7.2

6.3 4.9 11.5

3.0 4.6 3.0

7.4 7.4 7.4

7.3 6.6 6.7

7.2 6.7 6.8

7.3 5.6 7.0

5.2 3.5 3.7

XII CARAGA

6.9 0

6.1 0

5.9 0

5.2 0

2_7 0

6.1 0

6.3 0.2

6.2 1.6

14.I 6.5

TOTAL

100.0

LUZON

51.5

52_6

52_0

52-8

41.2

47.7

50.7

49.1

47.8

49.2

VISAYAS MINDANAO

21.4 27.1

21.4 26.0

21.6 26.4

19.3 27.9

45.6 13.3

23.9 28.4

22.7 26.6

23.8 27.1

24.6 27.7

17.7 33.2

RegionalBudgetDetermination andAllocation

Department of Agrarian Reform During the 10-year period under study, DAR's total budget and its allocation to the regions have had a contrasting experience, Total agency budget was reduced almost to half in real terms fromP1072 million in 1990 to P642 million in 1999 but regional budget almost doubled from P336 million in 1990 to!P623 million in the 1999 budget (Table 9). The biggest decline in the agency budget was in 1992 when it was reduced to P595.milli_n. In contrast, the biggest increase in the regional budget was in 1.991and 1998. The agency's regional allocation showed the least variability amongthe nine agencies under study as shown by its relatively low coefficient of variation (Table 3). As for the share of the regions i n the DAR budget during the 10-year period, there has not been great variability (Table 7). Generally, this characterizes the total agency budgetandregional allocation during the 10-year period except for the years 1991,1993 and 1994 (Figure 4) when regional allocation increased despite a decline in the total agency budget from the previous year's budget. Regions III, IV and VI have been consistently allocated the largest share every year and jointly, comprised more than a third of the total regional yearly allocation. Not much variability could also be observed ff one will look at the distribution by major island groupings. The average allocation was somewhere around 50:25-25 for Luzon, Visayas and Mindanao, respectively. Department of Environment and Natural Resources Total DENR budget in real terms declined from P7.1 billion in 1990 to P2.7 billion in i999 (Table 10). The decline was most evident in 1991 and 1992 when agency budget was reduced by about 25 percent. Further decreases took place after, Meanwhile, regional allocation showed a reverse trend as a modest increase was evident from 1990 (P1.3 billion) to 199.9(P1.7bi!lion) with some fluctuations during the period. In many instances, regional budget went to the opposite direction of the total agency budget (Figure 5). Low and insignificant correlation coefficients imply the weak relationship between total and regional budgets as Well as their respective rates of change in each succeeding budget period (Table 5). Regional shares in the total regional budget had consistently favored Region IV (Table 10). In some yÂ˘ars, though, more than 10 percent shares were allocated to RegionllII (1990),Region X (1995), and Region VII (1997). The rest of the regions received less than 10

Table 9. Department

Reg_

of Agrarian

Reform

a_x_

at constant prk'es (h_ millions) 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

NCR l CAR H

0 30 8 23

0 33 19 32

0 25 14 21

0 25 14 22

0 28 16 23

0 33 16 28

0 36 18 28

0 38 18 29

0 49 25 39

0 47 26 37

llI IV

44 36

75 51

,54 37

54 38

64 44

72 51

80 56

78 61

102 76

97 73

V VI

22 .36

41 45

22 37

23 38

26 43

27 47

9 54

32 56

41 72

38 70

VII

VIII

IX X )fl XII

22 19 20 29

26 31 27 41

20 18 19 29

20 19 19 29

23 21 22 33

21 21 23 30

25 26 28 35

26 27 11' 35

33 23 31 45

32 22 30 45

CARAGA

RA TOTAL

338 1072

484 971

341 595

348 551

395 503

426 518

463 545

485 695

642 733

623 696

% RA % Ctu_ge_RA

31.5

49.8 43.15

57.3 -29.52

63.2 2_05

78.6 13.53

8Z3 7.85

85.0 8.65

69.7 4.69

87.6 32.47

89.5 -3.01

-9.41

-38.69

-8;73

3.05

5.20

27.53

5.48

-_.].0

% Change-Total

-7.51

_:J _"

t.,*.

I::).. o ta o

Regional s_ (i. p_) 1990

1991

1993

1994

1995

1996

1997

1998

1999

NCR I CAR II HI

0 8.9 2_4 6.8 13.0

0 6.7 3.9 6.6 15.4

0 72 4.2 6.1 15.9

0 7.1 4.1 6.2 15.6

0 7.0 3.9 5.8 16.1

0 7.8 3.7 6.5 17,0

0 7.9 4.0 6.0 17.2

0 7.8 3.8 6.1 16.0

0 7.7 3.8 6.1 15..9

0 7.6 4.2 5.9 15.6

IV V VI VII

10.7 6.5 10.7 7.1

10.6 8,5 9.4 6.6

10.7 6.5 11.0 7.0

10.9 6.6 10.9 7.1

li .1 6.7 10.8 7.2

1Z0 6.4 10.9 7.1

12.1 1.9 11.6 7.9

IZ6 6.6 11.5 7. 6

11.8 6.4 11.2 7.2

11.7 6.1 11.3 7.1

VIII IX X XI XII

7.4 6.5 5,6 5.9 8.6

6.6 5.3 6.4 5.5 8.5

6.3 5.8 5,4 5.6 8.4

6.2 5.8 5.6 5.6 8.4

6,3 5,8 5.3 5.5 8.4

6.4 4.9 5.0 5.5 6.9

7,1 5.4 5.6 6.0 7.5

7,2 5,3 5.6 Z4 7.3

6.8 5.1 3.5 4.8 7.1

7,0 5.2 3.5 4.8 7,2

CARAGA TOTAL LUZOI_ VISAYAS MINDANAO

0.2

2.8

100.0

100,0

100.0

109.0

100.0

lfl0.0

100.0

50.6 24.2 25.2

50.5 24.2 25,3

50.7 24,3 25.0

53.3 24.4 993

49.0 26.6 24.4

5)-9 26.3 20.7

51.7 25.1 23.2

51.1 25.4 23.5

48.2 25.1 26.6

51.8 2_Z5 25.7

Table 10. Department

of Environment

and Natural Resources

Regional allocation at constant _ (m m_]icms) 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

31 94 72

56 117 169

32 83 103

28 67 80

41 75 93

43 84 103

46 122 130

61 143 173

66 115 128

63 106 136

H [] IV V VI

110 136 169 83 89

160 169 241 151 194

97 121 163 79 85

79 89 130 60 63

92 96 158 83 119

102 I03 185 82 99

120 128 208 98 162

129 138 29 7 '12_ 140

I51 131 238 117 124

138 119 227 100 112

VII VllI IX X XI

123 94 88 103 89

206 182 166 203 218

102 87 72 94 87

76 61 57 86 74

107 75 70 106 117

107 84 79 140 116

158 110 83 128 126

214 126 98 173 184

123 119 108 116 143

106 105 101 100 131

74 0

124 0

57 0

46 0

77 0

75 0

117 0

131 0

94 0

88 72

1355 7109 19,1

2357 5461 43.2 73.93

1262 3901 32.4 -46.43

997 3836 26.0 -21.02

1308 3100 42.2 31.15

1401 3042 46.1 7.14

1736 2413 71.9 23.93

2067 3238 63.8 19,03

1773 2861 62.0 -14,22

1703 2702 63.0 -3.96

-23.18

-28.58

-1.65

-19.20

-1.87

-20.66

34,17

-11.66

-_,_6

NCR I CAR

XII CARAGA RA TOTAL %RA %_ % Change-Total

g3 R_

share(in_t)

NCR I

1990 Z3

1_1 z4

1992 2_5

19_a __8

19_ 3.1

1995 3.1

1996 2.7

1997 3.0

1998 3.7

1999 3.7

6.9

5.0

6.6

6,7

5.7

6.0

7,0

6.9

6.5

6.2

CAR II m IV

5_3 8.1 10.0 1z5

7.2 6,8 7.2 " 10.2

8.1 7.7 9.6 12.9

8.1 7.9 8.9 13.1

7:1 7.0 7.3 12.1

7.4 713 7.3 13.72

7.5 6.9 7,4 12.0

8.4 6.3 6.7 11.0

7.2 8.5 7.4 13.4

80 8.1 7.0 13.3

V VI VII VIIt

6.1 6.6 93 6.9

6.4 8.2 8.7 7.7

6.2 6.7 8.I 6.9

6.1 6,3 7.6 6.1

6.3 9.1 8.2 5.7

5.8 7.1 7,6 6.0

5.7 9,3 9.1 6.3

6.3 6.8 10.4 6.1

6.6 7.0 6.9 6.7

5.9 6.6 6.2 6.2

IX X XI XII

6.5 7.6 6.6 5.5

7.1 8.6 9.2 5.3

5.7 7.4 6.9 4.5

5.7 8.7 7.4 4.6

5.3 8.1 8.9 5.9

5.6 10,0 8.3 5.3

4,8 7.4 Z.3 6.7

4.8 8.4 8,9 6.4

6.1 6.6 8.1 5,3

5.9 5,9 7.7 5.2

CARAGA

0.0

4.2

100.0

" 100.0

100.0

LUZON VISAYAS

51.3 22.6

45.1 24.7

53.7 21.7

53.6 20.0

48.7 23.0

50.0 20.8

49A 24.7

48.4 23.2

53.3 20.6

52.2 18.9

MINDANAO

26.1

30.2

24.6

26.4

28.2

29.2

26.2

28.4

26.1

28.8

TOTAL

--4

Ruben G. Mercado

percent allocation yearly. The lowest allocation consistently went to NCR although it had been increasing in recent years. Analysis by island grouping showed a relatively stable share of around 50-2030 for Luzon, Visayas and Mindanao, respectively. Department of Trade and Industry During the period 1990-1999, DTI experienced only modest increases in its total budget with the biggest increase achieved in 1994 at 1.5 billion. Thereafter, the budget had slipped to less than a billion mark beginning 1996. (Table 11). Regional allocation was almost pegged within a 200 million band throughout the 10-year period except in 1991 when it almost doubled from the previous year's allocation. However, the year after, it dipped lower than its 1990 Ievel and years after, stayed within the 200 million band starting in 1995. As shown in Figure 6, regional allocation except in 1991 remained in a plateau while total agency budget was in constant leaps and dips from 1990 to 1997. Regions that dominated DTI's regional allocation in most years under study include Regions IV, III, XI, and VII (Table 11). In 1991, Regions IV and VII took more than half of the total regional allocation. In 1993, Region IV received a quarter of the total allocation.for the regions. In more recent years, the shares of Regions V and VI increased to more than 7 percent. Share for each island group reveals roughly a 50-20-30 distribution for Luzon, Visayas and Mindanao, respectively, except for 1991 and 1993 when Luzon received more than 60 percent. In 1991, Visayas received more than 20 percent while Mindanao took the remaining share. In 1993, their shares reversed. Department of Education, Culture and Sports DECS' total budget experienced more increases than reductions during the past 10 years. In 1990, total agency budget was P28.2 billion and had leaped to P40 billion in 1999 in real terms (Table 12). Reductions experienced over the years have not been substantial as they ranged from only one percent in 1996 to five percent in 1993 in contrast with the increases received that ranged from three percent in 1998 to 36 percent in 1997. Regional allocation increased from 69 percent of the totalagency budget to 96 percent in 1998 but declined to 93 percent in 1999. In general, the increases (or decreases) in total agency budget have

Table 11. Department

of Trade and Industry

Regional a_ocafion at cofistant prices (m millions) 1990

1991

1992

lC_93

1994

1995

1996

1997

1998

1999

NCR t CAR g

13 11 11 11

21 14 12 13

11 10 9 9

12 9 8 8

14 1I 12 9

8 14 9 14

15 13 14 13

15 12 13 12

16 14 15 13

15 14 15 15

III

IV V VI VII

20 13 12 12

163 16 16 68

15 10 10 10

43 10 10 9

18 13 14 13

22 15 18 16

21 15 15 14

18 16 15 15

22 19 18 17

22 18 17 15

VUI IX X XI

11 13 13 15

13 14 17 19

10 I0 12 13

9 9 10 12

11 t4 14 16

16 t-6 16 22

13 13 17 19

13 14 16 20

15 1_ 15 22

15 IS 14 20

XII CARAGA

13 0

15 0

182 1151 15.8

428 1064 40.2

148 731 20.2

168 837 20.1

180 1485 12.1

217 1161 18.6

209 700 29.8

206 824 25.0

237 778 30.5

227 804 28.3

135.22

-65.46

13.90

6.85

20.31

-3,49

-1.20

14.91

-4.19

-7.58

-31.33

14.55

77.44

-21.80

-39.70

17.71

-5,61

RA TOTAL % RA % Change-RA % Change-Total

3.3,5

0_. P-.la.

_" _'

¢3 Regional share (in percent) 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

NCR I CAR [l

7.1 6.0 6.0 6.0

5.0 3.2 2.8 3.0

7.5 6.5 5.9 5.9

7.1 5.3 4.9 4.9

7.5 6.0 6.8 5_3

3.8 6.7 4.1 6.4

7.2 6.1 6.6 6.1

7.1 5.8 6.3 6.1

6.9 5.8 6.3 5.6

6.8 6.2 6.4 6.6

III IV V VI ,VII VII1 IX

7.7 11,0 7.1 6.6 6.6 6_0 7,1

6,4 38,1 3.8 3.8 15.8 3,0 3,2

8.1 10,2 7.0 7.0 6_5 6.5 6.5

6.6 25.7 5.8 5.8 5.3 5.3 5.3

6.8 9.8 7.1 7.9 7.1 6,0 7,5

7.6 10.2 7.0 8,4 7.3 7.6 7.3

7.5 9.9 7.2 7.2 6_9 6,1 6,4

7.6 8.9 7.9 7,1 7.1 6.3 6.6

9.2 9.4 7.9 7,5 7,1 6.3 6.7

9.0 9.6 7.8 7.4 6.4 6.8 6.8

7.1 8.2 7.1

4.0 4.4 3,4

8.1 8.6 5.9

6,2 7.1 4.9

7.5 9.0 5.6

7.6 10.2 6.1

8.0 9_1 5.8

7.9 9,7 5.5

6.5 9.2 5.8

6.2 8.8 5.0

100.0

100,0

100.0

100,0

100.0

51.1 19.2 29.7

62.3 22.6 15.0

51,1 19,9 29.0

60.2 16.4 23.5

49.2 21.1 29.7

45,6 23.3 31.1

50.6 20.2 29.3

49,7 20.5 29.7

51.0 20.8 28.1

52.5 20.6 26.9

X XI XII CARAGA TOTAL LUZON VtSAYAS MINDANAO

Table 12. Department

of Education,

Culture and Sports

Regional allocation at constant prices (in millions). 1990

1991

1992

" 1993

1994

1995

1996

1997

1998

1999

NCR I CAR Lt []

2348 1341 473 866 1684

2671 1524 510 910 1887

2438 1403 477 808 1874

2253 1415 504 823 1791

2467 1592 549 973 2084

2901 1716 594 1096 2368

2850 2035 609 1160 2539

3203 2133 709 1337 .2825

3911. 2897 901 1664 3813

3859 1974 913 1691 3598

13t V VI

2439 1424 2146

3028

2627

2575

3132

3553

3668

4022

5200

5037

1641 2328

1676 2075

1566 2028

1779 2513

2022 2742

2144 2855

2423 3134

3181 3969

2942 3815

VII VIII

1185 1236

1302 1305

1328 1240

1300 1189

1557 1504

1721 1655

1781 1634

1998 1860

2759 2201

2597 2214

tX X XI XII CARAGA

1013 1122 1214 1012 0

t256 1259 1428 1189 0

914 1236 1339 814 0

1023 1233 1434 1007 0

1066 1349 1573 837 0

1140 1518 1772 872 0

1264 1644 1798 912 "0

1412 1898 2060 1091 0

1_,_* I 1665 2765 1278 1207

1780 t548 2724 1184 1278

RA TOTAL .'

19503 28178

22238 28268

20249 27450

20140 26204

22974 26467

25670 29259

26894 29096

30106 39467

39252 40712

37155 40036

69.2

78.7

73.8

76.9

86.8

87.7

92,4

76.3

96.4

92.8

_Â˘_

14.02 0.32

-8.94 -2.89

-0.54 -4.54

14,07 1,00

11.74 10.55

4.77 -0.56

11.94 35.64

30.38 3.15

-5.34 -1.66

_ o

% RA % Change-RA % Change-Total

_Y.. 1_ o_ t_

_" ,a

Regio_l

s_re

(mpercent)

g 1990

1991

0 7.6 8.3

II III IV V VI HI _II IX X

MCR l CAR

_I CARAGA TOTAL LUZON VISAYAS MINDANAO

1_2

19_

1994

1995

1996

1997

1998

19_

0.2 8.5 4.6

0 7.6 4.3

0 4.9 5.2

0 7.6 2.3

0 6.6 3.5

0 6.6 3.2

0 6.5 3.5

0 6,1 3.4

0 2.6 2.2

5,8 8,4 14.2 7.1 7,9 6.3 7.1

7.2 12.2 1Z3 7_6 9.1 6.3 6.0

6.1 9.2 16.4 8.5 7.7 619 7.0

6.4 6.9 21.8 7.5 5.8 7.8 5.7

3.0 4.3 21.4 2.7 _.5 4.3 15.8

8.0 7.7 15.3 6.7 7.1 9.0 7.7

11.5 6.7 15.6 7.1 6.3 93 7.3

7.5 7.2 •16.6 7.7 6.8 9.2 7.7

7.7 7,0 16.4 7_2 7.4 9A 7.8

5.1 30.3 5.7 3.3 2.7 4.6 10.3

7A 6.6 6,2 6,9 0

6,5 6.1 7.3 &l 0

6.4 6.9 7.2 5.9 0

6.3 4.9 11.5 5.2 0

3.0 4.6 3.0 2.7 0

7.4 7.4 7.4 6.1 0

7.3 6.6 6.7 6.1 0

.7.2 6.7 6.8 6.3 0.2

7.3 5.6 7.0 6.2 1.6

5.2 3.5 3.7 14.1 6.5

100_0

100.0

51,5 21.4 _,1

52.6 21.4 _.0

52.0 21.6 26.4

1_.0 52.8 19.3 27.9

100.0 41.2 45.6 13.3

1_.0 47.7 _. 9 _.4

1_.0 50.7 2.7 26.6

100.0 49.1 _.8 27.1

1_.0 47.8 24.6 27.7

100.0 49.2 17. 7 33.2

Ruben G. Mercado

been reflected in the movement of allocations to the regions (Figure 7). High correlation coefficient shows the positive relationship between total and regional budgets in terms of amount and rates of change (Table 5). The coefficient based on percent changes is lower than that of the amount or level as the rates of increase in regional allocation from each preceding year were observed to be higher than that of the total budget. Regional shares had been relatively stable over the past 10 years, with Regions W, VI and NCR as the biggest recipients and their shares comprising one-third of the total regionalbudget. Starting in 1998, each of these regions has received about 4 billion to 5 billion. In the 1999 allocation, only Region I showed the largest reduction in share from 7.4 percent in 1998 to 5.3 percent in 1999. This translates to a decrease of about a billion in its regional budget that year. While most budgets of the regions were reduced in 1999, modest increases were observed in Regions II, VIII, CAR and CARAGA. Allocation by island group more or less conformed to the 50-20â&#x20AC;˘30 distribution for Luzon, Visayas and Mindanao, respectively, except in 1994. That year, the share of Visayas was more than double the share of Luzon and Mindanao and thus reduced their shares to 41 percent and 13 percent, respectively. Department of Health In real terms, total DOH budget declined from P7.8 billion in 1990 to P5.4 billion in 1999 (Table 13) and most prominently in 1993 when the budget was reduced to almost half that of the previous years. The budget recovered in 1997 close tO its 1990 level but declined again to its level in 1999. Regional allocation followed an increasing-decreasing trend as shown graphically in Figure 8. The biggest regional allocation of P5.1 billion was in 1991 when total agency budget peaked at more than P8 billion. The largest percentage share of regional budget to total agency budget was in the 1999 budget wherein allocation to the regions comprised 67.4 percent or P3.6 billion. Regional shares had a remarkable shift starting in 1994 (Table 13). Prior to this year, regional allocation was dominated by Region IV which got 13-14 percent of the total regional allocation. From 1994 onwards, regional allocation was dominated by NCR, which got more than 40 percent of the total budget representing more than a billion pesos each year. Marked reductions in share were observed

Table 13. Department

of Health

Regional allocation at constant

Faces(inmmiom) 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

NCR I CAR 1I

187 321 222 255

214 341 214 273

208 351 227 291

109 71 70 89

892 72 78 77

1309 120 118 106

1197 108 114 121

1557 164 116 156

1572 180 129 151

1462 193 138 165

IlI IV V VI VII

466 683 397 457 360

489 692 426 480 400

494 688 403 450 378

122 183 101 122 121

102 92 92 117 111

158 137 123 169 159

178 189 120 186 188

231 164 229 204 209

198 151 248 214 237

197 160 210 205 215

VIII IX X XI XII

366 272 328 348 217

369 293 343 366 238

368 241 344 329 192

82 80 64 101 63

128 I0_ 108 165 100

102 I19 99 177 78

132 148 147 207 33

127 112 95 259 37

125 125 134 195 101

CARAGA

71 76 64 103 60

4879

5137

4963

1380

2008

3005

2978

3696

3711

3626

TOTAL

7828

8359

8569

4227

4717

5426

5197

7115

6151

% RA

62.3

61.5

57.9

32.6

42.6

55.4

57.3

51,.9

60.3

6Z4

5.29 6.79

-3.39 150

-72.19 -50.66

45.49 11.57

49.64 15.04

-0.89 -4,22

24.10 36.91

0.42 -13.55

-2.30 -1160

% Cllange-RA % C3m_ge--Tol:al

5376

share(m_t) 1990

1991

1992

NCR

3.8

4.2

I CAR II Ill IV V

6.6 4.6 5.2 9.6 14.0 8.1

6.6 4.2 5.3 9.5 13.5 8.3

VI VII VIII IX X XI XII

9.4 7.4 7.5 5.6 6.7 Z1: 4.4

CARAGA TOTAL

1993

1994

1995

1996

1997

1998

1999

4.2

7.9

44.4

43.6

40.2

42.1

42.4

40.3

7.1 4.6 5.9 9.9 13.9 8.1

5.1 5.1 6.5 8.9 13.2 7.3

3.6 3.9 3.8 5.1 4.6 4.6

4.0 3.9 3.5 5.3 4.5 4.1

3.6 3.8 4.1 6.0 6.3 4.0

4A 3,1 4.2 6,3 4,4 6,2

4,9 3.5 4.1 5.3 4.1 6.7

5.3 3.8 4.6 5.4 4-4 5,8

9.3 7.8 7.2 5.7 6.7 7.1 4,6

9.1 7.6 7.4 4.9 6.9 6.6 3.9

8.9 8.8 5.9 5.8 4.6 7.3 4.6

5.8 5.5 3.5 3.8 3.2 5.1 3.0

5.6 5.3 4.3 3.5 3.6 5.5 3.3

6.3 6.3 3.4 4.0 3.3 6.0 9_6

5.5 5,6 3_6 4-0 40 5.6 0,9

5.8 6.4 3.4 3.0 2.6 7.0 1.0

5.7 5_9 3,4 3,5 3,7 5.4 ?,-8

0.0

0,2

0.4

2.0

100.0

LLFZON VISAYAS

51.9 24.2

51.6 24.3

53.6 24,1

54.0 23.6

70.0 14,9

68.9 15.2

68.1 16.0

1000 70.8 14,7

70.9 15.6

69.7 15.0

MINDANAO

23.9

24.1

22_3

22.4

15,1

15.9

14,7

13.9

17.4

RegionalBudget DeterminationandAllocation i

during theseâ&#x20AC;˘years for CAR, Regions II,IV,viii, IX,x andXII. These regions received less than 5 percent of the total regional allocation or, in 1999, less than 150 million. From 1990 to 1993, the share in allocation of Luzon, Visayas and Mindanao approximately followed a 50-25-25 distribution, respectively. The distribution shifted to a 70,15-15 sharing from 1994 to 1999. While the share of Visayas and Mindanao declined, it was not reduced in nominal terms. The percentage reduction in share was due to the increase in the total regional budget with the bulk being allocated to Luzon, particularly tO NCR. Department of Social Welfare and Development i Total budget of DSWD has been variObleduring the past 10 years (Tables 3 and 14). The lowest budget wa s P352 mi!]ion in 1993 plunging from the preceding year's 1.1 billion,, the highest during the period (Figure 9). The agency's budget in 1999 is P732 million lower than its budget in 1990 of P853 million. Regional allocation has been more variable. The biggest recorded regiona ! budget was P516 million in 1991 and the lowest was P70 million in 1994. Starting in i993, allocation to the regions declined to less than 25 percent of the total budget. In the 1999 budget, regional allocation was about 22 percent or P158 million. The bulk of the regional budget was consistently allocated to NCR and Region IV (Table 14). In 1999, the largest share was given to Region III (14.7 percent). The allocations for the rest of the regions did not change over the 10-year period. In terms of allocation by island grouping during the 10-year period, the pattern of distribution followed approximately a 50-20. 30 sharing for Luzon, Visayas and Mindanao, respectively. I

Assessment of Regional Budget Allocation and Regional Development Situation i

How responsive are the regional budgets of implementing agencies to the development status of the country's regiom? To answer this question, a two-period assessmenti was made on the regional budget of the agencies under study relative to their sensitivity to the regional economic and social development situation during those periods. Assessment of effectiveness _f the formula usedby the agencies in their regional budget allocation was done for agencies I

Table 14. Depaztm_nt _

of Social Welfare and DeveJopment

allocation at cmmtm_t

prk-es(in minions) 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

NCR l CAR II I]I

61 26 18 20 32

61 30 20 26 37

57 31 21 25 36

13 5 4 4 6

8 3 4 6 5

17 4 4 4 6

20 6 5 6 9

11 7 5 6 9

14 8 6 7 12

15 8 8 9 23

IV V VI VII

44 29 32 32

51 33 39 38

54 33 37 37

10 4 5 5

6 4 5 5

8 4 5 5

15 7 8 8

14 7 8 8

14 10 10 11

14 9 10 10

VIII IX

33 32

39 40

38 33

6 6

5 5

5 6

8 8

10 11

X )(I XII CARAGA

34 27 25 0

42 33 28 0

39 30 25 0

6 5 5 0

5 5 5 0

8 5 4 0

8 8 7 0

9 8 8 0

10 11 10 0

10 10 10 0

445 853 52..2

516 795 64.9

494 1127 43,8

85 352 24,1

70 435 16.2

84 631 13,4

122 580 21.0

116 836 13.9

145 801 18.1

158 732 21.6

RA TOTAL %RA %Change.-RA

16.06

-4.42

-82.79

-17.18

19.87

44.42

-4.54

24.55

9.15

%Change-Total

-6.77

41.74

-68.73

23A1

45.12

-8.10

44.14

-4.24

-8.63

Tabte 14 (continued)

Regionalshare(m pert-en0 1990

1991

NCR [ CAR II

13.7 5.8 4.0 4.5

11.8 5.8 3.8 5.0

Ill W V VI VII

Z2 9.9 6.5 7.2 7.2

VIII IX X XI XII CARAGA TOTAL

1992

1993

1994

1995

1996

1997

1998

1999

11.6 6.3 4.2 5.0

14.9 6.1 4.4 5.3

11.5 4.8 5.8 8.7

20.1 4.5 4.5 4,5

16.6 4.7 4.3 4.7

9.3 5.6 4.7 5,1

9,9 5.5 4.4 5,1

9.5 5.2 5.2 5.5

7.1 10.0 6.3 7.6 7.3

7.2 11.0 6.6 7.4 7.4

7.0 llA 5.3 6.1 6.1

7.7 8.7 5.8 6.7 6.7

7,5 9.0 5.2 6.0 6.0

7.1 12.3 5.7 6.2 6.6

7.9 12.1 6.1 7,0 Z0

8.2 9.9 6.8 7.2 7.5

14.7 8.9 5.8 6.3 6.6

7.4 7.2 7.6 6.1 5.6

7.5 7.8 8.1 6.3 5.5

7.7 6.6 7.9 6.1 5.0

7.0 7.0 7.0 6.1 6.1

6.7 6.7 6.7 6.7 6.7

6.0 6,7 9,0 6,0 5.2

&6 6.6 6.6 6.2 5,7

7,0 7.0 7.5 7.0 6,5

6,8 7.5 6.8 7.5 6.8

6.3 6.9 6.3 6.3 6.3

100.0

100,0

100.0

100,0

LLFZDN VISAYAS

51.7 21.8

49.8 224

51.9 22.5

54.4 19.3

52_9 20.2

55.2 17.9

55.5 t9.4

50.9 21.0

49,8 21,5

54,8 19,3

MINDANAO

26.5

27.7

25.6

26.3

26.9

25.1

28.0

28.7

25,9

Regional

Table 15. Summary economic

Results of Correlation Indicators

Agency / Indicator

Budget

Determination

Between

Regional

and Allocation

Budget and Socio-

1990

1999

DPWH GRDP

,0.886

0,632

Population Per capita GRDP

0.868 0.662

0.695 0.464

Poverty

0.348

0.266

Average family income Unpaved roads

0.759 0.045

0.548 0.054

Road density Irrigable area Land area

0,678 -0,431 -0.006

0.520 0.185 -0,020

Number

-0.085

0.143

of provinces in the region

DOTC

GRDP

01926

0.917

Population

01776

0.612

Per capita GRDP

01761

0.881

Poverty

0,212

-0.069

01761 -01324

0.870 -0,330

Telephone density

01853

0,929

Motor vehicles

0.887

0.908

GRDP

0.751

0,208

Population

0,702

0.233

Population engaged in farming and fishing Per capita GRDP Poverty

0;406 0_183 0_560 i

-0.120 0.027 -0,132

Average family income Land area

-0_467 01760

-0.037 0.011

Alienable and disposable land Percent A and D land

0L794 -01313

0,082 -0.045

Agriculture

01664

-0,204

Average family income Land area registered

share to total GDP

DENR

GRDP

-01247

Population

01262

0.303

-01429

-0,239

Poverty Average family income Land area Area deforested

01633 0L319

0,516 -0,132 0,872 -0.105

Forest size Percent urban

0L343

Per capita GRDP

0L704 b 06 -0L219

-0.119

0.752 -0.156

Ruben

Mercado

DTI GRDP

0.371

0.192

Population Per capita GRDP

0.625 0.224

0.632 -0.023

Poverty

0.675

0.709

Average family income Industry share to total GVA Ind. Services share to total GVA Serv.

0.203 0.352 0.189

0.150 0.184 0.070

Industry share to total GDP Services share to total GDP

0.172 -0.105

0.029 0.058

DECS GRDP

0.740

0.613

Population

0.940

0.935

Per capita GRDP Poverty

0.413 0.657

0.331 0.758

Average family income

0.574

0.478

School-going Participation

0.931 0.508

0,982 0.4i7

Participation rate - HS Functional literacy rate Cohort survival rate - Elem.

0.542 0.572 0.633

0.195 0.574 0.490

Cohort survival rate - HS

0.593

0,095

Simple literacy rate Total no, of Elem. and sec, schools

0,308 0.315

0.632 0.539

Total no. of teachers Student-school ratio- Elem.

0.982 0.559

0.987 0.402

Student-school ratio- Sec. Student-teacher ratio-Elem.

0.588 -0.251

0.425 0.308

Student-teacher

0.046

-0.112

DOH GRDP

0,025

0.930

Population

0,580

0.553

population rate - Elem.

ratio-Sec.

Per capita GRDP

-0,272

0,921

0.904

-0.186

Average family income infant mortality rate

-0.136 -0,113

0.918 -0.693

Maternal mortality rate

-0.379

-0.642

GRDP

0_908

0,468

Population

0.792

0.627

Per capita GRDP Poverty

0.749 0,267

0.325 0,216

Average family Income Unemployment rate Infant mortality rate

0.760 0.877 -0.455

0,520 0,532 -0.620

Underweight

0.161

-0,338

0.542

0.506

Poverty

DSWD

Population

children over 65

Regional

Table 16. Per Capita 1990 Region

Budget,

by A_ency,

Budget

by Region

Determination

and by Island

Group,

and Allocation

1990 and 1999

DAR

DPWH

DOTC

DENR

DTI

DECS

DOH

DSWD

0 36.3 12Z2 42.3 23,1 29.0 30.9 24.8 23.3 39.6 5L2 50.5 26.2 57.6

0 8.4 7.0 9.8 7.1 4.4 5.6 6.7 5.2 8.2 8.9 8.6 5.0 14,3

176.1 189.2 446.8 293.5 159.4 148.1 215.1 130.2 182,0 257.9 274.8 331.8 225.1 409.2

27.7 17.7 37.5 23.1 14.7 14.2 21.2 22.4 24.4 30.8 34.1 36.9 27.0 36.4

3.9 26,5 62.8 47.0 21.9 20,5 21.2 16.5 26.8 30.8 35.8 46_9 22.2 36,4

1,6 3.1 9.6 4.7 2.3 2.4 3.3 2.2 2.6 3.6 5.3 5.9 3.7 6.4

295.4 377.6 412.7 369.9 271.7 295.2 364.2, 397.9 257.9 404.6 411.8 510,7 303.0 497,8

23.5 90A 193.7 108.9 75,2 82.7 101.3 84.7 78.4 119.8 110.6 149.3 86.8 106.7

7.7 7.3 15.7 8,5 5.2 5,3 7.4 5,9 7,0 10.8 13.0 15.5 6.7 12.3

Luzon Visayas Mindanao

34.3 27.8 42,9

6.4 6.5 8.4

189.6 178.3 293.4

20.1 25.1 32.4

20,8 23.5 33.1

2.8 2.7 5.0

317.0 350.2 407,7

75.9 90.7 108.9

6.9 7,4 11.0

PHILIPPINES

29.7

5.9

206.5

23.6

23.7

3.2

341.6

85.5

7.8

DOH

DSWD

NCR I CAR II III IV V VI VII VIII IX X XI XII

•

1999 Re_gion

DAR

DPWH

DOTC

DENR

DTI

NCR I CAR ii III IV V VI

0 12.9 32.6 .37.2 80:4 10.3 14.1 8.6

0 11.6 19.0 13.4 12,9 6.6 8.2 11,3

154.9 177.6 385.0 119.5 146,6 121.8 129.5 135.6

50.1 12.8 12.6 16.7 8.0 8,8 12.6 10.1

6.2 26.1 99.1 50.3 15.8 20.6 21.5 18.0

1.5 3.5 10.6 5.5 2,7 2.0 3,8 2.7

2074.3 2120.7 2905,3 2620.9 2214.1 2094.0 2466.3 2579.2

DECS

143.2 47.3 100.7 60.0 26.1 14,5 45.1 33.1

1.5 Z0 6.0 3.1 3.1 1.3 2,0 1,6

VII VIII IX X XI XII

17.1 56.4 34.0 16.3 13.3 108.5

8.1 11,9 10,5 5.0 5.4 17.2

149.0 446.0 77.1 100.7 120.7 132.7

12.7 17.0 14.9 22.0 38.2 14,0

2.7 4.2 5.0 3.3 3,6 4.4

2094.4 2468.2 2394.9 2387.0 2269.8 1878,7

39.5 34.0 40.7 30.9 34.8 38.9

1.9 2.7 3.6 2.3 1,8 3.9

Luzon Visayas Mindanao

31.3 23.1 34,0

7.7 10.3 8.2

149.2 214.7 108,6

20,2 12.7 25.1

19.5 28.7 3_,9 23/ 0 2_.3 3_.8 I 211.4 21!.1 24,8

2,9 3.1 3.9

2230.2 2385.4 2245.7

60.7 35,6 35.5

2,1 2.0 2.6

PHILIPPINES

25.8

8.3

154.3

19,7

2_.5

3.1

2268.9

50.0

2.2

Table 17. Regional A. 1990 Agency/Focus

Budget

by Agency-Specific

Focus Factors _'_

Factors

NCR

CAR

Ill

VII

DA Per unit of A & D land

159.2

411.0

103.1

135,9

111.0

99.0

95.1

111.5

Per person

67.0

194.8

69.3

65.7

75.6

56.9

44.6

48.4

92.3

72.1

108,6

118.3

58.8

48.6

74.3

63.6

engaged

in Agriculture

_. o

DAR Per poor family DPWH Per land area

22012.6

Per road length Per unpaved road

1470653,1 200000000.0

DENR Per hectare

of forest land

Per hectare

of deforested

2017.2

523_4 451380,24 1936599.4

279.9

256.0

541.9

322742.91 1398907.1

40243.1 680198.0

581359_09 2752089.1

477.0

347.1

559.1

425721.3 882476.4

262934.2 430410.8

492890.8 998825.3

198.3

48.4

176,4

66.8

145.1

229.5

82746.5

29641.8

38101.6

13684.8

419354,8

180434,8

39398.0

44694.8

1413.8

1497.5

1611.0

1406.4

1095.1

1149.1

1279.3

1522.1

1019.9

859.4

987.3

1999.5

1203.7

1253.3

1115.6

876.8

943.2

953.8

280.3

80.0

162.1

94.4

86.1

71.9

64.0

66.0

84.8

land

63.8

260.8 309909.9 580094.8

153,4

DECS Per school-going

chiId (Elem/HS)

DOH Per poor family DSWD Per poor family

x.o

,xD Table17 (continued) A. 1990 Agency/ Focus Factors

VIII

XII

Luzon

Visayas

Mindanao

PHILIPPINES

118.2 64.7

145.6 84.1

104.0 93.4

86.6 48.9

118.6 93.9

132.2 74.5

I06.7 51.1

111.1 75.5

119.9 68.1

94.7

92.4

52.3

52.2

138.5

70.8

75.5

75.4

73A

367.7 374870.5 802444.0

361,8 619120.2 1032061.1

257.3 331150.5 666362.0

284..6 451806.7 676161.9

357.2 578602.7 855087.4

447.3 473398.47 1227484.5

410.9 359614.1 674202.9

307.7 466581.0 773915.2

393.0 443956.0 931347.8

84.0 170598.9

87.7 88709.7

58.3 9041.4

45.5 6049.5

5_.1 49865.2

9Z1 40282.8

134.9 55016.2

58.3 12386.3

85.3 26364.4

1472.6

1165.2

1198.2

1019.1

1149.8

1283.5

1338.9

1124.8

1256.0

DA Per unit of A & D land Per person engaged in Agriculture DAR Per poor family DPWH â&#x20AC;˘Per land area Per road length Per unpaved road DENR Per hectare of forest land Per hectare of deforested land DECS Per School-going child (Elem/HS) DOH Per poor family

b,,.

1385.9

1142.8

903.0

907,7

1036.0

1099.3

1050.6

975.6

1055.5

DSWD Per poor family

o" P--

o I= _-

125.0

134.4

93.6

70.4

119.4

99.9

86.1

98.8

96,3

o" B, 1999 Ager_/F(xaas

Factors

NCR

CAR

52_3 21.8

VII

DA Per unit of A & D land Per person engaged in Agriculture

0 0

64.7 21.4

131,0 57_1

106.7 45.0

575.5 241.4

145.7

233.9

174.2

260.9

53.7 21.1

37.8 1Z8

96.9 24.0

84.5

144.8

117.1

DAR Per poor family DPWH Per land area Per road length Per unpaved road DENR Per hectare of forest land Per hectare of deforested land

119.0

24860.1

563.0

288.3

122_7

605.4

286.0

416.5

541.1

1823110.2 225872155.4

40147Z6 _308.4

29c3_8.3 1441231.0

161578.4 32607912

661515.6 3074433.4

320489.1 635999.0

300861.1 63,3805.6

34Z6

296317_0 516403.4

419506.9 966548.4

4090.4

223_9 41281,9

91.2 662168.5

80.3 153014.0

154.2 55169.5

89.6 556119.7

185.2 879071.9

181.9 22320411.8

197.2 154503.4

2074.3

2120,7

2906.3

2620.9

2214.1

2094.0

2466,3

2579224.7

2094.4

6719.7

592.6

1243.1

780.6

529.2

261.9

464.8

424.0

568,4

69.1

25.2

73.8

40.9

23,1

20.1

20.7

27.8

DECS Per school-going

child (Elern/HS)

IX)H Per poor family DSVCD Per eoor family

62_5

_. o

Table17 (continued) B. 1999 Agency/Focus Factors

VIII

21)2.0 753

137.4 40.6

165.6

XII

Luz(m

Visayas lvlindanao PHILIPPINES

_66.2 21.2

61.6 21.1

515.6 142.1

149.1 59.5

104.1 32.7

148.3 46.5

13Z7 48.2

135.9

60.2

78.4

213.1

138.3

140.4

108.0

131.0

76Z8 767918.9 1664823.1

148.4 192257.2 362328.5

154.4 1_28Z0 399723.8

213.7 301950.4 507763.2

580.5 187.7 476257.9 234141.6 952496.0 418344.9

388.t 393094.6 884299.2

94.0

120.7

56.5

66.8

98.7

117.8

142_1

77.0

106.9

79_5688.3 5948537.1

59063.7

848921.0

82938.8

134989.0

386699.2

143675.6

157742.2

DA Per unit of A &D land Per person engaged in Agriculture DAR Per poor family DPWH Per land area Per road length Per unpaved road

239.9 439.2 2344(B.7 433441.4 3.54396.3 120546Z1

0_. __.

DENR Per hectare of forest land Per hectare of deforested land DECS Per _hool-going d-dld (Elem/HS)

2468,2

2394.9

2387.0

2269.6

1878,7

22:30_0

2385.4

2245.7

2268,9

[X)H Per poor family

472.6

526.3

368,7

508.6

482.8

1097.0

483.8

465.0

784.4

Pertx_err family

37.9

45.9

27,6

26.1

47.8

37.6

27.1

34.3

34.2

Ruben G. Mercado

Department of Public Works and Highways (DPWH) Regional per capita budget of the agency in real terms declined from about P190 in 1990 to P149 in 1999. in 1990, it was highest in CAR, Region !I and in most regions in Mindanao particularly IX, X and XII. In 1999, all regions had a less-than-the-average per capita budget except for NCR, CAR and Regions I and VIII. In 1990, in terms of share by island grouping, Mindanao recorded a higherthan-the-average per capita budget compared with Luzon and Visayas whose per capita budget fell below the average. In 1999, Luzon's and Mindanao's per capita budget were below the average while it was way above the average and a big improvement from its 1990 level for Visayas. In terms of budget per road length, majority of the regions were above the average in 1990. In 1999, all the regions except NCR, Regions I, IIi, VII and VIII recorded a budget below the average which is lower than the average 10 years ago. In 1990, in terms of islandgroupings, Luzon and Mindanao received a budget a little higher than the average while Visayas received a budget below the average. In 1999, Mindanao got the lowest budget per kilometer of â&#x20AC;˘ road, far below the average. In contrast, Luzon and Visayas got about twice what Mindanao received. DPWH is the only agency in the study that continued using the allocation methodology it adopted in 1990 and als0 inta'oduced some modifications for the 1999 allocation. These modifications in the current methodology are the elimination of the following variables: GRDP, GDP, population of region to total population of the country in the determination of infrastructure scarcity. These changes, however, only slightly weakened the relationship between these variables and the regional budget. While population was eliminated in this formula component, it is still a major criterion in the overall allocation formula of the agency and, thus, the coefficient has remained positively significant. DPWH did not indicate the reason for not including GRDP in the allocation criteria although it may be surmised as an attempt to favor less economically, well-off regions in the budget allocation. The effect, though quite marginal, can be seen in the 1999 coefficients. Aside from GRDP and per capita GRDP, there was a reduction in the positive coefficients among the indicators such as average family income and road density and, conversely, an increase in the coefficients among the indicators such as irrigable area and unpaved roads. The improvements in these coefficients are,

RegionalBudget Determination andMlocation

however, insignificant. One can observe even a further weakening of the relationship between the budget and regional poverty. These concerns may have to be considered by the agency in its current effort to improve its standing regional allocation formula. Department of Transportation and Communications (DOTC) Per capita regional budget of DÂŠTC in real terms slightly declined from about P24 in 1990 to about P20 in 1999. Regional per capita shares in 1990 were above the average in all the Mindanao regions as well as in NCR and CAR. In 1999, all regions except NCR, X and XI exceeded the average. In terms of share by island grouping, per capita budget in 1990 of Visayas and Mindanao were above the average but it decreased to about P13 for Visayas while stood above the national average for Luzon and Mindanao in 1999. It is not surprising, given the strategic nature of the agency's programs, to find a strong tendency for the DOTC's regional budget to favor more economically advanced and urbanized regions. This can be gleaned from the high positive coefficients among indicators such as domestic output,, per capita output, family income, telephone density and number of registered vehicles. The coefficients have hardly differed in both years. As discussed in the previous section, large shares of the agency budget were apportioned to highly urbanized regions including NCR, Regions IV, VII and XI. It has also been noted that the shares varied from year to year during the 10-year period. These variations can be explained by the change in regional allocation policy of the agency when it ceased using the 1990 allocation formula and instead adopted a general policy of providing full-funding support to regions with ongoing and implementation-ready projects, both foreign-assisted and locally funded. I

Depart_nent of Agriculture (DA) Per capita regional budget decreased slightly in real terms from about P30 in 1990 to about P26 in 1999. In 1990, only the budgets of Regions III, IV, VI, VII and XI fell below the national average while those of CAR and all Mindanao regions (except XI) stood the highest. In 1999, there was great variability in the per capita budget of the 15 regions ranging from P9 in the case of Region VI to P109 for Region XII. In between, Regions VIII got P56 while Region III had P80. In terms of island sharing, the budget for Luzon and Visayas exceeded the national average for both years while therewas a large drop in the case of Mindanao% budget.

Ruben G. Mercado

In terms of the agency's budget per unit of alienable and disposable (A & D) land, it increased from P120 in 1990 to P138 in 1999. Regionally, CAR, III and IX received the largest, with CAR receiving about four times the national average. The lowest was P87 for Region XI. In 1999, the budgets for Regions III, VIII and XII were way above the average while those for Regions III and XII were four times larger than the national average. There was marked variability that year in terms of regional allocation as the budget ranged from P38 for Region VI to P575 for Region III. In terms of allocation per island in 1990, Luzon received higher than average while in 1999, Luzon and Mindanao received more than the average. Budget per person engaged in agriculture declined from P68 in 1990 to P48 in 1999, in real terms. In 1990, the budget per person of about half of the 14 regions (CAR, II, IV, and all the Mindanao regions except XI) were above the average. The lowest was P45 for Region VI. In 1999, the distribution was more variable as the range widened from P13 for Region VI to P241 for Region III. Only four regions (III, XVII, VIII and CAR) had budgets per person above the average. By island grouping, in 1990, the allocation of Luzon and Mindanao were almost equal and above the average. In 1999, only Luzon's budget was above the average with a significant margin of difference between Luzon and the other two islands. In general, the 1990 regional budget favored regions that contribute largely to total output as well as in gross value added in agriculture. Regional allocation during that year had also been sensitive to total land area and those regions with large alienable and disposable land that are potentialareas for agricultural activities. Moreover, it had been responsive to regions that are more populous, having larger population engaged in agriculture, and with more low-income families. In contrast, the correlation coefficients in 1999 are all insignificant. According to DA, the agency discontinued using the 1990 regional allocation methodology because the DBM had assigned pre-determined ceiling to its regional field units. In the past, this was left to the discretion of the agency wherein the allocation formula, explicitly based on poverty and the potential of the region for greater agricultural productivity, was utilized. This, therefore, calls for a review of the current regional allocation practice of the agency or, at the least, reconsideration or reapplication of the 1990 regional allocation methodology in future budget exercises.

RegionalBudgetDeterminationandAllocation

Department of Environment and Natural Resources (DENR) Per capita regional budget hardly changed from P23.7 in 1990 to P22.5 in 1999. Regional per capita distribution in both years also did not change much with Regions I, CAR, II, VII, VIII and all Mindanao regions except XI, above the national per capita level. In terms of island allocation, the per capita budget of Visayas and Mindanao were higher than average but in 1999, only Mindanao had gone beyond the average level. However, the picture would be different if one will look at the budget per unit of forest land. The budget using this measure decreased from P85 in 1990 to P77 in 1999. In both years, regions whose budgets fell below the national average include most of the regions whose per capita budget were above the average such as CAR, II, IV, VIII and all the Mindanao regions except IX. Also in both years, Mindanao had a budget per unit of forest area below the national average. There was a big increase in terms of budget per deforested area from P26,364 in 1990 to P157,742 in 1999. While the regional budget increased in real terms in 1999 by P200 million from the 1990 level, the increase in the budget using this measure could be attributed more to the smaller area reported as deforested relative to the 1990 figure. In 1990, there were only three regions below the average: Regions III, X and XI. In 1999, regions faUmg below the national average include I, II, III, VII and X. In both years, Mindanao recorded lower-than-the-average budget per area deforested. Trend analysis in the previous section showed that the regional allocation of DENR improved from about 20 percent in 1990 to 63 percent in 1999. Since the bulk of this regional budget was utilized mainly for managing the forest ecosystem, the DENR's regional allocation was expected to be highly correlated with forest-related indicators. The budget in 1999 was more sensitive to the region's forest size compared to the 1990 budget. In contrast, the alreadyweak consideration on the region's forest denudation in 1990 further weakened in the 1999 budge!. It cannot be ascertained â&#x20AC;˘

whether or not this is reflective of the agency's priority for programs on maintenance of existing forest cover over the development of destroyed areas. On the social side, however, the 1999 regional budget continued to be poverty-sensRive and leaned more on lower family income regions. i

â&#x20AC;˘

Ruben G. Mercado

DENR indicated that it no longer adopts the 1990 regional allocation method but mentioned that in allocating its budget, it continues to consider the regions' environmental situation along with the absorptive financial capacity of its regional offices. However, no information was gathered on how this is empirically determined. Department of Trade and Industry (DTI) Per capita regional budget allocation hardly changed in 1999 (P3.1) from its 1990 level (P3.2). In both years, regional per capita budget also did not change significantly with regions CAR, II, V, VIII and all Mindanao regions receiving higher than the average. In terms of island groupings, Mindanao's per capita budget was higher than the average in conh'ast with the per capita budget of Luzon and Visayas for both years although the margins slightly narrowed in 1999. DTI's regional allocation in 1990 was found to be strongly correlated to the region's population, poverty, GRDP and industrial output share of the region in the country's total industrial out-put. In contrast, this significant relationship with these variables and with the rest of the variables was not found in the 1999 regional allocation except for population and poverty. DTI has ceased to adopt its 1990 allocation criteria because it is said to have resulted in inequitable allocation in which more funds were given to regions having less number of persormel and provincial offices. The higher coefficient registered between budget and population was a result of the decision to use per capita in allocating the DBM-determined baseline ceiling to the regions in 1999. However, the agency noted that using population criterion alone is not efficient because it does not consider the relative cost of doing business across regions. As of this writing, the allocation criteria is being reviewed to reconsider the present methodology as well as to take into consideration in the allocation criteria the attainment of the overall agency thrusts. Department of Education, Culture and Sports (DECS) Per capita regional budget increased from P342 in 1990 to P2269 in 1999 as a result of a huge increase in total budget allocation to the regions in real terms. Per capita budget in the regions in both years did not differ much with the more populous regions (NCR, III, IV, VII and XI) continuing to receive less than the average in 1999. In 1990, Luzon received a per capita budget that was less than the average and in 1999, also received the same budget as Visayas.

1O0

RegionalBudget DeterminationandAllocation

A more relevant indicator, the budget per student, increased from P1256 in 1990 to P2246 in 1999. Those receiving less-than-theaverage budget per student include Regions III, IV; VII and all the Mindanao regions. In 1999, Regions III, IV and VII still received less along with NCR and XII. In terms of island allocation, Mindanao received the least in 1990, less than the average budget, but the gap had been minimized in the 1999 budget. In 1990, except for student-teacher ratio in both elementary and secondary schools, DECS budget was responsive to all the indicators analyzed relevant to the agency. In 1999, the coefficients imply responsiveness to all indicators except to those relating to secondary education in terms of participation rate, cohort survival and student-teacher ratio. The increase in the coefficient with respect to poverty and number of elementary and secondary schools is noteworthy. With respec t to the school building program allocation to the regions, Table 18 shows the summary correlation coefficient for the years 1990,1996,1997 and 1999. Distinct allocation criteria were used to allocate capital outlay of the DECS during these years (see Annex D / DECS ). The 1999 budget used the allocation methodology in Section 4b of RA 7880 ("Fair and Equitable Access to Education Act" or more popularly known as the "Roxas Law"). Of the three aUocation methodologies, the 1996 allocation showed the best fit with the most relevant education indicators including poverty, participation rate and student-school ratio. Positively Significant coefficients were yielded by the regional budget with these indicators. In contrast, the 1990 allocation, although-very highly correlated with studentschool ratio showed weak correlation with poverty and participation rate. The 1997 allocation was strongly correlated with poverty but weak in both participation rate and student-school ratio. Expectedly, the 1999 allocation mirrored the 1997 coefficients in that it showed still a positive relationship with poverty and surprisingly showed even weaker and insignificant ,coefficients with respect to participation rate and student-school ratio. The above results point to the need to review the present DECS capital outlay allocation among legislative districts based on RA 7880. The results of the analysis showe_ that Section 4a or the 1996 formula as a more responsive scheme t_an the allocation criteria in Section 4b presently being enforced. The I 1996 allocation formula, which puts greater weight on classroom shortages than on the size

Ruben G. Mercado

Table

18. Summary Results of Correlation Program _and Education-Related Indicator

101

Between Regional Indicators

Allocation

of School Building

1990

1996

1997

1999

GRDP

0.906

0.724

0,436

0365

Population Per capita GRDP Poverty Average family income School-going population Par ticipation-rate-Elem. Participation-rate-H S Functional literacy rate Cohort survival rate-Elem. Cohort survival rate-HS

0.731 0.793 0.206 0.733 0.725 0.144 0.413 0.456 0.379 0.150

0.916 0.476 0,599 0.612 0.933 0.436 0.418 0.677 0.601 0.242

0,821 0.176 0.712 0.343 0.899 0.353 0..151 0.479 0.457 0.120

0_747 0.134 0.683 0.250 0.788 0.161 0.118 0,407 0.364 0.223

Simple literacy rate Total no, of elem. and Sec. schools Total no. of teachers Student-school ratio-Elem. Student-school ratio-Sec, Student-teacher ratio-Elem. Student-teacher ratio-Sec.

0.386 -0.134 0.751 0.828 0.803 -0.104 -0.280

0.695 0.328 0.924 0.566 0.559 0,341 -0.080

0.468 0,557 0.881 0.213 0,228 0.431 0.202

0.224 0.460 0,718 0.135 0,127 0,613 0,212

of the student population in the legislative district, addresses the actual need of the area versus the expected demand for educational facilities. This observation echoes the same concern raised in the legislative agenda for social reform in the 1999-2004 Medium-Term Philippine Development Plan to review the said law "due to noted weaknesses in allocating resources using the scheme" (i.e., the 1997 and onwards allocation as stipulated in Section 4b of the Act). The law was observed to have failed in addressing the problems of small areas that are .disadvantaged between the well endowed

educationally and in closing and less endowed areas?

the gap

Department of Health (DOH) Average per capita regional budget in real terms declined from P86 in 1990 to PS0 in 1999. In 1990, NCR, III, IV and VII received less than the average. In 1999, NCR, II and CAR were the only regions that received more than the average for the year. In terms of

An article in the Manila Bulletin (8 August 1999) reported that ".,.mayors noted that even the repair of school buildings costing PS0,000 was being implemented without the merest _oordination and consultations with them.. ,What often happens,..is that a school building would be constructed in a certain area where a school building already exists while another area,or sitio, thaturgentlyneeds.onecontinuestohave no schoolhouse."

102

RegionalBudgetDetermination andAllocation

island allocation, Luzon received less than the average in 1990 but the trend was reversed in 1999 as Luzon got twice the allocation of Visayas and Mindanao. In terms of budget per poor family, the result did not differ much for mcst of the regions in 1990., The regions that received less than the average include NCR, L V, VI, VII, X and XI. In 1999, all regions except NCR and CAR received less than the average. The difference from the average had been quite substantial: from P262 (Region IV) to P6720 (NCR), which skewed the distribution. In 1990, Luzon received more than Visayas and Mindanao but the share of the latter island groups was relatively close to the average. In 1999, Visayas and Mindanao received less than half of what Luzon received. The 1990 regional budget was found to be positively related to variations in population and poverty situation. This can be attributed to the use of the allocation criteria during the budget year where these two indicators were prominerffiy considered, However, while the budget was not biased for economically rich regions as shown by the weak fit in GRDP and in the per capita GRDP, it also did not show significantly positive fit with infant and maternal mortality rates as expected. The coefficient in the latter was even negative. This points to the basic weakness of the allocation methodology used. The 1999 regional budget showed worse fit when compared with the 1990 regional budget. It further strengthened the inverse relationship with maternal mortality rate, registered a negative relationship with infant mortality rate and became poverty insensitive. Inasmuch as the regional budget, with the agency's transfer of provision of primary health care services to the local government units, had been mainly appropriation for health facilities maintenance and operations particularly state-run hospitals, the more urbanized and economically richer regions where these facilities are located have received bigger budget. This explains the high correlation between the agency regional budget with GRDP and per capita GRDP. The above findings call for a rethinking of the DOH regional allocation to rectify its seeming unresponsiveness to the health status and needs of the various regions. While the provision of basic health services had been relegated to the LGUs as a result of the devolution, the achievement of the basic health goals remains inherent in the agency's mandate. With its redirected functions and

Ruben G. Mercado

103

operations under E.O. 102 (24 May 1999) as provider of specific health services and technical assistance, it should be able to undertake the necessary refocusing of its activities and address regional differences in health challenges through a more responsive budget allocation. Department of Social Welfare and Development (DSWD) Per capita regional budget in real terms reduced to more than a third from P7.8 in 1990 to P2.2 in 1999. This is concomitant to the similar proportion of decrease in the regional budget of the agency in the same period. In 1990, regions that received less than the average include NCR, I, III, IV, V, VI, VII and XI. In 1999, all regions except CAR, IX, X and XII received less-than-the-average per capita budget for the year. In temps of island groupings, Luzon and Visayas received less than the average in both years. However, in 1999, the three island groups were close to the average compared in 1990. The average budget per poor family also decreased to a third from P96 in 1990 to P34 in 1990. In 1990, most of the regions--I, II, III, IV, V, VI, VII, X and XI. were below the average. In 1999, the same regions except II and III received less than the average per capita budget for the year. In both years, Visayas received less than the average, though its budget was still close to the average and to that of the other two island groups. The regional budget in 1990 showed stronger and better fit with all the indicators compared with the 1999 budget. However, in both years, the correlation with poverty was positively insignificant. In both years, a significant direct relationship was obtained between regional budget and the elderly population. The weakened relationship between regional budget and GRDP and per capita GRDP in the 1999 budget may indicate a deviation of bias for economically rich regions. This, however, may not confirm whether or not the budget had favored poorer regions as shown not only by the still positively significant coefficients between these indicators but also by the low correlation coefficient with respect to poverty and the significantly negative relationship with infant mortality rate. Moreover, while the coefficient in 1990 in the number of underweight children was positively insignificant, the inverse relationship in 1999 was unexpected.

104

RegionalBudget DeterminationandMlocation

Policy Issues and Recommendations Two major problems in regional budgeting have gained prominence over the past years: methodological and institutional. The methodological issue concerns the alleged inconsistency of approved agency regional allocation to regional priorities identified in the region's development plans and investment programs. This was attributed to either the inappropriateness or unresponsiveness of the allocation criteria or method used by the agencies in allocating the regional budget or the absence of such allocation methodology that renders regional budget determination arbitrary. The institutional issue refers largely to the question of the role and power of the RDCs over national government agencies in regional budget determination. The review and recommendatqry powers of the RDCs in the allocation of agency regional budgetary ceilings and in the review and approval of the annual and multi-year regional infrash'ucture programs and other sectoral programs requiring national funds are recognized in the past and current executive issuances. However, these roles or functions become irrelevant as actual budget allocation by the national agencies to their regional go in parallel with the RDC recommendation.

offices

Regional Budget Determination Determining how much of the total agency budget will be allocated to the regions has always bee n dependent On the decision of the agency leadership. The common decision parameters are the agency thrusts and policies as well as the readiness and capability of the agency regional offices to administer the funds efficiently. This study revealed that the increase in allocation for regional activities largely depends also on whether the agency gets a raise in its total allocation for each budget year. However, this has not been found to be the case historically for'OAR, DENR and DTI. Most of the agencies studied have regionalized their budget extensively. Agencies such as DPWH, OAR, DENR, DECS and DOH have allocated more than half of their total budget to the regions. In contrast, DA, DOTC, DTI and DSWDI have historically kept their budget in their central offices and allocated less than a third of its annual budget to the regions.

Ruben G. Mercado

105

In the 1999 budget exercise, DA reported that the DBM indicated the ceilings for its Regional Field Units (RFUs). This procedure may create distortions in allocation and pose a restriction to the agency to give funds where these can bring the most benefit or where they are most needed. The FY 2000 Budget Call has reverted back to the agencies the indicative expenditure levels as guide in the regional budget preparation. Nevertheless, the challenge remains for agencies to derive the optimal proportion of regional budget relative to their total agency appropriation. The concern is most directed to the four agencies (DA, DOTC, DTI and DSWD) that have remained cenh'alized. For agencies like DTI and DOTC whose programs are strategic and for DSWD where funds are normally centrally kept for disaster relief, it may be less difficult to understand the constraint for further increasing funds for regional activities. For DA, however, the concern may be more serious inasmuch as agricultural activities rest largely on the dynamism of agricultural sector in the regions which can only be enhanced if sufficient funds are made available. The need to seriously examine the seeming disproportionate allocation between centrally administered and regionally managed funds especially for DA is imperative. Regional Allocation This study showed that use of regional allocation criteria had in one way or the other displayed its effectiveness in influencing the shape of the final regional budget making it more sensitive to the regions' development conditions. Thus, the need to revisit the respective agency's allocation criteria for future application in the succeeding budget exercises cannot be overemphasized# The analysis showed some areas where improvements can be made on these methodologies. Despite the observed weaknesses, the application of the methodology proved to be more responsive compared with its nonuse. The absence of logical criteria in allocation can surely lead to greater risks of inefficiency, unresponsiveness and inequity or even worsen the already adverse situation.

6 Related to this, according to a NEDA report, during the Technical Budget Hearing for the FY2000 budget, only the infraslTucture agencies were prepared to present the regional breakdown of their programs and projects. DPWH even discussed the regional allocation scheme currently unde_ review by the agency.

106

RegionalBudgetDeterminationandAllocation

One of the problems identified for the nonsustainability of the continued adoption of the methodology is the unavailability of updated statistical data needed for the use of the allocation formula. Similarly, there is also an absence of a model that will take into account qualitative criteria such as, for instance, the relative comparative advantage or the relative competitiveness of the region in a particular development sector. The development of models or proxy indicators to capture less simple summary indicators to make the allocation methodology more rational can be a possible area for further research and study. The use of formula may prove rational but there looms the problem of absorptive capacity. It has always been asserted that rich regions always get more and poor regions shortchange in the national budget. For instance, during the first Legislative-Executive Department Advisory Council (LEDAC) meeting under' the Estrada administration, it was again raised that poor regions especially in Mindanao and Regions VIII, V and CAR receive less than the other regions. A strong argument offered concerns the region's absorptive capacity or the institutional capability to utilize the available resources. DBM admitted that the poorest regions have the lowest rate of fund utilization. Moreover, it was stressed that economic performance should be a reward rather than a punishment in setting the allocation rule. Thus, regions like III and IV, aside from Metro Manila, should not suffer in the allocation process on the basis that they lead in per capita income, industrial capacity and economic dynamism. Both arguments are valid. On the one hand, efficiency in the utilization of funds should be rewarded. On the other hand, the laggard regions must be helped to catch up with the level of the more advanced regions in order to achieve the infrastructure and technology of the richer ones and build their institutional capacities for effective governance. In particular, agency regional offices should be empowered so they will be less dependent on the central office and take on a greater role in designing programs and projects and carrying out these programs more efficiently. This may happen if central office will provide the administrative environment and I flexibility as well as financial resources accompanying these increased responsibilities and accountabilities. It must be pointed out, though, that rich and poor regions may also require a relative differentiation in the priority services. For instance, poorer regions may need to be given greater priority in I !

Ruben G. Mercado

107

social development budget. On the other hand, specialized urban infrastructure may be required for highly urbanized regions performing transnational control functions, operations and linkages. Regional Budgeting Process, Institutions and Innovations In contrast to the last two regimes especially the Aquino administration, the budgeting process under the Erap administration no longer considers regional budget consultation as a milestone activity in the entire budget preparation calendar. It has become a procedural activity in the agency budget preparation. The FY 2000 National Budget Call issued in February 1999 provides for the following: "The following items shall be incorporated in the agency proposals: a. Regional/Spatial Dimensions The regional spatial dimension of the budget shall be reflected in the agency budget such as region, province, district or municipality. Agency central offices shall provide indicative expenditure levels to their regional units as guide in the preparation of the regional budget. Regional Development Councils (RDCs)shall be consulted to ensure consistency of the proposal with Regional Development Investment Programs." The seeming lack of a mechanism for regional budget consultation has led the RDCs to reach a major agreement during the National Conference of the Federation of RDCs in April 1999 in Malacanang that: "an administrative policy shall be formulated such that the DBMshall, before finalization of the government's budget and its transmittal to Congress, consult the RDCs on the agreed budget allocation by region and byagency (for p_sible changes,provided any recommendation forrealibnunentshall no longer affect the budgetary ceilings)'.

While the FY 2000 Budget Call provides for the RDCs to be consulted as part of the agency budget preparation, the actual process left the RDCs to design their own strategies (technical and political) to influence agency allocation for their respective regions. The absence of a clear and organized framework for the various players in regional budgeting to harmonize its concerns may yield inequitable distribution in agency allocation for the regions. A more standardized system may have to be in place so that regional leaders and agency heads can interact face to face and, in a more transparent fashion, discuss budget allocation and prioritization. Planning-programming and budgeting linkages could be done in a cozy room than through the backdoor. Allowing the respective

108

RegionalBudgetDeterminationandAllOcation

RDCs to design their own strategies to influence agency allocation for the region is a political gamble, which not only entails risks but also tolerates fragmentation of development concerns. There is also a need to look into how spatial based budgeting can be operationalized than just merely listing where agency programs are to be located. Island Budget Summits (Luzon, Visayas and Mindanao) can be held to integrate agency regional program funds or take the place of regional consultations. On the logistical side, a longer budget review should be proposed so that sufficient consultations can be made on the regional breakdown of agency budgets and to have ample time to explain and discuss the allocation scheme utlilized for this purpose. There may also be a need to venture into:some budgeting innovations with the end goal of addressing the needs of the poorest regions. For instance, the RBAS or a similar scheme that has been proposed in the past but never been tried can be given an opportunity to show its effectiveness as a decentralized budgeting instrument. This scheme can be possibly pilot7tested in the poorest region in each of the major island groupings (i.e., one each in Luzon, Visayas and Mindanao) and evaluate how it can be beneficial or can be improved for future application. A region may pertain to the traditional administrative region, a collection of regions or may even be an amalgamation of a number of contiguous LGUs. The Countrywide Development Fund (or pork barrel, at least part of it) can be used to establish a common fund for the region. The senators, congress representatives, iregional policymakers and implementers can sit down together to discuss how these funds can be spent. The advantage of this common pool scheme is that it can integrate the efforts of the various individuals and sectors in support of the regional priorities and goals while, at the same time, bring about equity in the share of the pork barrel within and across regions. ! l

Annual

Regional Budget Analysis i The availability of complete actual annual data on regional agency budget will be helpful to extend the present analysis. With this information, it would be possible to evaluate the distribution of actual yearly investments of the major government departments across region_ and island groups. Government agencies should make this information readily available for their use in planning and evaluation of the spatial dimension of their budgeting and spending. ;

Ruben G. Mercado

109

REFERENCES Alabanza, J.M. 1991. Institutional Development of the Regional Development Planning System from a Regional Perspective. Unpublished paper. Alba, M.SL. 1990. The Evolution of Regional Development Planning System from a Cabinet- Level Perspective. Unpublished paper. Asian Development Bank. 1998. Compendium the Philippines. Pasig City, Philippines: Bank. Department of Budget Budget Call.

and Management.

of Social Statistics in Asian Development

1999. FY 2000 National

Lawas, J.M. 1990. Evolution of Regional Planning in the Philippines: A Process Documentation. Unpublished paper. Laya, J.C. 1979. Philippine Government Budgeting: Policy and Practice in the New Sodety. Manila: Ministry of Budget. Montes, M.F. undated. Fiscal Policy in the Philippines: Executive Memo. Makati City: Philippine Development Studies. --.

An Appr_. Institute for

1992. Financing Development: The Political Economy of Fiscal Policy in the Philippines. Monograph Series No. 13. Makati City: Philippine Institute for Development Studiesl

National Economic and Development Authority. 1999. Medi'um-Term Philippine Development Plan, 1999-2004. Pasig City, Philippines: National Economic Development Authority. --.

1994. Primer on the Regional Budget Allocation Scheme. Pasig City, Philippines: National Economic and Development Authority.

Ople, B.F. 1999. A Dialogue of Rich and Poor Regions. Panorama. Manila Bulletin, 7 March.

Philippine

Rebamontan, L. 1999. LGUs Demand Better Coordination by Gov ernment Agencies (To Avoid Wastage of Funds). In Manila Bulletin, 8 August.

110

Regional Budget Determination and Allocation

Annex A. Detailed Provisions of LOI Nos. 447 and 448 and PD 1177 LO1447 1.

All department and agency heads shall

a) b) c)

ask their regional offices to evolve their respective regional budgets in conformity with the priorities established by Regional Development CounciLs; involve said regional offices in the preparation of the department or agency budget; and prepare itemizations of proposed budgetary expenditures by region

The Commissioner Ofthe Budget shall

identify by region the expenditure programs of national government agencies in the national government budget; and release funds to national government agencies in accordance with the approved regional distribution of expenditures, specifying the region of destination, inforination on such releases shah be furnished to the Regional Directors and to the Chairman of the Regional Development CounciLs.

LOI 448 Section 6. An explicit regional orientation shall be reflected in the national budget for subsequent fiscal years, whereby funding authorizations for both operating expenses and development projects are clearly indicated for the various regional offices. Section 7. Planning units or planning positions shall be established or provided, whenever necessary and indicated, in the regional offices through the budgetary process. Pending this; authorization is given in the meantime for agencies to designate regional planning officers from among qualified officials in their respective regional offices. Said regional planning officers shall be responsible for providing shaft assistance to the regional directors in the development of regional plans for their respective sectors and shall for this purpose maintain liaison and coordinate with and provide assistance as necessary to the NEDA regional planning staffs in the various regions. PD 1177 Section 6: Regional Budgeting. The budgets of national government agencies shall take into full and explicit consideration the goals, plans and requirements of their respective regional offices, in the inte(est of full government response to local thinking and initiative. The Budget preparation process shall originate at regional and local levels, and shall be consolidated and reviewed by the central offices of the various national agencies. The regional development strategies and plans, including physical framework and resource-use plans, shall be considered in the preparation of the budget, Seek'on17. Regional Budgets. The budgets of national government agencies shall be prepared taking into fall and careful consideration the opportunities and requirements specific to the various regions of the country. Where they are organized, regional offices shall originate agency budget proposals, in accordance yAth approved priorities and guidelines. Agencies which are not regionalized shall nonetheless estimate the amounts planned to be spent for each region of the country.

I I

The Commissioner shall identify by region the expendircure programs of the national government agencies in the national government budget, and release funds to national government agencies accordance with the approved regional distribution of ebpenditures, specifying the region of destination: I

Departments

and agencies shall sub-allot in full and without the

imposition of reserve, the

approved budget allocation of their various regional offices .... Section 38e. Allotment of Appropriations. Releases of funds appropriated for a given agency may be made toitsRegional Offices where dictated by-the needlandurgencyofregional activities.

o" Annex B. Comparison and 1998"

of BESF (Proposed)

REGION

and COA (Actual) Distribution

DAR

of Regional DPWH

Agency Budget,

1995"

DOTC BES F COA

BESF

COA

BESF

COA

BESF

COA

6.5 3.5 8.0 7.7 15.3 6.7 7.1 9.0 7.7 7.4 7.4 7.4 6.1

7.7 3.6 11.7 10.0 12.1 7.2 6.0 6.1 5.2 6.7 5.1 10.7 7.8

7,8 3.7 6.5 17.0 12.0 6.4 • 10.9 7.1 6.4 4.9 5.0 5.5 6.9

7.7 4.0 5.9 10.7 12.1 9.4 10.0 6.5 9.6 5.3 7.9 6.4 4.5

6.7 6.0 4.9 9.3 18.2 9.8 7.4 6.8 7.6 3.2 8.6 7.0 4.5

7.2 5.2 6.0 11.7 14.0 12.3 7.2 6.0 5.4 4.1 7.6 7.8 5.6

21.2 0.2 1.3 1.8 2.5 1.5 1.8 62.4 1.6 1.3 1.7 1.5 1.1

8.6 2_ 5.0 6.7 11.2 7_ 9.2 &8 7.0 8.0 10.8 10.2 4.2

1(}0.0

i00.0

100.0

7.6920 2.62 0.3408

7.6922 2.69 0.3493 0.6094

7.6921 3.62 0.4704

7.6925 2.51 0.3268 0.7192

7.6923 3.65 0.4751

7.6923 3.06 0.3981 0.6657

7.6921 17.33 2.2528

7.6918 2.55 0.3321 0.1829

Luzon °*

47.7

52-3

53.3

49.9

54.9

56.5

28.7

41.9

Visayas Mindanao

23.9 28.4

17.4 30.3

24.4 22.3

26.0 24.1

21.7 23.4

18.5 25.0

65.8 5.5

25.0 33.1

A. 1995 I CAR II III IV V VI VII VIII IX X XI XII Total Mean StcL Dev. C.V. Pearson r

*Excludes dish-ibution for National Capital Region (NCR) since Nationwide and Cen_al Office Budgets are lumped with NCR in the COA data ** Excludes NCR

_. o

bo Annex B. (continued) REGION

DENR

DTI

BESF

COA

BESF

I CAR II III IV V VI

6.2 7.6 7.5 7.6 13.6 6.0 7.3

7.4 8.7 9.0 7.3 13.2 5.3 7.2

excluded 4.5 7.1 8.4 11.4 7.8 9.4

VII VIII IX

7.9 6.2 5.8

6.6 5.5 7.5

8.1 8.4 8.1

X XI XII

10.3 8.5 5.5

10.8 9.0 2.5

100.0

A_ 1995

Total

Mean Std. Dev. C.V. Pearson r Luzon** • Visayas Mindamao

DECS

DOH

DSWD

COA

BESF

COA

BESF

COA

BESF

COA

excluded 6.5 5.9 19.8 10.1 8.5 7.4

7.5 2.6 4.8 10.4 15.6 8.9 12.0

9.2 3.1 6.2 8.9 7.9 8.2 13.0

7.1 7.0 6.3 9.3 8.1 7.3 10.0

7.4 6.7 7.3 5.7 14.6 4.2 7.7

5.6 5.6 5.6 9.4 11.2 6.5 7.5

4.4 5.0 4.5 16.3 14.3 7.5 13.8

5.2 6.9 7.0

7.6 7.3 5.0

8.9 8.9 5.7

9.4 7.5 6.1

10.0 7.6 6.5

7.5 7.5 8.4

3.1 2_7 7.7

8.4 11.4 6.8

6.6 11.1 5.0

6.7 7.8 3.8

5.9 9.1 5.9

6.4 9.7 5.9

6.8 9.7 5.7

11.2 7.5 6.5

2.1 10.3 8.5

100.0

100.1

100.0

7.6923 2_21 0.2871

7.6922 2.63 0.3421 0.8698

8.3354 1.86 0.2231

8.3336 4.04 0.4848 0.3574

7.6923 3.51 0.4562

7.6923 2.41 0.3131 0.6851

7.6925 1.46 0.1897

7.6924 2.61 0.3389 0.3692

7.6973 1.91 0.2488

7.6920 4.73 0.6156 0.3342

48.5 21.4

50.9 19.4

39.3 26.0

50.7 19.6

49.8 26.9

43.5 29.9

45.0 26.9

46.0 25.3

44.0 22.4

51.9 19.5

30.1

29.8

34.7

29.7

23.3

28.7

28.1

28.7

33.7

28.._

cr_. o __ G-

5" ta o

AnnexB (continued) REGION

DA' BESF

B.1998 ICAR H HI IV V VI VII VIH IX X XI XII CARAGA

6.1 3.4

DAR COA

7.5 4.8

BESF

7.7 3.8

Dl_tq-I COA

8.7 5.9

BESF

s.o 7.9

DOTC COA

7.0 4.6

BESF

6.6 1.1

COA

10.2 1.8

7.7 7.0 16.4 7.2 7.4 9.4 7,8 7.3 5.6 7.0 6.2 1.6

11.9 9.0 11.6 7.6 7.2 5.2 5.5 5.7 5.8 8.9 5.8 3.4

6.1 i5.9 11.8 6.4 11.2 7.2 6.8 5.1 3.5 4.8 7.1 2.8

3.5 12.5 14.0 8.9 10.8 7.0 7.0 4.2 5.4 7.6 2.0 2.6

4.3 4.6 17.7 6.8 10.2 5.2 6.7 5.1 7.2 10.3 7.1 1.7

6.9 13.5 15.5 12.2 6.4 5.5 4.3 3.0 6.8 4,8 2.1 7.4

5.8 6.5 13.2 9.8 9.9 9.9 9.5 7.6 6.3 7.5 4.5 1.8

5.4 7.1 10.7 9.2 10.4 10.7 7.7 8.1 5.8 7.9 4.4 0.6

100.0

7.57 2.998 0.3961

7.43 2.353 0.3166 0.6537

7.48 3.512 0.4695

7.49 3.489 0.4655 0.7843

7.56 3.602 0.4761

7.13 4.109 0_5767 0.3668

7.56 3.010 0.3984

7.65 2.717 0.3553 0.9024

Luzon**

47.8

52.5

51.7

53A

46.6

59.7

43.1

44.4

Visayas Miad:mao

24.6 27.7

17.9 29.6

25.1 23.2

24.8 21.8

22.0 31.4

16.2 24.1

29.3 27.7

28.8 26.8

Total Mean Std. Dev. C.V. Pearson •

• Excludes ddistribufion for National Capital Region (NCR) since Nationwide and Cen_ai Office Budgets are lumped with NCR in the COA data *• Excludes NCR "*" DOH data of COA for Regions VIII, IX and X are incomplete: for comparison, BESF data were also dropped for these _egions

K ,_ _a o_"

t.,a

k_a

Annex B. (continued) REGION DENR BF,SF COA B_1998

DTI

DECS

BESF

COA

BESF

COA

DOH*** BESF COA

DSWD BESF

COA

I CAR 1I HI IV V VI

6.7 7.5 8.9 7.7 13.9 6.8 7.3

7.5 7.2 6.8 7.9 15.2 6.3 6.2

6.3 6.7 6.0 9.8 10.1 8.5 8.1

6.5 7.9 7.2 8.3 12.8 8.7 10.0

8.2 2.5 4.7 10.8 14.7 9.0 11.2

9.2 3.2 5.6 13.6 2,7 10.9 15.9

9_9 7.1 8,3 10.9 8,3 13,6 11.8

11.8 8.2 9.7 8.1 9.4 11.6 12,6

7.2 5_8 6.7 10.8 13.0 9,0 excluded

9.2 7.9 6.7 10,6 12.1 10.2 excluded

VII VIII IX X 2(I

7.2 7.0 6.3 6.8 8.4

6.7 5.8 6.1 6.5 8.1

7.6 6.7 7.2 6.9 9.8

7.1 7.9 8.2 8.8 0.5

7.8 6.2 5.2 4.7 7.8

9.6 8.4 0.2 6.0 10.2

13.0 excluded excluded excluded 14.2

12,3 excluded excluded excluded 11.7

9.9 excluded 9.9 9.0 9.9

7.1 excluded 8.7 8.0 10.2

XII

5.5 0_0

5_3 4.4

6.3 0.0

6.1 0.0

3.6 3.4

4.1 0.2

2.0 0.8

3.3 1.3

9.0 0.0

4_8 4.4

Total Mean Std. Dev.. C.V. Pearson r Luzon** Visayas Mindanao

100.0

100,0

7.69 Z055 0.2672

7.35 Z510 0.3415 0.8467

7.69 1.452 0.1887

7.69 2.742 0.3565 0.5385

7.43 3.436 0.4625

7.68 4.533 0.5902 0.5160

10.37 2.367 0.2283

10,45 1.816 0,1736 0.9277

9.09 1.997 0.2196

8.69 2.059 0,2370 0.7055

50.9 18.7 30.4

47.4 22_4 30.2

51,3 25.0 23.6

50.0 25.3 24.8

58.8 24.9 16,3

52,5 9.9 37.7

51.5 21.4 27.1

45.2 34.0 20.8 •

58.1 24.8 17.1

56,8 7.1 36.1

0"_. _.. _X_

_:J t_

2. _'

Ruben G. Mercado

115

Annex C. Agency Functions Devolved to Local Government Units Per 1991 Local Government Code DA: Agricultural and fishery extensiol_ services Regulation of agricultural and fishery activity Conduct of agricultural and fishery research activities Procurement and distribution of certified seeds Purchase, expansion and conservation of breeding stocks Construction, repair and rehabilitation of water impounding systenxs Support to fishermen, including purchase of fishing nets and other materials DENR • Forest management services • Mine and geosciences services • Environmental management services • Reforestation projects • Integrated social forestry projects • 'Watershed rehabilitation projects DPWH • Repair and maintenance of infrastructure facilities • Water supply projects • Communal irrigation projects DOTC • Telecommunication • Transportation

services

franchising and regulatory services

DTI • Promotion and development of trade, industry and related institutional services DOH • Extension of medical and health services through provincial health office, district, municipal and medicare community hospitals • Purchase of drugs and medicines • Implementation of primary health care programs • Fieldhealth services •Aidtopuericu!ture • Construction, repair, rehabilitation andrenovation ofprovincial, district municipal and medicare hospitals ° Provision fortheoperation offive-bed health infirmaries DSWD • Implementation ofcommunity-based programforrebal returnees • Provision fortheoperation ofa day-care center ineverybarangay ° Provision forpovertyalleviation inlow.incomemunicipalities and depressed urbanbarangays

Ruben

Mercado

117

Plr = (Pri / IT) "Wg Where : Pri -- Total number of provinces in the region PT = Total number of provinces within the group Wg = Weightof theGroup Fund allocation formula for barangay roads/multi-purpose

pavement

SMPin = (Nbi/NBn * ABSi/ABSn" DFi) / 5"{Nbi/NBn * ABSi/ABSn * Dfi} Where: SMPi _ Share of the region in the barangay multi-purpose pavemems funds of the Phil. NBi _ Existing Number of Bartmgay in a Region NBn = Total Number of Existing Barangay in the Philippines ABSi = Average Size of Barangay in a Region which is equal to the population divided by humber of barangay of the region ABSn= Average size of barangays in the Phil, Dfi = Implementation Difficulty Factor of the Region Based on Terrain and Accessibility Formula for Rural Water Supply Fund Allocation Sri - (Zri "C_) Where:

/ E Zri * Cw_

Zri = (TrPri - SrPri) / 130

Where; Sri --share of the region in the total national outlay for rural water supply Zri = required number of Level 1 facilities (wells/springs) in the region TrPri = total rural population in the region SrPri = total rural population served in the region 130 _ average number of persons served per well Cwi = weighted average unit cost of Level I facility in the region

Department of Transportation and Communication (DOTC) Land Transportation Building Projects The basic concept in the allocation of the annual budgetary ceiling for LTO's building program is to give ,_leh region the commensurate fundir_g to be able to implement and finish the program at about the same time as the others. Thus, regions with more unprogral_rned district buildings will be allocated more than those having less number of unprogratTu'ned district buildings to build, This way, all the regions will more or less finish the program at about the same time. The program covers approximately 144 regional and district offices of the LTO. The basic formula for regional fund allocation is: RA ,, [ {E(EC r"UBr) / {E(ECn* UBn)} ] * 100 Where; RA = regional allocation (in percent) EC .. Equivalent Cost Factor of each LTO Bldg. (changes every programmed year) UBr .. Unprogrammed LTO Bldgs. for the given region for the given building type in the programmed year (either for rehabilitation or new construction) UBn = Unprogrammed LTO bldgs, throughout the country as of the program year. Postal Office Building Projects The concept of allocating the funds to the regions aims to give each region an equal chance to finish the program at a pace equal to the others regardless of post offices in the region. The post office building programaimstocovertheapproximately 2000postal offices throughout thecountry,

118

Regional

Budget

Determination

and Allocation

The basic formula for the regional fund allocation is: RA = [ {E(EC r* UPBr) / {_(EC n" UPBn)} ] * 100 Where:

I RA = Regional Fund Allocation in percent for tl]e year EC Equivalent Cost Factor for each type of po_t office UPBr Unprogralr'a-ned PSO Bldgs. (either for rellab or new construction) m the region as of the program year UPBn = Unprograrmned PSO Bldgs. throughout tl- _ country as of the program year

Establishment of Telegraph Stations With the program establishing telegraph stations in eacl_ municipality completed in 1989, the task at hand is to replace old/obsolete telegraph equipment in :he various stations. The formula for the regional fund allocation is as follows: RA = [OTSr / OTSn] *100 Where: RA _ RegionalAllocation (%) OTSr = Total number of obsolete and unprograrru'hed telegraph stations in the region as of the program year. i OTSn= Total number of obsolete and unprogrammed telegraph stations in the country as of the program year Note: Obsolete covers those for replacement and/or conversion to radio

Department of Agriculture (DA)

To achieve DA's objective of favoring the poorer regiofis and at the same time giving incentives to regions with better agricultural and fishing potentials, he 1990 formula was modified to consider the following weights: Poverty Level

- 20%

Percentage of Population engaged in farming and fishing

- 30%

Arable land area

- 30%

Percentage of productive fishing grounds over total fishing area - 20% 100% ! The modified formula hopes to address,poverty in the more populous areas,of tl3ecountry while at the same time provide the necessary boosts for develol_ment in those areas where agriculture and fishing is more profitably feasible, The regional allocation formulaisasfollows; Si = [ {(Pi/Pp)*0,20 }+ {(Ei/Ep)*0,30 }+{(ALl/ALp)*0,30 }+ {(FGI/FGp)*0,20 }] E [{(Pi/Pp)*0.20 }+{(Ei/Ep)*0.30 }+{(ALl/ALp)*0. 0 }

}]

Ruben G. Mercado

119

where:

Si = share of region to total funds P = population below poverty hne E = no. people employed in fishing and agriculture AL = arable land area.insq, km. FC = fishing grounds in sq. kin, i = region p = Philippines

Dep_-tment of Environment and Natural Resources (DENR) Criteria for Allocation Criierion No. 1 - 60% The urgency of rehabilitation, protection and development of the environment and natural resources Six Indicators: * Indicators for the RehabLLita_on,Protection and Development of the Forest Ecosystem 1. Denudation Index 2, Size of Virgin/Residual Forest 3. Area in Hectares of the Projects Covering the Integrated Social Forestry program 4, Area in Hectares of the National Parks, Game Refuge and Bird Sanctuaries 4/6 * 60% . Indicator of Rehabilitation of the Urban Environment 5. Urbanization Index 1/6 *60% . Indicator for Needed Environmentally Sound Programs to promote the Development of Mineral Resoo_rces 6. Volume of Mineral Resources and Small Scale Mining Areas 1/6 *60% Criterion No. 2 - 35% .Support to the Comprehensive Agrarian Reform Program Four Indicators: . Support to the Integrated Social For_try Project Participants 1. No, of Perticipant-Famtlies in' the Integrated Social Forestry Program I/4 * 35% * LandSurvey and Information Management 2. No. of Uncadastred Areas 1/4 * 35% 3, Lot Surveyed (Pcet-Survey Acfivifies) 1/4 * 35% , Alleviation of Poverty 4, Poverty Index 1/4 * 35%

120

Regional Budget Determination and Allocation

Criterion No, 3 - 5% Need to strengthen the organization strengthelxing)

to improve its capability to provide services (institutional

Indiqator: No of Itemized positions per region Additional Criterion: As a balancing or Adjustment Indicator

i !

• The existence and budget level of foreign-assisted projects in the region - this means that regiosn which do not have or w_th negligible foreign-assisted projects will get higher allocation, Those with 'big existing foreign assisted projects like Region IV will receive lesser allocation,

Department of Trader and Industry (DTI) Regional Allocation Criteria (for allocable budget only) Relative Size Population Land Area

20 pts

Magnitude of Trade and Industry Business name Registration SEC Registration

Institutions No. of Banks No. of Schools

No, of Sectoral Assoclati0ns/PVOs Utilities and Infrastructures

Roads and Bridges •Water and Power •Ports/Airports Communication Facilities Labor and Industrial Center

Targets Exports ' Investments

Department of Education, Culture and Sports (DF.CS) School Building Program DECS Model Classrooms - regional enrolment / regional class size Workshop = Intermediate enrolment / (40x 4) Costtngs: Classrooms Workshop

Construction/Replacement P 140,800 170,000

Rehabilitation P 25,000 _0,000

Toilet Computation,,

40,000 ]

P2,540 Million prorated between regions based o_: i

Relative need (79%) Incidence of poverty (21%) DPWH regional difficulty coefficients

Ruben G. Mercado

121

Allocation of Capital Outlays For NNSSs (Newly Nationalized Secondary Schools) Classrooms = regional enrolment / regional class size Science Labs Workshops Costtngs : Classrooms Science Lab Workshops

Construction/Replacement

Rehabilitation

P 145,000 215,000 245,000

P 30,000 40,000 40,000

Computation: P 500 Million prorated between regions based on relative requirement of each region Allocation Criteria as reformulate d by DPWH Construction (New) Sci = { (RRi/RRp) * IDFi) }/ _2(RRi/RRp) * IDFi) Where: Sci = share of region I in the total schoolbuilding construction funds. RRi = number of rooms required in region I, calculated as Enrollment/Class Rooms

Size - Existing

RRp - number of rooms required in the Philippines, similarly calculated; and IDFi = implementation difficulty factor in region I Replacement and Rehabilitation SRRi = {(CRRNi/CRRNp) *IDFi} / Z [(CRRNi/CRRNp) Where: SRRi CRRNi CRRNp

= share of Region.I in the total schoolbuilding replacement and rehabilitation funds, _ cost of schoolbnilding replacement and rehabilitation needs in Region I based on the latest DPWH-DECS inventory. = cost of scholbuilding replacement and rehabilitation needs in the Philippines based on the same inventory,

Roxas Law / Republic Act No. 7880 "An Act Providing for the Fair and Equitable Allocation of the Department of Education, Culture and Sports"Budget for Capital Outlay" signed into law on 20 February 1995 The annual DECS budget for capital outlay shall be aUocated among the legislative districts in the following manner: a)

On the first year of the effectivity of the Act: (1996)

thirty percent (30%) of the capital outlay to be allocated pro-rata according to each legislative district's student population in relation to the total student population of the country; sixty percent (60%) of the total capital outlay to be allocated only amorLg those legislative districts with classroom shortages, pro-rata to the total classroom shortage of the country as determined by the DECS, and ten percent (10%) to be allocated in accordance with the implementation of the policy as may be determined by the DECS.

On the second year and every year thereafter (1997 onwards)

fifty percent (50%) of the capital outlay to be allocated pro-rata according to each legislati,,_e district's student population in relation to the total student population of the country; forty percent (40%) of the total capital outlay to be allocated only among those legislative districts with classroom shortages, pro-rata to the total classroom shortage of the country as determined by the DECS, and

122

Regional Budget Determination and Allocation,

â&#x20AC;˘3)

ten percent (10%) to be allocated in accordance with the implementation of the policy as may be determined by the DECS.

School Building RequirementS and Programs (DECS) Computation of Requirements for Elementary Teachers' Items Primary Grades 1 teacher per claw 4 coordinators per district (SY 1986-87; 2,021 school districts) 1 coordinator per disctrict (SY 1987.88; 1061 school districtS) Intermediate Grades [ 1 teacher if there is only 1 class in the grade 3 teachers if there are only 2 classes in the grade 5 teachers for every three classes in' the grade; residuals _ver multiples of three are given additional Class Sizes 40 pupils per class; minimum o'f 15 and maximum of 60; multi-grade classes allowed at no more than 2 grades per class Computation of Requirements for Secondary Teachers' terns Teaching Load Standards for SEDP curricula in: General Secondary Schools Special Science High Schools Vocational Trade Schools Vocational Agricultural Schools Vocational Fishery Schools 40'minutes per load 6 loads minimum per teacher 9 loads maximum per teacher (w/o additional compensation). Class Sizes 45 students per class Allocation Criteria For Textbooks Textbook/Pupil Ratios: Elementary- 2 pupils/textbook/subject Secondary - 1 pupilss/textbook/subject New Titles: 1.30 of current requirements to cover: loss and damage increased enrolment for next 2 years Reprinted after 3 years of use Revised / replacedafter 6 years -Reprints: l 1,15 of current requirements less current inventor_ to cover loss / damage [ increased enrolment for ne_t twoyears I Allocation Criteria for Governmen_t_.Subsidyfor Private Education COMPONENT Education Service Contracting ' Tuition Fee Supplement Secondary Tertiary

UNIT COST

TOTAL 300 400

290 /'student 12 / unit

Ruben G. Mercado

Student 200

Financing

Faculty 30

Development.

123

Assistance

Study Now-Pay Later Plan Secondary Textbook Assistance Valedictorians' Allowances Honor Students' Allowances TOTAL (Subsidy/Proration Priority

35 23 I0 2

Factor for the regions)

for tuition fee supplement,

Allocation

for State Universities

education and Colleges

1000

service

contracting

and student

financing

assistance.

(SUCs) (DECS Model)

Given: Expenditure Ceiling Baseline Expenditure Allocable Amount Less: Salary Standardization NET ALLOCABLE 1.

: : : : :

P 5,136 3,852 1,284 845 439

Apportion net allocable between regioixs based on enrolment SUCs in each region Apportion between SUCs in region based on RDC's findings

a. b.

relevance of academic programs to regional goals institutional catchment of individual SUCs

(.625) and programs

(.375) of all

on:

Allocation for State Universities and CollegeS (SUCs) (DBM Model) The DBM model focuses on four areas in the budget: a.

determining

Faculty

faculty

requirement

per school

Items = EUs / 450

Where: EUs

450

_ Enrolled Units, which is derived by multiplying credit units per offered the number of students enrolled on that offered subject. Credit units * students = standard enrolled units per faculty derived from the forraula: 25 FIE students/faculty * 18 EU/FIE student = 450

subject

with

where: IrrE = Full Time Time Equivalent, which is the standard measure for counting enrolment to capture the varying load per student (to replace the head count approach). Mathematically it is the ratio between total units enrolled by a student in a semester against the maximum load allowed per student which is 18 units. In the application deficiency.

of this formula

to the SUCs database,

the model

computes

for the absolute

and net

Absolute deficiency merely refl6cts the actual deficiency between existing faculty items and derived faculty requirement wherein excess items are not considered or reflected. Hence if there are excess items, the figure reflected under absolute deficiency is zero (0). Net deficiency is the total requirement reflected as negative figures. b.

Determining

less existing

items where excess items

are considered

and are

MOOE level per school

MOOE level per school is computed weighted enrolled units. Thus MOOE level = WEUs * P60

using the assumed

MOOE

cost per enrolled

unit of P60 and

124

RegionalBudgetDeterminationandAllocation

WEUs = Weighted Enrolled units EUs * Priority Points Priority points (weight) per field/course:

AgricultureAdVanced Education Engineering Education Science Technology Others

_ points 2 I 2 2 2 1

c. Determining Classroom Requirement per school Classroom Requirement = total contact hours/40

hours

J i

Where: i Contact Hours _ time in which the student and instructor meets per subject i 40 hours _ assumed usage of classroom per week To come up with the absolute and net deficiency figures, this would require data on existing number of classrooms. d. Determining General Administration and Support Services (GAS) allocation I I For detern_ning allocation for GASS, the DBM model gives the ideal GASS/Operations

ratio of 1:4

which means that GASS should not go beyond 25% of the Iotal budget. !

Department of Health (DOH)

ii I

After providing for mandatory obligations, nationwide/interregional I

budget is allocated by :

1, allocaKng amount f_r 10% inflationary increment to be divided among hospitals/iPHOS and RGASS 2, allocating for capital outlay to be divided among region! based on poverty incidence 3. for equity consideration, the regional lump-sum for PHC fund has been pegged equally nation wide at P1,58 per capita Department of Social Welfare and Development (DSWD) The regional allocation criteria take into consideration the regional differences and relativity in terms of: I 1. magnitude of poverty and target population vis-a-vis th_ mandated functions of the department. 2. Organizational structure of the regional offiffevis-a-vis the staffing/manpower number of existing facfl_laes ..... (branch offices/umts centers ' and mstitut_ons) ' " /

capabilities and

3. Geographical conditions of the area where the regional o_fice operates. ! The application of the criteria is limited to the deterlninatio_ of regional sharing of the MOOE component of the budget ceiling.

To rationalize the allocation, the criteria/factors are ranked _ccording to their degree of importance, and are assigned corresponding points, the highest point per criterion being 15 points. The. total points for all criteria is equal to 100. Magmtude of Poverty 581 - 701 15 461- 580 12 341 - 460 9 221- 340 6 101 - 220 3

Ruben

Mercado

125

Physical Goals - Community based 598 - 694 15 499 - 597 12 400 - 498 9 301 - 399 6 202 - 300 3

Physical Goals- Centerbased 5334- 6652 15 4013-5333 12 2692 * 4012 9 1371 - 2691 6 50 - 1370 3 Staff Complement 707 - 808 15 601 - 706 12 495 - 600 9 389 - 494 6 283 - 388 3 Number of Branch Offices 17 and above 15 14 - 16 12 11 - 13 9 8 -10 6 5- 7 3

Self-Employment Assistance (entolees) 5 50 - 62 5 39 - 49 4 28-38 3 17 - 27 2 6-16 1 Supplemental Feeding(beneficiaries) 5 91 - 106 5 74 - 90 4 57 - 73 3 ,40- 56 2 23 - 39 1 No. institutions/Residential centers 5 9-10 5 7-8 4 5-6 3 3-4 2 1-2 1 Geographic Conditions 5 Numerous island provinces, Coastal municipalities, difficult terrain and poor transportation facilities

Difficult terrain but accessible

Mainland, contiguous and with Available transportation

126

Regional

Annex I J|rlr

Budget

Determination

and Allocation

E. Summary of Agency Responses Regarding the Status of the Regional Methodology Used in the 1990 Budgeting Exercise

Agency

Status/Reasons

DPWH

Still adopting

Modifications I Revisions Simplifiedthe f_n_ola in detennining scarcity of infrastructurein;tileregion by eliminatingthe followingvariables in the tbnnula: /, GRDP I GDP i Population Un_served/ i • Uadersel_.,ed: with potable water supplyI ' Population of regionto total popalation of country

Problems/Issues l)

2) DOTC

Not adopting since the agency fotmd it to be impractical,i.e., it will be impracticalto spread the scarce fimds thinly among the various regions

Not adopting because 1) DBM alreadyassibms • pre-dete'nninedbndget •. ceilings to tile DARFUs 2) Reasonably accurate statisticaldata required in the formula/ methodologyare difficultto obtain 3) Comparative advantage of the area andother qualitative parameters are hard to quantifyand store as statistical data

Allocation

Tendencyof some national/local officials to obtain moch more fimdsin their respective area than what results fromthefund allocationformula. This can be minimized through close coordination or dialogue with these officials regardingthe foqd allocation fonnt,la in distributingfimds among the legislativedistricts of the country, Limitedbudgetfor infrastruetare

Prioritizeprojec( and give fllll fcflding suppoll o these projects so thai tl_esewill be completed expeditiouslyand realize benefits earlier. Priorityis givento ongoing projects,whether tltey be foreignassisted or locally fimded. For new projects, prioi:ityis givento foreignassisted projects that have already signed loan agreementswhile for locally fended projects, priority is given to projects;that have already acquired the project site or right-ofway; existing ,,, repair/rehabilitatloaof i . •facda_es;constrt cnon of new office buildingsfor displa,"et:lor soon-to-bedisplaced office_. In the past, the DBM merely allocates a lump sum budget for the entire Deparhnentand leaves tile distribution of sucb budget to the Department's bureaus, attached agencies • and regional field units (RFUs) to the discretion of the central office subject to a pre-approved formula/methodof allocation.

Ruben G. Mercado

Annex

127

E (continued)

Agency

Status/Reasons

DENR

Not adopting since 1996

Modifications

/ Revisions

Problems/Issues

. Capital budgeting approach is being used, The approach involves the establishment of the Baseline and determination of the Priority Programs/Projects Fund (PPPF). For CY 1999, claims against PPPF are ranked in accordance with a set of criteria formulated by DBM, Based on this criteria, the environment sector was usually one of the least prioritized, thus, a meager budget increase was given to DENR. ht addition, DENR also considers the absbrptive financial capacity of the regional offices as well as the environmentalsituation.

DTI

Not adopting because it noted that there were some regions with less personnel and • provincial offices which enjoy a higher level of expens iture than the other regions,

To be more realistic, it was decided to use the "'per capita basis" in reallocating the baseline ceiling to • the regions as determined by the DBM/

The use of the per capita approach seems disadvantageous to some• regions since the cost of doing business varies from one region to another. Right now, DTI is considering that the allocation for programs / projectsbeing maintained and funded in support of • the department's thrusts and mandate be treated as an equally important consideration in drawing the budget, This will not only indicate that the department's budget processesare supportive of and closely linked with its operatiOnS but shall also reflect its rational allocation of funds,

DECS DOH DSWD

No official reply No official reply No official reply

About the Authors Rosario G. ManasaB is Senior Research Fellow at the Philippine Institute for'Development Studies. She holds a Ph.D. in Economics from the University of the Philippines School of Economics. She was also a postdoctoral fellow at the Massachusetts Institute of Technology. She specializes on public finance and fiscal policy and has written and published numerous studies on these areas. Her most recent work is the present book whose utility is highly recognized both in the executive and legislative branches of government as it is one of the very few research studies that critically analyze the President's annual budget and the prospects of the country's fiscal stance. A prolific researcher, she has also done studies on decentralization of which her latest work is the book "Managing Urbanization Under a Decentralized Governance Framework (Volume 1)." Her numerous studies were also published in local and international journals. She has served as adviser and consultant to many government, international and private institutions. Ruben G. Mercado is a Research Associate at the Philippines Institute for Development Studies (PIDS). Prior to his stint at PIDS, he served the National Economic and Development Authority (NEDA) for seven years. He holds a Master in Policy Analysis degree from Saitama University, Japan, and Master of Arts in Demography from the University of the Philippines. He also received a Post-Graduate Diploma in Development Economics at the Institute of Developing Economies Advanced School (IDEAS), Tokyo, Japan. He has written studies in regional and urban development, public finance, and population and development published in various local and international journals and books.

129