Analysis of the President's Budget for 2003: Deficit in Revenues Leading to a Deficit in Services by Ronald Yacat

THE PRESIDENT'S BUDGET FOR 2003: Deficit in Revenues Leading to a Deficit in Services

Special Paper Philippine Country Study on Meeting the Millennium Development Goals

THE PRESIDENT'S

BUDGET

FOR 2003:

Deficit in Revenues Leading to a Deficit in Services Rosario G. Manasan

Special Paper Philippine Country Study on Meeting the Millennium Development Goals Rosario G. Manasan

Philippine Institute for Development Studies Surian sa mga Pag-aaralPangkaunlaran ng Pilipinas

Thefindings, interpretationand conclusionin this volumeare thoseof theauthor and do not necessarily reflectthoseof the Institute and other institutions associatedwith thestudy.

Pleaseaddressall inquiries to: Philippine Institute for Development Studies NEDA sa Makati Building, 106Amorsolo Street Legaspi Village, Makati City, 1229Philippines Tel. nos. (63-2) 8935705/8924059 Fax nos. (63-2)8939589/8161091 E-mail: publications@Pidsnet.pids.gov.ph Website: http://www.pids.gov.ph

ISBN 971-564-076-1 RP 07-04-500

Original cover design by JoelC. Lozare Layout and printing by AM Oeofe Prints

Table of Contents List of Tables, Figures, Boxes,Box Tables and Annex Tables Foreword

Main Pal2er The President's Budget for 2003: Deficit in Revenues Leading to a Deficit in Services by Rosario G. Manasan

Introduction

Overall fiscal position in perspective Revenueprogram The expenditure program Conclusion Annex Tables

References

13 19 28 32 44

S}2ecialPa}2er Philippine Country Study on Meeting the Millennium Development Goals by Rosario G. Manasan

Background Approachand methodology Overviewof thecountry'sdevelopmentrecord sincethe 1990s Overallpolicy framework:the MTPDP Attaining the MDGs Conclusions Annex Appendix Tables References

104 110

About the Author

111

47 48 53

60 62

90 95

The President's Budget for 2003: Deficit in Revenues Leading to a Deficit in Services

Tables Table 1.

Table2. Table 3.

Table4. Table 5. Table 6. Table 7. Table 8.

National government fiscal position, 20022003,high growth assumption(in billion pesos) Fiscal balance and outstanding debt of the central government in ASEAN countries, 1996-2001(percent of GDP) Sustainable Primary Deficit 1995-2002 Revenue and tax effort in ASEAN countries, 1996-2000(percent of GDP) Explaining the decline in tax effort Government capital spending in ASEAN countries, 1995-2000(percent of GDP) National government expenditures, obligation basis, 2002-2003(in million pesos) Real per capita national government expenditures on social services, 1975-2003(in

12 13

18 22 23 24

1985prices) Table 9.

Government social sectorspending in ASEAN countries, 1995-2000(percent of GDP)

Fiscal aggregates, cash basis, 1990-2002 (percent of GDP) Evolution of national government revenues, 1990-2002(percent to GDP) National government expenditure, cashbasis, 1990-2002(percent of GDP) Overall tax effort Tax-to-GDP ratio, Selectedtaxes, 1990-2001 Aggregate national government expenditures (obligation basis), 1990-2003 Distribution of national government expenditures, by sector, 1990-2003

Figyres Figure 1.

Figure2. Figure 3.

Figure 4. Figure 5. Figure 6. Figure 7.

5 5

14 14 21 24

Figure 8.

National government expenditures, by sector, 1990-2003(percent to GDP)

Box!.

The 1996/1997 Comprehensive Tax Reform

Box2.

Fiscal incentives

~ Package

Box Table Box 2 Table 1

Summary of revenues waived from various fiscal incentives provisions, 19982000(in billion pesos)

Annex Tables AnnexTable1. Growth rate of the national government expenditures, by sectoral classification, 1975-2003(in percent) Annex Table 2. National government expenditures as proportion of GDP, by sectoral classification, 1975-2003(in percent) Annex Table 3. Percent distribution of national government expenditures, by sectoral classification, 1975-2003 Annex Table 4. Growth rate of the national government expenditures, by economic classification classification, 1975-2003(in percent) Annex Table 5. National government expenditures as proportion of gdp, by economic classification classification, 1975-2003 (in percent) Annex Table 6. Percent distribution of national government expenditures, by economic classification, 1975-2003(in percent)

Philippine Country Studyon Meeting the Millennium DevelopmentGoals Tables Table 1.

Growth in average living standard of quintile -. due to 10% increase in overall per capita

income Vll

Table2. Table 3.

Table4. Table 5.

Table6. Table 7.

Table8. Table9.

Key macroeconomic indicators, 1981-2000 Labor force status Poverty incidence Progressin millennium development goals Real per capita national government expenditures on social services, 1975..2002 (in 1985peso) MTPDP assumptions Alternative scenarios on economic growth, population growth and poverty reduction Resource requirement for basic education, 2002-2015, in million pesos (high cost

assumption) Table10. Resourcesavailable and resource gap in basic education (high cost assumption) Table11. Resourcesavailable and resource gap in basic education (high cost assumption, gaps in earlier years are carried forward to subsequent

55 57 58

59 60

61 63 70

years)

Table12. Resourceequirement for basic education,20022015, in million pesos (low cost assumption) Table13. Resourcesavailable and resource gap in basic education (low cost assumption) Table 14. Resource requirement for basic health, in million pesos (high cost assumption) Table15. Resourcesavailable and resource gap in basic health (high cost assumption) Table16. Resource requirement for basic health, in million pesos (low cost assumption) Table 17. Resource requirement for low-cost water supply / sanitation (in million pesos) Table18. Resources available and resource gap in watsan Table19. Summary of resource gaps based on high cost assumptions (in million pesos) Table20. Summary of resource gaps based on low cost assumptions (in million pesos)

Vlll

76 77 83 85 86 88 89

91 93

FigyIes Figure Figure Figure Figure

1. 2. 3. 4.

Figure

Determinantsof resourcerequirements Determinantsof resourceavailability MDG: Reducepovertyincidence Reductionin poverty incidenceof population under various assumptions MDG: Achieveuniversalaccessto elementary education.

MDG: Achieve universal accessto complete elementaryeducation Figure7. MDG:Reduceinfant mortality rate Figure8. MDG:Reduceunder-5mortalityrate Figure9. MDG: Reducematernalmortalityrate Figure10. MDG: Achieveuniversalaccessto safewater Figure11. WSSD:Achieve universal accessto proper sanitation Figure 6.

50 53 63 64

67 78 79 79 87

Appendix Tables Appendix Table 1. Percent distribution of national government expenditures, by sectoral classification, 1975-2002 Appendix Table 2. National government expenditures as a proportion of GNP, by sectoral classification, 1975-2002 Appendix Table 3. Resourcesavailable and resource gap in basic health (high cost, gap in

earlier years carried forward to subsequentyears)

Appendix Table 4. Summary of resource requirement based on high cost assumptions (in million pesos) Appendix Table 5. Summary of resource requirement based on low cost assumptions (in million pesos) Appendix Table 6. Summary of resource availability (in million pesos)

107

109

Foreword

The theme of this year's Annual BudgetAnalysisSeriesis "Deficit in revenues leading to a deficit in services," reflective of the two studies contained in this issue, one on the President's Budget for 2003and another on meeting the Millennium Development Goals (MDGs) setby the United Nations. Both studies point to the scarcity of government resources in providing for the Filipinos' basic needs and attaining benchmarks toward an improved human existence. This issue highlights the country's fiscal problem as a result of flaws from the revenue side becauseof the government's declining tax effort since 1997. Pressureson nonmandatory expenditures-collectivel y larger than the total increase in the President's Budget for 2003-translate to a lower proposed 2003budget of most government agenciescompared to that in 2002,thus threatening the delivery of adequate public services in 2003. If measures that are expected to raise taxes and increase revenues are put in place, the challenge is shifted to a Congress that may be reluctant to pass laws that may upset certain sectors, especially with the forthcoming 2004 national elections.The perennial issue of an efficient tax administration at the Bureau of Internal Revenue (BIR) once again becomesindispensable and essential to the achievement of national goals. With regard to the progress made by the Philippine government toward meeting the Millennium Development Goals (MDGs), the following questionsbecome central: How much is needed to meet the MDGs? What is the resource gap? For the Philippines to meet these goals and improve the present socioeconomic status of Filipinos, the government needs to raise from Pl19. 9 to P229billion (depending on the type of government support scenario)to closethe gap and deliver adequateand sufficient servicesto the people. This is some tough work considering the government's weak tax administration at the present and its sorry goal to meet even the 1997level.

In the end, the author presents recommendations and major challenges which the government should pursue and address,respectively, if it wants to meet the resource gaps in basic social services. The publication of this Series,in general, and the budget analysis for the year 2003,in particular, hopes to contribute to the clearcut exposition of our present fiscal situation so that definitive efforts and policies that would address the dilemma that we are in may be discussed and formulated.

~~.~

Analysis of the President's Budget for 2003: Deficit in Revenues Leading to a Deficit in Services Rosario G. Manasan

Introduction In July of eachyear, the Presidentof the Republic submits to Congress for its approval the budget that the executive branch has prepared for the incoming year. The annual President's Budget basically summarizes the spending priorities of the present administration. However, it goes beyond this. It is a documentation of its fiscal policy stance. It talks not only about how the government will expend its resources(i.e., its budget), but also how it is going to mobilize resourcesto finance its budget either through taxation or through borrowing. The President'sBudget for any given year therefore presents the administration's fiscal program for that year by specifying concomitantly not only its expenditure program but also its revenue forecastand its fiscal deficit

target.

Given this perspective,the following questionbegs to be asked. To what extent does the President's Budget contribute to the attainment of the overall objectives of economic policy na~ely, stability, growth, and equity? In answering this question, it is important to recognize the interplay among the revenue program, the expenditure program and the borrowing program. It is in this context that the President's Budget proposal is evaluated in terms of the twin objectivesof a good fiscalpolicy: fiscal discipline and strategic allocation of resources. On the other hand, fiscal discipline requires that the fiscal targets (revenues, expenditures, and resulting fiscal deficit) are made

The President's Budget for 2003

consistent with a realistic macroeconomic framework. On the other hand, allocative efficiency calls for government expenditures to be programmed across sectors and categories in order to promote the over-arching goals of governance: poverty alleviation and economic growth. It should be emphasized that the President's Budget is as much a product of technocratic know-how as the processesand institutions that govern its preparation. For instance, "the tendency to overestimate revenues may stem from informal incentives to do so rather than from technical weaknesses...often from the desire of ministries to include or maintain in the budget an excessivenumber of programs, while downplaying difficulties in financing them...First, forecasts are deliberately manipulated to ensure the continued functioning of the patronagesystem.Second,when expenditures must be cut owing to 'unexpectedly' low revenues, cashrationing is used as a way to favor client and kinship groups" (Schiavo-Campoand Tommasi 1999).Needlessto say, given the successiveadjustments in the fiscal targets due to shortfalls in revenue collections, thesepoints are particularly relevant in the Philippines. At the sametime, while economic theory and empirical analysis do provide some guidelines on expenditure categories that are beneficialto growth and equity (e.g.,infrastructure investment,human capital expenditures especially with respect to basic education and basic health) or on budgetary practices that promote more efficient allocation of resources(e.g.,performance basedbudgeting), it cannot be denied that "strategic" resource allocation (i.e., relative prioritization of government spending levels acrosssectors)is largely a political decision. With this as background, the analysis of the President's Budget for 2003 that is presented in this volume is composed of three parts. The first part is an evaluation of the overall fiscal.picture as projected in the President's budget and its consistencywith the macroeconomic assumptions that are also embodied therein. The secondpart presents an examination of its revenue program. The third part discussesthe congruenceof the expenditure program with policy pronouncements and enunciated budgetary intent. In analysingthe President'sBudget, the paper provides not only a longer-term but also a crosscountry perspective. The President's Budget Messagefor 2003assertsthat this year's budget will be one that supportsthe administration's vision of a strong

Rosario G. Manasan

republic that takes good care of its people and the people's future. It affirms that food, employment, education, health and housing are the core needs that the budget will seek to address. It also promises to provide funds and logistics necessary to ensure peace and order and to eliminate graft and corruption. Section 2 documents how the national government will again overshoot its fiscal deficit targets for 2002 and 2003 as articulated in the President's Budget for 2003. It also suggests that the current fiscal stance is unsustainable not only because it results in a higher ratio of government debt to GDPbut also because the latter makes the country vulnerable to interest rate and foreign exchange rate fluctuations. The fiscal outlook for 2003 underscores more than ever before the fact that the problem with fiscal deficit stems largely from the continuous slide in tax effort. Meanwhile, the analysis of the sources of the decline in tax effort in 1997-2001 that is provided in Section 3 indicates that while tax evasion continues to be a major source of the leakage in revenues, weaknesses in tax policy also contributed significantly to the deterioration in tax effort. In this regard, two major pieces of legislation are urgently called for: (1) indexation of excise taxes and (2) the rationalization of fiscal incentives. However, given the proximity of the 2004 election, moving these new tax measures through the legislative mill will be a major challenge to both Congress and the executive branch as raising taxes will undeniably hurt certain sectors. On the other hand, although the expenditure program for 2003 is P34.4 billion (or 4.5%) larger than the obligation program for the previous year, national government services in 2003 are expected to be severely constrained as nonmandatory expenditures (i.e., total national government expenditures net debt service and transfers to LGUs) are programmed to decline by 1.4% relative to the 2002 level. This means that many government agencies, including those in the social service sectors, will have to work with smaller budgets in 2003 (Section 4).

Overall fiscal position in perspective This section reviews the movements in the overall fiscal position of the national government from a longer term perspective in order to provide the context againstwhich to assessthe overall fiscal program in 2002 and 2003.The national government achieved dramatic gains in fiscal consolidation in the early 1990s.It turned its fiscal position

The President's Budget for 2003

around from a deficit of 3.5% of GDP in 1990to a surplus of 1.0%in 1994(Figure 1). About 70% of this improvement in the fiscal balance resulted from advances in the revenue program and the remaining 30% arose from expenditure cuts. On the one hand, the national government boosted its revenues as its tax effort rose from 14.1% of GDP in 1990to 16.0%in 1994even as privatization proceedscaused its nontax revenue to balloon from 2.7 to 3.8 percent of GDP (Figure 2). On the other hand, the increasein transfers to LGUs (from 0.7% of GDP in 1990to 2.8%in 1994)was partially offset by decrease in subsidies and capital outlays from 1.2 and 3.1% of GDP, respectively, to 0.4 and 2.5% (Figure 3). At the same time, the aggressive contraction of the fiscal deficit induced a virtuous circle as interest payments were concomitantly reduced from 6.6%of GDP in 1990to 4.7%in 1994. Figure 1. Fiscalaggregates(cashbasis),1990-2002 (percentof GDP)

In 1995-1997,the national government continued to post small surpluses.On the revenue side,the slump in nontaxrevenues(because of the slowdown in its privatization program) was moderated by fairly small improvements in tax effort. On the expenditure side, the expansion of expenditures on personal servicesand maintenanceand other operating expenditures was neutralized in part by the contraction of interest payments and the continuing retrenchment of capital spending.

RosarioG. Manasan

Figure 2. Evolution of national government revenues, 1990-2002(percent to GDP)

Figure 3. National government expenditure (cashbasis) 1990-2002(percent of GDP)

However, after enjoying a fairly extended period of fiscal consolidation in the first three-quarters of the 1990s, fiscal trends quickly reversed with the onset of the Asian financial crisis in 1997. Thus, the fiscal position of the national government took a turn for the worse from a surplus of 0.1 percent of GDP in 1997to a deficit of 1.9%in 1998. The fiscal deficit continued to rise from 3.8% of GDP in

RosarioG. Manasan

became available and showed that the adjusted fiscal deficit targets will not be attained. This unfortunate development is attributable in equal parts to the shortfall in national governmenttax revenuesand the overshooting of the expenditure program in 2002.Thus, total tax revenue in 2002is projected to beP49.2 billion less than the BESFtarget. Of this amount, P42.5 billion (or 86.4%) is attributable to the Bureau of Internal Revenue (BIR) while P3.5 billion (or 7.1%)is due to the Bureau of Customs (BOC) and P3.2 billion (or 6.5%) to other national government offices. Consequently, BIR tax revenues is forecastedto fall from 10.7%of GDP in 2001 to 9.6%in 2002 (compared with the BESF target of 10.7%)while BOC revenues will slip from 2.6% of GDP to 2.4% (compared with the BESFtarget of 2.5%). The analysis in Section3 indicates that BIR tax effort has been going down by some 0.25percentagepoint of GDP yearly since 1997 due to the changesin tax structure that were implemented in 1996/ 1997while BOC tax effort has been cut by 0.33 percentage point of GDP yearly since 1997 due to the reduction in tariff rates. These numbers then suggestthat, other things being equal, the leakagefrom BIRtaxeshas increasedby 0.8percentagepoint ofGDP in 2002relative to 2001. In like manner, the leakage from BOC taxes appearsto have decreasedby 0.1 percentage point of GDP in 2003. On the other hand, non tax revenuesare projected to overshoot the official target by P3.1 billion largely on account of the higherthan-targeted Bureau of Treasury income (P43.5 billion vs. P36.3 billion) which the projected shortfall of P2.8 billion in privatization proceeds and P1.7billion in fees and chargesfail to fully offset. Meanwhile, national government expenditures are projected to exceedthe BESFobligation program by some P47 billion reportedly due to the higher utilization of program loans and the retirement of accounts payables incurred in earlier years. Hence, total disbursementsare predicted to reach 19.6%of GDP in 2002compared with the BESFtarget of 18.4%and the 2001level of 19.5%.~ith these, the fiscal deficit is projected to reachP223billion (or 5.6%of GDP) in 2002 compared with the BESFtarget of 3.3% of GDP and the 2001 deficit of 4.1%. Fiscal outlook for 2003 The proposed 2003 President's Budget projects the fiscal deficit of the national government at P142 billion (or 3.3% of GDP) in 2003

The President's Budget for 2003

(Table 1). However, this target has since been revised to 4.7% of GDP in 21 November 2002 ostensibly in order to align the revenue target with the current capacity of the fiscal system to generate revenues. An analysis of the causesof the decline in tax effort in 1998-2001 (Section3) suggests that the tax elasticities1that were used to arrive at the original BESFrevenuegoals for 2003areunrealistic. In particular, the revenue goals in the President's Budget tend to overestimate the amount of revenues that are likely to be realized largely becausethe fiscal authorities either ignore the fact that the part of the decline in the tax-to-GDP ratio was brought about by changesin the tax and tariff codes in 1996-1997(notably the nonindexation of excisetaxes, the reduction in the income tax rates without a concomitant reduction in tax incentives and the reduction in tariff rates due to trade liberalization)2 that are permanent in nature or they assumethat such reductions will be fully compensatedby gains in collection efficiency. Given this background, this paper projects BIR tax revenues to range from a high of ~438.5billion (or 10.2%of GDP compared to the BESF's10.8%)to a low of P409.6billion (or 9.5%of GDP) while BOC revenues are forecasted to settle at P95.6 billion (or 2.2% of GDP compared to BESF's2.5%). Both the high and low revenue scenarios take into account the projected continuous decline in tax effort due to the change in tax structure. While both assume that some improvement in BIR's collection efficiency will be achieved in 2003, the two scenariosdiffer as to the degree of improvement. On the one hand, the high revenue projection assumesthat the BIR's collection efficiency will improve sufficiently so as to generateP34.9billion (or 0.8% of GDP) in additional revenues and to get the Bureau back to the 2001level of collection efficiency even asthe tax effort is projected to decline by 0.25percentagepoint of GDP becauseof the 1996/1997 change in tax policy. On the other hand, while the low revenue projectionlikewise assumesthat tax effort will dip by the sameamount due to changes in tax policy, it also assumes that BIR's collection

I Tax elasticity is defined as the ratio of the proportional rate of increase in tax revenues to the proportional rate of increase in the tax base (usually proxied by GDP or GNP in the aggregative analysis). 2 Recognizing the uncertainty in passing new tax legislation during the year, the BESF does include the expected revenue gains from proposed legislative measures in the revenue projection for 2003.

Rosario G. Manasan

efficiency will improve by only so much as to generatean additional revenue of P6 billion (or 0.1% of GDP).3 Meanwhile, this paper predicts BOC tax effort in 2003to be lower than that projected under the BESFdue to programmed reduction in tariff rates. At the same time, BTr income is projected to exceedits BESFgoal in 2003 by P17.4billion (to reach P4S.7billion) while fees and charges are expected to fall short of the target by PO.8billion. Also, interest payments are expected to surpass their target level by Pll.0 billion to Pll.6 billion because of additional borrowings that will be necessitatedby the revenue shortfalls that are expected and the higher peso-dollar exchangerate (PS2.S)that is used in the paper compared to the BESF'srate (PSI). All thesedevelopments combined are then expectedto result in a fiscal deficit of P176.Sbillion (or 4.1%of GDP) in 2003based on the high revenue assumption and P20S.9billion (or 4.8% of GDP) based on the low revenue assumption compared with the BESF'sprojection of 3.3% of GDP. The revenue numbers in the low revenue scenario presented here are largely consistent with the revised fiscal targets for 2003 that have reportedly been adopted by the administration recently.4 Furthermore, note that the 2003BIR tax evasionlevel that is projected under the low revenue assumption is lower when compared to the 2002 level but still considerably higher when compared to the 2001 level. In a sensethen, the government appearsto have almost given up on improving BIR tax administration outside of being able to generate a token P6 billion from administrative measures.It is as if the government has already conceded that the capabilities (in terms of manpower, systemsand procedures)that enabledthe BIR to collect taxes at the 2001 level of efficiency have been lost for good.

Fiscal sustainability In theory, current fiscal policy is deemed to be sustainableif it can be continued indefinitely into the distant future without threatening government solvency. In practice, however, the indicators that have been used in the literature to assessfiscal sustainability utilize a nonincreasing goverriment debt-to-GDP ratio as benchmark. 3 This is the amount of additional BIR tax revenue that the BESF projects to generate from administrative measures in 2003. 4 Refer to the 20 November 2003 issue of the BusinessWorld.

The President's Budget for 2003

Undeniably, fiscal deficits are not inherently bad. However, the concern about fiscal deficits stems from the fact that persistently large fiscal imbalancesmay lead to fiscal instability. This is sobecause as government accumulatesdebt over time, interest payments on the debt may increaseas the government pays interest not only on debt that it had in the past but also on the new debt that was issued to cover the deficit of the current year. This development results in even larger fiscal deficits and even higher levels of government debt stock, thus leading to an explosive situation where the fiscal deficit feeds on itself. In this regard, one of the simplest ways to appraise fiscal sustainability is by looking at the country's overall fiscal position, the level of public indebtednessand the interest payments on public debt. As indicated earlier, the fiscal position of the national governmenthasweakenedvery quickly and persistentlyfrom a surplus of 0.1% of GDP in 1997to a deficit of 4.1%in 2001 and 5.6%in 2002. While the government was able to run high deficits in the last three years without hurting macroeconomic stability, danger signs have begun to emerge. On the one hand, outstanding debt of the national government has been rising rapidly, from 55.7% of GDP in 1997to 65.5%in 2001and 68.7%as of the end of September2002.Furthermore, if contingent liabilities are taken into account, the outstanding debt stock of the national government rose from 66.9%of GDP in 1997to 79.1%in 2001 and 82.5% as of the end of September2002. On the other hand, while domestic interest rates have remained low, the yield curve on government securities in the primary market has remained steep, indicating that inflationary expectations are high (Lamberte 2003). Moreover, news of larger-than-projected fiscal deficits have prompted two international credit rating agencies(Fitch and Standard and Poor's) to downgrade their credit outlook for the Philippines recently. This will necessarilyput pressure on domestic interest rates as the government turns to the domestic market following the increasein the rates on government dollar bonds. From a crosscountryperspective,while the overall fiscal balance of the Philippines when measured relative to GDP is not the highest in the region in the postcrisis Asian financial period,sthe country had always outranked the other countriesin terms of the size of its national government's debt (Table 2). In this sense, then, the Philippines is more vulnerable than the other countries in the region to fluctuations in the interest rate and the foreign exchangerate.

The President's Budget for 2003

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 national government foreign debt to GDP; i* is the nominal foreign interest rate; ~ (E) / E is the proportional rate of changein the exchangerate;

and 7t is the domestic inflation rate.

Table3. SustainablePrimary Deficit 1995-2002 Actual Primary Deficit %GDP 1995 1996 1997

1998 1999 2000 2001 2002 2003

Sustainable Primary Deficit %GDP

-4.392

-3.811 -3.277 -1.869 0.180 -0.202

2.690 2.237 -2.396 -10.448 2.328 -4.210

Actual Less Sustainable Primary Deficit % GDP -7.082

-6.049 -0.882

8.579 -2.147

4.008

3.402

-0.732

-4.134

0.788 -0.671

0.570

0.218

-1.008

0.338

Equation 1 suggeststhat the sustainableprimary deficit would tend to be lower and the debt-to-GDP ratio would tend to rise with higher domestic real interest rates and with lower GDP growth rates. Similarly, the sustainable primary deficit would tend to be lower and the debt-to-GDPratio would tend to increasewith higher foreign interest rates, larger depreciation of the exchangerate and with lower domestic inflation rates. Fiscal sustainability (fs) may be defined as: fs = act pdef -sus pdef

(2)

where act pdef is the actual primary deficit. Thus, fiscal policy is said to be sustainable if the government's debt servicing requirement does not exceed its primary surplus. In terms of Equation 2, fiscal policy is sustainable if f is positive. In that case,the actualprimary deficit exceedsthe sustainableprimary deficit and the debt-to-GDP ratio will increase.

Rosario G. Manasan

Conversely, fiscal policy is not sustainable if fs is negative. In that case,the actual primary deficit and the debt-to-GDP ratio will

decline. Revenue program The weakening of the government'sfiscal position in 2002and possibly in 2003 underscores more than ever the urgency of arresting the undeterred contraction of the revenue effort of the national government which has slipped since the onset of the East Asian financial crisis from 19.4%of GDP in 1997to 15.5%of GDP in 2001 and 13.9% in 2002. Although other countries in the region have likewise suffered a deterioration in their revenue effort since 1997/ 1998,the decline in these countries, with the exception of Malaysia, has not been as severeas in the Philippines (Table4). Although nontax revenues have dipped as well, the erosion of the revenue effort in the Philippines is largely due to the weakening of the tax effort as in the other countries in the region. Thus, overall tax effort in the Philippines plummeted by 3.5percentagepoints from a peak of 17.0%of GDP in 1997 to 13.5%in 2001 (Figure 4). About two-thirds of the contraction (or 2.3 percentage points of GDP) is due to the reduction in BIR tax revenues while the remainder (or 1.3 percentage point of GDP) is attributable to the reduction in BOC revenues.

Table4. Revenueand tax effort in ASEANcountries,1996-2000 (percent of GDP) 1996

1997

1998

1999

2000

Total Revenue

Indonesia Malaysia Thailand Philippines

17.9

15.9

19.7 16.2 16.1

18.3

19.4

12.6 20.0 16.2 17.4

16.5 19.8 16.5 17.0

11.8 16.7 14.2 15.6

16.6 16.0 14.0 14.5

14.5 14.3 14.3 13.9

17.0 23.3 19.5 18.9

18.1

14.7 19.4 17.6 16.9

23.5 18.6

16.5 15.6

Tax Revenues

Indonesia Malaysia Thailand Philippines

The President's Budget for 2003

Figure4. Overall tax effort

Collections for all the major tax groups fell relative to GDP in 1997-2001.The biggest reductions are exhibited by'the import duties, excisetaxes,and income taxes(Figure5). In particular, tariff revenues tumbled from 3.9% of GDP in 1997 to 2.6% of GDP in 2001. Meanwhile, collections from excisetaxes shrank from 2.6 to 1.6%of GDP, revenues from taxes on income and profits dipped from 6.8% to 6.1% of GDP, and collections from value added and licenses contracted from 2.8 to 2.4% of GDP during the same period.

Figure5. Tax-to-GDPratio, Selectedtaxes,1990-2001

Rosario G. Manasan

While the slide in nontax revenues is largely explained by the diminution in BTr income following the decline in domestic interest rates, the reasonsfor the fall in tax revenueshave been somewhat of a puzzle to many analysts. On the one hand, many believe that the slump in tax effort reflectsthe lack of political will to tackle tax evasion. On the other hand, somegroups point out that changesin the structure of the economy (e.g., economic recovery being led by lightly taxed sectorslike agriculture and exports) during the period partly explain the degeneration of tax effort. Still others note that some of the tax policy changes introduced in 1996/1997 under the umbrella of the Comprehensive Tax Reform Package (Box 1) may have resulted in loss of revenue that was not compensatedadequatelyby the expected revenue gains from other provisions which were not legislated and therefore not implemented. Table 5 shows the varying importance of each of thesefactors in explaining the decline in tax effort at the BIR and BOC in 1997-2001.7 While the fall in BOC revenues account for over three-quarters of the overall contraction in tax effort between 1997and 1998,the BIR has since then emerged to be the dominant source of the flagging tax effort. The programmed reduction in tariff rates under the trade liberalization program of the government accounts for some 40-50% of the reduction in tax effort at the BOC in 1998-1999.Changesin the composition of imports (i.e., the shift away from dutiable imports) also adversely affected the BOC's tax take in those two years. A deterioration in the quality of customs administration was evident in 1998 but not in 1999-2001.Thus, almost all of the diminution in the BOC's tax effort in 2000and 2001 is due to the lower tariff rates. On the average,BOC tax effort dipped by 0.33percentagepoint of GDP

7 In column 1 of Table 5, the change in the tax-to-GDP ratio for each year in 1998-2001 is always measured relative to 1997. For each of the major taxes, the contribution of the change in economic structure to the decline in tax effort was derived by estimating the amount of tax revenue that would have been collected if there were no changes in the composition of the economy relative to 1997 (i.e., if the tax base-to-GDP ratio was kept at the 1997 level). On the other hand, the contribution of the change in tax policy to the deterioration of tax effort was computed by estimating the amount of tax revenue that would have been collected if the effective tax rates that were prevailing in 1997 were applied to the current year's tax base. Meanwhile, the contribution of higher tax evasion was derived as a residual. That is, what cannot be explained by the first two factors was attributed to increased tax evasion.

The President's Budget for 2003

RosarioG. Manasan

every year between 1997and 2001due to the programmed reduction in tariff rates. The negative impact on revenues of lower import tariffs was compounded by weaknessesat the BIR which resulted in huge tax leakages even prior to 1997.8Higher tax evasion (relative to 1997) accounted for 98% and 54% of the reduction in BIR tax effort in 1998 and 1999, respectively. While some improvement in BIR tax administration was evident in 2000(relative to the 1999level but not 1997), further weakening of the system was registered in 2001. In that year, the VAT and the tax on income and profits were the major sources of evasion. On the other hand, the contribution of changesin tax policy to the collapse of BIR tax effort rose persistently in 1998-2001. In particular, 46% of the 2.3 percentage point decline in BIR tax effort between 1997and 2001is attributable to changesin tax policy (notably the reduction in effective tax rates for the income tax and the excise tax due to nonindexation), another 46% to increased evasion and only 7% to changesin economic structure. On the average, BIR tax effort declined by 0.26 percentagepoint of GDP every year between 1997and 2001 due to the changesin tax structure wrought by CTRP. It is also notable that, on the whole, the reduction in tax effort brought about by modifications in tax policy (specifically that due to the nonindexation of excise taxes) is not a one-off reduction but has been growing over time. In sum, Table 5 suggeststhat tax evasioncontinues to be a major source of the leakage in revenues and that the situation appears to have worsened in 2001. However, it also indicates that weaknesses in tax structure (nonindexation of excisetaxesand the lower effective income tax rates without compensatingchangesin other taxes)also contributed significantly to the decline in tax effort. The expenditure program The President's Budget for 2003 proposes an obligation program amounting to P804..2billion. It avows that food, employment, education, health and housing are the core needs that the budget will seek to address. It also promises to provide funds and logistics 8The Department of Finance (1998) estimated the total tax leakage in 1997 at 7.8% of GNP (with 7.2% of GDP attributable to the BIR and 0.6% of GNP attributable to the

BOC).

necessary to ensure peace and order and to eliminate graft and corruption. However, becausethe increasein interestpaymentsand transfers to LGUs when taken together is even larger than the total increasein the President's Budget for 2003,there is a squeezeon nonmandatory expenditures (i.e., total expenditures net of debt service and IRA). Hence, the proposed 2003 budget for most government agenciesis lower compared to that in 2002, thus threatening the delivery of adequate public servicesin 2003. Furthermore, the higher allocation in the few agencies whose budgets will increase in 2003 is due in many instancesto mandatory commitments. For example,the higher allocation for social security / social welfare is explained mainly by the higher allocation for entitlements (i.e., retirement gratuity and pensions)while the increasein the budget of the Department of Energy (DOE)is largely on accountof earmarkedexpenditures from its special accounts. However, peace and order will continue to receive high priority. Aggregatenational government spending The 4.7% increase in total national government expenditure is just marginally higher than the 4.5% inflation rate that is projected for the year (Annex Table 1). Thus, the obligation program for 2003 is not much higher than that for 2002in real terms. When measuredrelative to GDP, aggregatenational government expenditures for 2003 stands at 18.7%of GDP, lower than the 19.5% level registered in 2002 and the 19.3%of GDP averagein 1986-1998 and the 19.7% of GDP average in 1999-2002(Figure 6). Ho,:"ever, because of the rapid expansion of interest payments following the widening of the fiscal gap in 1998-2002,interest payments continue to eat up an ever-increasing slice of the budget-27.8% in 2003 from 24.9%in 2002and an average of 20.0%in 1993-1998(Annex Table3). Thus, total expenditures net of debt service will actually decline to 13.5%in 2003 from 14.6%of GDP in 2002 and from an average of 14.8%in 1986-1998and 15.3%in 1999-2002(Annex Table 2). At the s~e time, the IRA increased at a faster rate than most expenditure items as a result of the implementation of the Local Government Code. To wit, its budget share rose from an average of 4.3% in 1986-1992to 14.0%in 1993-1998,to 16.8%in 1999-2002and 17.6%in 2003 (Annex Table 3). Hence, the amount of resourcesleft for nonmandatory expenditures (i.e., resources over which the

Rosario G. Manasan

Figure 6. Aggregate national government expenditures (obligation basis), 1990-2003

national government may exercise some scope for allocation) is further reduced to 10.2% of GDP in 2003 from 11.2% in 2002. Furthermore, the proposed 2003 level is about 2 percentage points lower than the 12.8%average in 1986-1998and the 12.0%average in 1999-2002(Annex Table 2). This situation, thus, gives the national government very little room for maneuver not only in terms of being able to influence economic growth by adjusting the overall level of government expenditures but also in terms of its scope to reallocate resources across sectors (Figure 6}. In addition, personal services accounts for a substantial chunk of the national government expenditures at 34.3% of the budget in 2003. For the most part, expenditures on personal services also form part of mandatory expenditure commitments of the government. If expenditures on personal services are treated in this manner, nonmandatory expenditures of the national government are trimmed down some more to 3.5% of GDP in 2003 from 4.4% in 2002 and an average of 6.6% in 1986-1998 and 5.0% in 1999-2002. Given this background, the crunch on MOOE and capital outlays should come as no surprise. Government capital spending is not only lowest in the Philippines in 1995-2000compared to other countries in the region, it has also been cut relentlessly during the period (Table 6).

Allocation acrosssectors The proposed expenditure program for 2003is P34.4billion higher than the program for 2002. However, the P31.3billion increase in

The President's Budget for 2003

Table 6. Government capital spending in ASEAN countries, 1995-2000 (percent of GDP) 1995

1996

1997

1998

1999

2000 i\verage 1995-2000

6.8

6.0

4.8 7.2

3.3

4.1

5.6

5.9 2.3

5.5 4.5 9.0 2.0

4.8

5.0

10.3

11.4

1.7

2.1

4.7 1.8

Capital Expenditure Indonesia Malaysia Thailand Philippines

3.0

7.4

5.2 5.7 7.8 2.2

interest payments (which is the fastestgrowing item in the obligation program) and the P7.2billion increasein the IRA, when taken together, clearly exceedthe total incrementin the proposed obligation program. This means that total expenditures net of debt service and the IRA for 2003is P4.1 billion lower than the level posted in 2001 (Table 7). Consequently, the delivery of many public services will be at risk as many government agencies will have to work with smaller budgets in 2003relative to 2002.Governmentspending in all the major sectors with the exception of social services will suffer a cut in 2003. However, the 0.8% increase in aggregate spending on the social servicessectorin 2003is not enoughto allow governmentexpenditures in the sectorto keep pace with inflation, population growth nor GDP (Table 7). Although spending on all socialservicescombined will continue to receive the biggest slice of the 2003 national budget, its budget share in 2003 (22.8%)is even lower than that in 2002 (22.0%)as debt service and the IRA crowd out spending in other sectors (Figure 7). Also, the downward trend in real per capita government spending on social services that started in 1998continues into 2003 (Table 8). Furthermore, the combined national government budget for social serviceswill decline from 4.4% of GDP in 2002to 4.1%in 2003(Figure 8). Moreover, the amount of resourcesavailable for the achievement of the Millenium Development Goals for Human Development in the proposed 2003budget is short of the requirementby someP26.8billion (or 0.6% of GDP, see special paper in this Series). At the same time, Table 9 shows how the social sectors, particularly education and health, have been badly affected by the fiscal crunch. Government spending on education and health in the

Figure 7. Distribution of national government expenditures, by sector, 1990-2003

Education

232

309

395

418

488

480

451.39 Cc

107

11c TjC J1cc'~1

Health

75c78

Social Welfare, Labor and Employment

Housing and Com. Devt.

4i'!1~t?

60 !~

414

,99103 !

426

405.04

43.01

87.66

5.26

Figure 8. National government expenditures, by sector, 19902003 (percent to GDP)

RosarioG. Manasan

as the budgets of all the other important agencies in the education sector (i.e., SUCs, CHED, TESDA) are lower in nominal terms in 2003 relative to 2002. As result, the budget for the entire education subsector will contract from 3.4% of GDP in 2002 to 3.1% in 2003 (Annex Table 2). Although it will increase by P1.1 billion in 2003, the DepEd budget when measured relative to GDP will decrease from 2.6% in 2002 to 2.4% in 2003. Moreover, closer scrutiny of the DepEd budget shows that all of the said increase which will be allocated to personal services simply represents the annualized salaries of new teachers hired in time for the school opening in June 2002. Thus, no new teacher items are authorized under its 2003 budget.9 Furthermore, the DepEd's budget for textbooks, desks, MOOE and schoolbuildings in 2003 will be exactly as it was in 2002 for the most part. This means that the department will have to work with the same amount of meager inputs that were available in the previous school year despite the projected 3% increase in the number of students in public schools in school year 2003-2004. Meanwhile, the increase in the allocation for the social welfare / social security sub sector is attributable mainly to the P1.0 billion increment in the retirement gratuity and pension of the Armed Forces (Table 7). In contrast, the budgets of most of the other agencies in the subsector (e.g., DSWD, DOLE) will be reduced. In particular, while the DSWD's budget for the Comprehensive Integrated Delivery of Social Services will increase by some P100 million in 2002, the budget for the Early Childhood Development Project will decrease by P94 million and that for "support services to intermediaries in their implementation of social welfare and development programs for distressed and displaced individuals, families, communities in difficult circumstances" by P54 million. On the other hand, the lower government spending in the health sub sector in 2003 is largely explained by the P500 million cut in the budget of the Department of Health (DOH). Many of the public health programs---notably vaccine preventable disease control, family health and primary health care, health operations of centers for health

9 Note that the allocation of P2 billion in the 2002 budget of the DepEd for new teacher items was only enough to fund the June-December 2002 salaries of said teachers. In its 2003 budget, the P3 billion that is set aside for new teachers hired in 2002 will enable the DepEd to pay for the January-December 2003 salaries of the same teachers.

The President's Budget for 2003

Table 9. Governmentsocialsectorspendingin ASEANcountries, 1995-2000(% of GDP) 1995

1996

1997

1998

1999

2000 Average 1995-2000

Education Indonesia Malaysia Thailand Philippines Health Indonesia Malaysia Thailand Philippines

1.3 4.8

1.3

1.4

1.0

.1.3

4.9

4.5

5.1

0.9 5.9

3.5 3.5

1.2 5.0

3.5 3.2

4.1

4.7 3.9

4.1

3.9

4.1

3.8

4.0

3.7

3.5

3.6

0.4 1.3 1.3 0.4

0.4

0.3

0.5

0.3

0.4

1.4 1.3 0.5

1.2 1.6

1.4

1.6 1.5

1.4

1.5

1.5 1.5

0.6

0.5

0.4

0.5

1.5

development (including TB control, diseaseprevention and control, and health promotion)-bear the brunt of the reductions. In contrast, not only do the direct allocations for DOH hospitals increase, the provision for the hospitals' use of their own income also rises in 2003. The reduction in the allocation for the housing/ community development subsectoris due to the zero allocation for the community mortgage program (CMP) in the 2003 b4dget compared to the allocation of P300 million in the 2002 budget (Table 7). In 2002,the allocation for the CMP was handled by the National Home Mortgage and Finance Corporation (NHMFC). While questions can be raised as to whether the NHMFC is the most appro'priate agency to implement the community mortgage program, it cannot be denied that available funding for the CMP is inadequate when measured relative to demand.tO The economic service sectors combined suffer the deepest cut amongst the major sectors as government spending on economic servicesgoes down by 1.9%in nominal terms in 2003(Table7). As a result, aggregategovernment spending on economicservicesfall from 2.9% of GDP in 2002 to 2.6% of GDP in 2003 (Figure 8). Within the economic service sector, only three sub sectors receive higher allocations in 2003 compared to 2002 (Table 5). The budget for the 10To be fair, the community mortgage program will receive additional allocation from the President's Social Fund in 2003. What is not so clear, however, is whether this represents additional money. Note that the Social Fund is extra-budgetary.

RosarioG. Manasan

power and energy subsectorwill increaseby P900million in 2003 (or 63% over its 2002 level) on account of earmarked expenditures of P775 million under th~ special account of the Malampaya project (representing shares of LGUs in Malampaya income) and the Pl34 million under the special account of the PNOC-EDC (to fund the BarangayElectrification Program using new and renewal energy, the power conservation and demand management project, the fuel conservation and efficiency in road transport program and the oil industry deregulation managementprogram). Meanwhile, the budget of the tourism subsector will rise by P177 million (or 16% over its 2002level) to fund its Visit Philippines 2003program while the budget for the agrarian reform subsector will increase by P93 million (or 0.8%over its 2002 level) due to the higher allocation for the Agrarian Reform Fund. In contrast,the aggregategovernment budget for the agriculture subsectoris cut by someP1.6billion in 2003(or 6.9%lessthan its 2002 level) despite an increase of P600 million in the allocation for the Agriculture and Fisheries Modernization Act (AFMA) (Table7). This is so becausethe expansion in the AFMA budget of the Department of Agriculture (DA) is not enough to counteract the contraction in its regular budget. Moreover, the allocation for the National Irrigation Administration (NIA) is reduced by P2.1 billion in 2003. In like manner, the budget for the environment and natural resources subsectoris cut by someP300million (or 3.8%lessthan its 2002level) due to lower allocations for a number of foreign-assisted projects like the Metro Manila Air Quality Improvement Development Program, the Forestry SectorProjectand the Water ResourcesProject. At the same time, the budget for the transportation subsector decreasesby P211 million (or 0.3% over its 2002 level) despite an increase of P3.2 billion in the allocation for the Department of Public Works and Highways (DPWH). This occurs as the allocations of the Department of the Transportation and Communication (DOTC), the Philippine National Railways (PNR), and the Light Railway Transit Administration (LRTA) are reduced. Consequently, the combined budgets of the infrastructure group (composedof the power / energy, water resources development and transportation/ communication subsectors)will fall from 1.6%of GDP in 2002to 1.5%in 2003and an average of 2.5%in 1986-1998and 2.1%in 1999-2002(Annex Table 2). This persistent contraction of government spending in the sectordoes not augur well for the long-term growth prospects of the economy

given the well-known positive relationship between infrastructure spending and economicgrowth. Furthermore, businesssurveys have time and again identified the country's inadequate infrastructure as one of the weakest links in the investment environment. Consistentwith the budget message,military and police spending combined expands in 2003 mainly becauseof higher allocations for personal services. Government spending on the peace and order subsector in 2003 rises by PO.9billion (or 1.7% over its 2002 level) because of the annualized cost of the salary adjustments that were made effective in July 2002 and the hiring of an additional 4000 policemen in 2003. However, the allocation for the national defense subsectorslides by PO.Sbillion (or 1.3%over the its 2002 level) as the funding for the AFP Modernization Program is temporarily discontinued under the 2003expenditure program. Nonetheless,the budget of the Armed Forces contains additional resources that will enable it to fund not only the salary adjustments of July 2002but also 7,000additional personnel. Conclusion

From the foregoing discussion, it is clear that the fiscal problem that currently confronts the country stems not so much from the expenditure side but from the revenue side. While national governmentexpenditureshave remained fairly stablein the aggregate, tax effort has declined continuously since 1997. However, because interestpayments and transfersto LGUs have expandedrapidly, there is a squeezeon nonmandatory expenditures (i.e., total expenditures net of debt service and IRA). In particular, the increase in interest payments and transfers to LGUs when taken together is even larger than the total increase in the President's Budget for 2003. Consequently,the proposed2003budget of most governmentagencies is lower compared to that in 2002, thus threatening the delivery of adequatepublic servicesin 2003. Given this context, two piecesof legislation are urgently needed. First, there is a need to amend RA 8240 so as to allow for the indexation of the excisetaxeson tobaccoand alcoholicproducts. While the fiscal authorities talk about the "restructuring of the excisetaxes on distilled spirits and the indexation of the tax rates and the tax rates two years thereafter by the amount of cumulative inflation" in the BESF,it is not clear whether such indexation is intended to apply to excise taxes on fermented liquor and cigarettes.ll Moreover, the

RosarioG. Manasan

BESFis silent about indexation of excisetax on petroleum products. Second,there is a need to revisit proposals for the rationalization of fiscal incentives (Box 2). These proposals call for the shorter list of activities that would qualify for investment incentives and the adoption of an operative budget for tax expenditures pertaining to fiscalincentives. In addition, the BESFis also calling for the lifting of the present exemption of Asian Utility Vehicles from the excise tax on automobiles. Given the proximity of the 2004 election, moving thesenew tax measuresthrough the legislative mill in their undiluted form will be a major challenge to both Congress and the executive branch in asmuch asraising taxeswill undeniably hurt certain sectors. In the near term, however, a price survey of tobacco and alcoholic products should be conducted immediately to permit the reclassificationof said products for excisetax purposes. Sucha survey is prescribed in RA 8240but has not been implemented to date. This move will provide temporary relief to the unmitigated erosioft of revenuesfrom excisetaxespending the legislative action on indexation. At the sametime, efforts to strengthentax administration should be pursued even more vigorously. In particular, the administration of the V AT hasbeen shown to be a big source of the higher tax leakage in 1998-2001(Table5). In principle, VAT evasion may arise from two sources: (1) the under declaration of sales and / or (2) the overdeclarationof claims for input VAT. The BIR has recentlylaunched a program that is meant to flush out firms that underdeclare their sales. Prospectively,the Bureaucould alsominimize the leakagefrom the overdeclaration of claims for input VAT through the use of industry benchmarking. In this regard, it is notable that some 45%of the large VAT-payers were found to have exceededtheir respective industry benchmark (for the ratio of the value of VAT-able inputs to value of VAT-able output) by more than 50%(Manasan2002). On a more general note, the computerization of the BIR has to be strengthened further. Better use of information technology will clearly go a long way in plugging leakages in the tax system as it provides the BIR with increasedaccessto internal as well as external sources of information and make way for greater automation and less discretion on the part of BIR examiners.~

11With respect to alcoholic and tobacco products, the BESF only talks about thereclassification of products based on their current retail price.

The President's Budget for 2003

Annex Table 5. National government expenditures a8 proportion economic classification, 1975-2003 (In percent)

of gdp, by

I. Current Operatiilg Expenditures

9.67

15.08

16.32

A. PersonalServices

4.02

5.48

6..53

6.16

6.95

7.37

B. MOOE

5.66

9.59

9.79

9.72

10.37

9.49

1.45 1.23 0.66 0.23

5.53 1.56 0.86

4.49

4.43

2.82 2.12

3.99

0.43

3.43 0.33

0.34

0.35

0;07

0..00

3.92 3.50 2.80 0.48 0.22 0.00

0.27 0.00

0.24 0.00

3.21 3.76 3.09 0.45 0.22 0.00

2.91

2.50

2.37

2.42

1.94

2.52

5.18

3.66

3.32

3.44

2.43

3.40

1.58

1.36

1.84

1.67

1.64

1.80

B. Buildings and Structures

0.60

0.78

0.66

0.70

0.30

0.72

C. Equipment (Others and Livestock and Eqpt. Outlay starting 1992)

0.27

0.32

0.37

0.36

0.25

0.49

D. Investment Outlay

1.93

0.46

0.30

0.36

0.05

0.00 0.23

0.00 1.84 0,09

0.00 0.43 0.02

0.00 0.26 0.04

0.00 0.32 0.04

0.00 0.04 0.01

0.00 0.13 0.10

0.79

0.75

0.14

0,36

0.18

0.16

0.00 0.74 0.05

0.02 0.62 0.11

0.01 0.09 0.04

0.01 0.28 0.06

0.01 0.17 0.00

0.08

a. Interests b. Transfers I. to local governrnent 2. to all governrnent corporations 3. to others c. Loan Repaymentand Sinking Fund Contrib. (less Loan Amortization) d. Other MaE II. Capital Outlay A. Land, Land Improvements and Structure Outlays (w/ Buildings and Structures from

0.35

15.88

17.31

16.87

1975-77)

a. to local government b. to all governmeI\t corporatioI\s c. to others E. Loans Outlay a. to local government b. to all government corporations c. to others

0.02 0.06

References Anand, R. and S. V. Wijnbergen. 1989. Inflation and the financing of government expenditure: an introductory analysis with an application to Turkey. TheWorld Bank Econorm"cReview 3(1):17-

38. Catsambas,T. and M. Pigato.1989. The consistency of goverrunent deficits with macroadjustments:an application to Kenya and Ghana. PPR Working Paper Series 287. Washington D.C.: World Bank. Lamberte, M. 2003. Central banking in the Philippines: then, now and the future. Makati City: Philippines Institute for Devekopment Studies.

Manasan, R. G. 2002. Estimating industry benchmark for the value added tax. PIDS Discussion PaperSeriesNo. 2002-11.Makati City: Philippine Institute for Development Studies. Medalla, E. M. 2002. Fiscal incentives revisited. PhilippineJournalof Development 29 (2):1-26. Schiavo-Campo, S. and D. Tommasi. 1999. Managing government expenditure.Manila: Asian DevelopmentBank. World Bank. 2000.Philippinegrowth with equity: theremainingagenda. Washington D.C.: World Bank.

Rosario G. Manasan

Background The .Millennium Summit sets out a comprehensive agenda that encompasses development and poverty goals (known as the Millennium Development Goals or MDGs) which, if met, will signal a marked improvement in human development worldwide. The Zedi1lo Report in June 20011roughly estimated the cost of meeting the MDGs at the global level at $50 billion per year. However, said report admits that "present knowledge does not suffice to put a convincing price tag, even a rough one, on the cost of meeting the human development goals" and concludes that to be meaningful, these costsneed to be estimated at the country level. This study is part of a United Nations Development Programme (UNDP) project that will undertake pilot s.tudies in five countries, including the Philippines, to generateestimatesof the financing gaps and formulate the needed policy measures pertaining to the attainment of the MDGs. It should be emphasized that reaching the development goals require not only additional financial resources (from both domestic and external sources)but also enabling policies and institutional environment that will ensure that said resources\ are utilized efficiently and effectively. .Report submitted to the United Nations Development Programme (UNDP) asbackground paper for the International Conference on Financing for Development held in Monterrey, Mexico, March 2002. 1 This refers to the report of a high-level panel on financing for development chaired by Ernesto Zedillo, President of Mexico, that was commissioned by the UN Secretary-General to recommend strategies for the mob~ation of resources needed to achieve the poverty and development commitments embodied in the United Nations Millennium Declaration.

The study will focus on the achievement of the following MDGs by the year 2015: .halve the proportion of people living below the poverty line., .ensure that children, boys and girls alike, complete a full course of primary s~ooling; .reduce by two-thirds the under-5 years mortality rate; .reduce by three-quarters the maternal mortality rate; .halt and begin to reversethe spread of HIV / AillS, malaria and other major diseases;and .halve the proportion of the population without sustainable accessto safe drinking water. Specifically, this study will: .document the progress towards -meetingthe MDGs and the gaps still to be met; .estimate the financial requirements neededto achieveeach goal; .compare the resourc~requirements with the funding level that is likely to be m"deavailable to determine the funding gap under present alternative macro and sectoral policy scenarios;and .propose how resources can be optimally managed, referring to both operational modalities and institutional capacities,so as to maximize their effectiveness. Approach and methodology This paper will focus only on the resource requirements of providing basic social services that are needed to meet the MDGs. While it is recognized that there might be need for direct poverty alleviation programs, such as food subsidization, asset reform, and microcredit, the resource requirements of the same are not addressed in this study.

Estimatingresourcerequirements Estimating the amount of resourcesneededto meetthe MDGs is filled with difficulties becausesaid targets are generally specified in terms of human development outcomes.Thus, one needs to delineate, first of all, the specific interventions (in terms of programs, activities and projects) that will contribute to the attainment of the targeted

RosarioG. Manasan

outcomes. Next, one needs-in principle-a "dose response"function that defines how increasesin the amount of services/ interventions funded and delivered will result in improvements in human development outcomes. In other words, one needs to have some quantitative estimate,for instance,of how much the under-5 mortality rate will be reduced if the coverage of the expanded program of immunization (EPI) is expanded by x%. While it is fairly easyto arrive at the budgetary requirement for each type of well-specified intervention given some estimate of unit costs,the "dose response" functions are not available. The approach taken in this study therefore basically assumesthat the intermediate output targets (as defined in terms of EPI coverage, for example) in the revised Medium Term Philippine Development Plan (MTPDP) for 2001-2004are consistent with the attainment of outcome targets.2 In other words, the MTPDP (and other official planning documents) are viewed as the sum total of available expert opinion in the country on the type and quantity of interventionsneededto achievethe MDGs. These intermediate targets are then simply extrapolated in a linear fashion so as to allow the achievement of the MDGs by 2015. The budget requirement for any given yearis thus estimatedasthe product of the unit cost, the target population/ clientele, and the target coverage rate (Figure 1). However, two factors will greatly affect te budget for these targets. On the one hand, the unit cost of achieving the MDG goals will vary with the choice of the technology (as to mode of service delivery or type inputs used) and institutional capability. This paper will make use not only of the unit cost of the different interventions as they are currently implemented but will also explore the implications of using lower cost interventions. On the other hand, the target population/ clientele for each of the MDGs are dependent on alternative assumptions based on demand side variables like population growth and poverty incidence. Note that higher population growth and higher poverty incidence both exert greater pressure on the provision of publicly provided basic social services.

2 In addition, the targets found in the National Objectives for Health (NOH) for the period 2002-2004(which provide more detailed targets for intermediate health programs than the MTPDP) were also assumed to be consistent with the attainment of the MDGs on health.

Meetingthe Millennium DevelopmentGoals

Figure 1. Determinantsof resourcerequirements

In turn, the poverty incidence in any given year depends on the level and quality of economic growth. In the caseof the Philippines, this relationship was established in a study by Balisacanand Pernia (2001)that assessesthe impact of various economic and institutional variables (like economicgrowth,3price incentive variable,4agriculture terms of trade, irrigation,s agrarian reform,6 accessto markets and services,7schooling, and presence of political dynasties at the local level) on averageliving standards (asmeasuredby averageper capita expenditures) for each of the 5 income quintiles.8 Their findings are relevant to the present study and are summarized here: .The results for the secondquintile closely resemblethose for the first (or poorest) quintile, indicating that the policy implications of the model for poverty reduction are applicable regardless of the specific estimate of poverty incidence that is used. .

3This variable is represented by overall per capita income. .This variable is represented by the terns of trade for agriculture, i.e., the ratio of price of agricultural products to the price of nonagricultural products. 5This variable is represented by the proportion of irrigated farm area to total farm area. 6 This variable is represented by the proportion of land distributed under CARP to total CARP-able land. 7Concrete roads equivalent per square kilometer and proportion of households with access to electricity were used as proxies for this variable. sBalisacan estimated an econometric model that uses provincial level panel data from the 1980sand the 1990s.

RosarioG. Manasan

While economic growth benefits all income groups, the elasticity of per capita expenditures with respectto economic growth increases monotonically with the income quintile (Table 1). Specifically,the elasticity of per capita expenditures with respectto growth in overall per capita income is 0.54for the first (or poorest) quintile compared to 1.04 for the fifth quintile. This implies that the per capita expenditures of the poorest quintile will increase by 5% while that of the richest quintile will increase by 10.4%if overall per capita income rises by 10%. Table 1

Growth in average living standard of quintile due to 10% increase in overall per capita income

1st (poorest) quintile 2nd quintile 3rd quintile 4th quintile 5th quintile

5.4% 6.2% 6.8% 8.0%

10.4%

.An improvement in the terms of trade for agriculture tends to raise the average living standard of all quintiles, except the top quintile. Moreover, the coefficients for this variable for the first two quintiles are similar while those for the third and fourth quintiles are relatively lower. This finding is consistent with the fact that poverty is concentrated in the rural sector, particularly the segment that is dependent on agriculture. .Irrigation tends to have a propoor bias. .Agrarian r~form raisesaverage per capita expenditures qf all quintiles, except the top quintile. .The road variable is significant but has a negative sign for the first three quintiles, indicating that roads per se reduce the welfare of the poor unless complementary factors like schooling are present (as indicated by the significant coefficient for the schooling/road interaction term). .Schooling by itself does not appearto have a significant impact on the average welfare for all quintiles. However, when it is

interacted with roads (which is used as a proxy for accessto markets and services), it does tend to improve per capita expenditures. This result is consistent with endogenous growth theory which argues that the rate of return to schooling are dependenton the availability of complementary factors like investments on infrastructure. .Local political dynasty has a negative coefficientand is highly significant for the first three quintil~s suggesting that political dynasties dampens the averageliving standards of the poor. Because of time and data constraints, detailed unit costs are derived for selectedinterventions / programs only, that is, those that are considered critical for the attainment of MDG targets. In particular, in the education sector, it was assumed that the critical ingredients in the achievement of the MDG targets are teachers, textbooks, and classrooms. In the health sector, the critical interventions that were specifically costedinclude suchpublic health programs like the (1)expanded program of immunization, (2)tetanus toxoid vaccination for mothers, (3) control of tuberculosis, malaria, and schistosomiasis,(4) rehabilitation and upgrading of rural health units and dist{\ct hospitals, and (5) enrollment of indigent population in the national health insuranceprogram (PhilHealth). In the nutrition sector, detailed costing is made for micronutrient supplementation while in the water and sanitation sector, the provision of level 1 water supply (through the installation of deepwells) and sanitation (latrine) were costed individually. While other programs were also considered important (e.g., teacher training in education and control of degenerative diseases9 in the health sector), no detailed costings were made for said programs but the per capita expenditure level in some benchmark year (say, 1999) for these items combined was allowed to grow in tandem with inflation and the growth of the targetclientele.Implicitly, this approach ensures that expenditures on these "other" items are maintained in real per capita terms at their levels during the benchmark years.lo 9 Note that, in recent years, degenerative diseases have emerged as a major cause of morbidity and mortality. 10It should be emphasized that this approach does not allow for the expansion of coverage (assuming that these interventions do not quite reach full coverage)nor the improvement in the quality of these interventions.

RosarioG. Manasan

Figure 2. Determinants of resource availability

!",Iicy on inttO...cIotal ~nq intta.cctotal ptiotitir4tion

Estimatingresourceavailability Resourceavailability depends on total government expenditure and sectoralbudget shares(Figure 2). On the onehand, governmentpolicy on intersectoral priorities underpins sectoral budget shares.On the other hand, government expenditures depend on government revenues and the target fiscal deficit. For instance, the government plans to pursue an aggressivefiscal deficit reduction program in 20022006. This development will be a major determinant of amount of resourcesavailable for MDG during this period. Moreover, government revenues depend on the economic growth and institutional capability to collect taxes. Also, both the level and the quality of economic growth would influence expansion of the tax base and consequently, government revenues. Two alternative assumptions with respect to sectoral budget sharesare used in this study. The first one makesuse of the projected budget shares that are found in the MTPDP. The second one makes use of the historical average share of the sector or subsector in the government's budget. Overview of the country's development record since the 1990s The Philippine economyin the last 25 years hasbeen characterizedas one following a boom-bust cycle (Fabella 1994). Thus, after a few years of credible growth, the economy is dragged down by inflationary pressures and / or a balance-of-payment crisis that typically prompted the government to put in place restrictive fiscal

Meetingthe Millennium DevelopmentGoals

and monetary policies and resulted in an economic contraction followed by recovery.The Philippines hashad three crisesin the period 1975-2000,the worst being in 1984-1985when the GDP contracted by 7.3%in 2 consecutiveyears. Then, two milder ones took place in 1991 and 1998,with the GDP declining by 0.6%in both years. The 1997/1998crisis has a regional characterunlike the previous ones. Specifically, it was precipitated by a crisis in Thailand which infected many of the countries in EastAsia, albeit in varying degrees. However, it should be emphasized that the economy has started to manifest certain vulnerabilities to external shockseven prior to the crisis and what appears to be good macroeconomic fundamentals. The weaknessesin the economy stem largely from the inadequacy of the policy and regulatory environment and were evident in the widening merchandise trade deficit, the surge in short term capital flows, the appreciation of the peso, and emerging cracks in the fiscal position. However, in the five years immediately prior to the EastAsian crisis in 1997, the Philippines enjoyed what appears to be strong macroeconomic fundamentals. This came about largely because of the restoration of democracy during the Aquino administration, the stabilization of the political situation during the Ramosadministration and the continuous implementation of structUral economic reforms aimed at reforming the tax system,liberalizing trade, privatizing stateowned enterprises,deregulating the telecommunications,interisland shipping, air transportation, banking, the trading of agricultural products (like sugar and coconut, wheat, and fertilizer), the rehabilitation of ailing financial institutions (specifically government financial institutions and rural banks), and the libe.ralization of the foreign exchangemarket and the rules governing the entry of foreign investments during both administrations. Thus, the economyposted modest rates of economic growth that was largely driven by growth in investments and exports (Table 2). Moreover, because of the persistent pursuit of trade liberalization from 1980 onwards, manufactured goods accounted for an increasing proportion of exports thereby reducing the country's dependence on exports of primary commodities that were often subject to price volatility. However, despite the numerous initiatives, liberalization in nontradables lagged. In addition, the appreciation of the peso as a result of significant inflow of foreign portfolio investment and the concomitant sterilization of the accompanying inflow of foreign

RosarioG. Manasan

Table 2. Key macroeconomicindicators,1981-2000

17.7

12.6

7.9

-4.3

-547.0

-10.7

8.7

13.8

8.5

-4.6

-1671.0

8.3

3.7

5.1

14.2

11.1

-2.1

-2118.0

-7.4

-28.7

4.8

46.8

28.5

16.7

-2.0

-1626.0

1985

-7.2

-30.3

-15.9

23.2

26.7

18.6

-2.0

2301.0

1986

3.5

1.3

17.2

-0.4

16J

20.4

-5.3

1242.0

1987

4.3

6.5

7.2

3.0

11.5

20.6

-2.5

264.0

1988

6.7

18.8

14.5

12.2

14.7

21.1

-3.0

593.0

1989

6.1

21.1

9.0

11.5

18.6

21.7

-2.2

451.0

1990

3.2

17.0

2.1

13.2

23.7

24.3

-3.5

-93.0

1981

3.4

1982

3.6

5.2

1983

2.0

1984

1991

-0.6

-14.1

6.5

18.5

21.5

27~5

-2.1

2103.0

1992

0.4

6.6

4.3

8.6

16.0

25.5

-1.2

1492.0

1993

2.1

8.8

6.2

r'O

12.5

27.1

-1.5

-166.0

1994

4.4

7.4

19.9

8.3

12.7

26.4

0.9

-1802.0

1995

4.7

4.8

11.7

8.0

11.8

25.7

0.6

631.0

1996

5.9

12.1

15.4

9.1

12.3

26.2

0.3

4107.0

1997

5.2

11.6

17.4

5.9

13.1

29.5

-3363.0

1998

-0.5

-11.0

-20.0

9.7

15.3

40.9

-1.8

1803.0

1999

3.4

-1.9

3.8

6.7

10.2

39.3

-3.6

3820.0

2000

4.0

-0.1

17.6

9.9

44.2

-3.9

-512.0

4.4

BOP = Balanceof Payments

exchange as well as the increased protection given to agricultural products in the name of self-sufficiency in food shifted the domestic terms of trade against industry and in favor of services(World Bank 2000). Consequently,a correspondingshift in the sectoralcomposition of output becameevident. Thus, the share of industry in total output contracted, despite the impressive performance of manufactured exports, from 35% in 1990 to 32% in 2000 while that of services expanded from 43%to 52%.

Meetingthe Millennium :!?~~~lopment Goals'

Meanwhile, inflation was brought down to single-digit levels largely because of fairly stable food prices (brought about by good weather condition) and the contractionary stance of monetary authorities (Table2). The interest rate levels were lower compared:to those of earlier years and the exchangerate has been appreciating in real terms as the BOP posted large surpluses and gross international reserves rose to robust levels. Part of the improvement in the BOP position was brought about by the increased inflow of foreign ,nvestmentsthat resulted from improved investors' confidencein the: domestic economy. On the fiscal side, the national government registered modest surpluses in 1994-1997after being perennially in the red during the 1970sand 1980s. Even the consolidated public sector fiscal position was likewise in surplus in 1996. In turn, the relatively stable growth environment in the first half of the 1990swas translated to greater employmen~opportunities as seen in the drop in the unemployment rate b~tweeh 1991 aI).d1996 (Tab)e3).11Moreover, the sectoraldistribution of e~ploymentduring this .period ,shows that labor shifted away from agrid.1lture'to ~e more labor-intensive sectors of servicesand construction in line with the overall reallocation of resourcestoward the nontradabie sectors (World Bank 2000).The increasein the share of ~e services'~ectoris an indication of the growth of the informal sector "\Thichhas had to absorb "an expanding labor force that is unable to find :a.d~uate employment in the agriculture and industry sectors" '(Philippine Congress 2001). .:'. ::," 'c, However, becauseof the up-and-down pattern in its ecQPpmic , , development, the Philippine economyhas trailed behind many Qfits neighbors with its GDPgrowing by 3.2%yearly on the averageduriiig the period. Moreover, real per capita GDP has b~n sluggish not drily because of its unstable growth path but also because of the rapid" growth (2.3% yearly) of its population which numbered 76.5 mi)lion in 2000. real capita is even ldwer than the Thus, peak its level in per 1982. ' GDP in 2000(U5$700)12 In 2000,the Philippines ranks 77thamong 174countries_int~~ of the Human Development Index (HDI): Relatedto tRis,-ft .. regis.fe.rect improvem~nts in key social development indicatots-:bctWeert1986~" 1996,particularly those related to poverty, education and health. In,~ II Note,however, that the unemployment rate went up again in 1996-2000. 12This figure is based on 1985 prices and exchange rate.

49.3

Meetingthe Millennium DevelopmentGoals

less-than-modest improvement in the completion rate from 67.5% and 69.7%,respectively, in the elementary and secondary levels in SY 1990-1991to 68% and 71%in SY2000-2001. With respect to improvements in health status, life expectancy at birth rose from 65 years in 1990 to 67 years in 1998. This came about as the infant mortality rate, the under-5 mortality rate and the maternal mortality rate all exhibited a definite downtrend in 19902000. In particular, the infant mortality rate improved from 57 per 1,000live births in 1990to 36 in 1998.At the same time, the under-5 mortality rate slid from 80 per 1,000livebirths in 1990to 49 in 1998. On the other hand, the maternal mortality rate declined from 209 per 100,000livebirths in 1990to 172 in 1998. Meanwhile, the proportion of households with accessto safe water increasedfrom 77%in 1994to 78%in 1998while the proportion of households with adequate toilet facilities declined from 75% in 1994to 69%in 1998. A comparison of the averagerate of progress in 1990-2000with the rate needed to achievethe MDGs for accessto primary schooling, for the infant mortality rate and the under-5 mortality rate shows that maintaining the current rate of progress is adequate to bring aboutthe achievementof said goals by 2015.In contrast,Table5 shows that the attainment of the targets for the reduction of poverty, the reduction of the maternal mortality rate, the increasedaccessto safe water and the increasein the completion rate at the elementary level would require a faster rate of progress than what has been posted in the past. Table 4. Poverty incidence

1985

1988

1991 1994

33.6

30.1 46.3

48.6

24.0 47.0

44.4

20.4 47.4

Poverty Incidenceof Population Philippines

45.5

45.3

40.6

36.8

39.5

Urban Rural

34.3 52.3

35.6 55.1

28.0 53.1

21.5 50.7

25.0 54.4

Urban Rural

50.7

37.9 56.4

31.1

1997

17.9

2000

Meetingthe Millennium DevelopmentGoals

Although social services continues to account for the biggest share of the budget of the national government with the exception of debt service,its budget sharein 2002(21.7%)is lower than the average in 1993-1998(22.9%)and the increasein the allocation for the sector is not enough to allow government expenditures to keep pace with the GNP (Appendix Table 1). Thus, the combined budget for the social services sector will slide to 4.0% of GNP in 2002 from 4.1%in 2001 and the 4.2% average in 1986-1998(Appendix Table 2). This occurs even as real per capita spending on socialservicescontinu~ to drop from its peak level of P645in 1997(Table6). Overall policy framework: The MTPDP The Medium Term Development Plan for 2001-2004defines the overall development framework and program thrusts of the government. Fighting poverty is the overarching goal of the MTPDP and embodies the supportive environment for the attainment of the MDGs. The plan's antipoverty framework is anchored on sust~ined growth with equity. It hopes to achieve this by increasingeconomic growth on a sustained basis and expanding employment opportunities. The MTPDP projects the economyto grow on a sustainedbasis acrossall sectors.GDP growth is expectedto acceleratefrom 3.3%in 2001 to 6.3%in 2006(Table7). This path is premised on the recovery and robust expansion in investments and exports as the economy benefits from renewed investor confidence (arising from sustained macroeconomic stability and improved overall governance). Table 6. Real per capita national government expenditures on social services, 1975-2002(in 1985 peso) Average 75-85 86.92 93.98 1996 1997

Total Social Services

389

Education 230 Health 70 Social Welfare, 32 Labor and Employment Housing and 56 Com. Development

1998

1999 20002001P

519 522

573

645

625

606

604

566

357 87

419

493 69

492

464 452

398 56

59 68

433 45

58 68

Meetingthe Millennium DevelopmentGoals

growth in the industrial sectors from 2.3% in 2001 to 7.1%in 2006. Meanwhile, housing finance reforms will lead to the recovery of the construction industry starting in 2002.Also, policies to support ICT and tourism are expected to lead to double-digit growth in these

sectors. On the other hand, the socialbias of the MTPDP is demonstrated in its five core strategies for fighting poverty: (1) assetreform, that is, redistribution of land and credit; (2) provision of human development services, particularly basic education, health, shelter, water and electricity; (3) social protection of the poorest and most vulnerable sectors and communities through social welfare and assistanceand social security and insurance; (4) participation of the poor in governance;and (5) security and protection againstviolence. In this regard, it is important to protect society's core priorities even as fiscal discipline is restored. Attaining the MDGs Reducing poverty

Poverty incidence has declined, albeit slowly, in 1985-2000.The proportion of the population below the poverty line has decreased by 6 percentagepoints in 1991-2000.On the other hand, the proportion of the population below the subsistencethreshold has been cut by 3 percentage points during the same period (Figure 3). In 2000, the proportion of the poor in the total population (households)stood at 39.5%(33.7%),even higher than the comparable figure in 1997. Figure 3 clearly indicates that the rate of reduction in the poverty incidence needed to reachthe MDG target in 2015is greater than the Philippines' current rate of progress. Moreover, it shows that the decline in the poverty incidence projected in the MTPDP is even more ambitious. What is the likelihood that the MDG target for poverty reduction in 2015will be achieved?What are the challengesinvolved in attaining the said goal? To answer thesequestions,one can conceiveof at least four alternative scenariosthat are defined concomittantly by the rate of economic growth, the rate of population increaseand the resulting pace of reduction in poverty incidence (Table8). The first one assumesthat both GNP and population will grow as projected in the MTPDP. Thus, GNP will grow by 4.1-6.4%for 2001-2006and 6.5%every year thereafterwhile population growth is kept at about 2% in 2002-2004,1.9% in 2005 and 1.8% every year

Rosario G. Manasan

thereafter. Using the growth elasticities derived by Balisacan and Pernia (2001)for the different income quintiles, it is projected that the Philippines will be able to reduce poverty incidence16to 22% in 2015 under this scenario, thereby satisfying the MDG for poverty reduction (Figure 4). Thus, in a sense, the MTPDP represents an "optimum policy shift."17 Figure3. MDG: Reducepoverty incidence

.Poverty

Incidenceof Population

.Subsistence

Incidenceof Population

MDG targetin 2015 t

MTPDPtargetin 2004 -Rate

of progressneededto reach target

Currentrate of progress

Table 8. Alternative scenarioson economicgrowth, population growth and poverty reduction Population Growth rate

Economic Growth

MTDP

GNPg.r. 4-6.5% MTPDP

2.1%-1.8% business as usual

Historical average

4.20%

"best case" optimum policy shift poverty inc. reduced to 22% poverty inc.reducedto 29% (2) (1) Historical "worst case" poverty inc. reduced to 24% poverty inc. reduced to 31% (3) (4)

16It should be emphasized that in this section, the term "poverty incidence" is used to refer to the proportion of poor individuals in total population.

Meetingthe Millennium D~velopmentGoals

Figure4. Reductionin poverty incidenceof population under various assumptions

-+-

GNP g.r. as in MTPDP & popn g.r. as in MTPDP (1)

-.-Lower GNP g.r. & popn g.r. as in MTPDP (2) ~. GNP g.r. as in MTPDP; higher popn g.r. (3) -e-

Lower GNP g.r. & higher popn g.r. (4)

However, the economic growth target in the MTPDP is well above the average actual rate of growth in GNP of 4.2%in 1986-2000 and 3.5%in 1990-2000.Similarly, the population growth rate assumed in the MTPDP is markedly lower than the actual average rate of population increase of 2.3% in 1990-2000.18 Given this perspective, the secondscenariocan be defined as one where economygrows at a lower rate (i.e., at the historical average rate of growth) and where population grows at the lower rate assumedin the MTPDP between 2002and 2015.Under this scenario,poverty incidencecould be,reduced to 29%in 2015. On the other hand, the third scenario would be where GNP grows at the higher rate assumedin the MTPDP but where population 17As indicated earlier, Balisacan and Femia's (2001) results suggest that the poverty reduction can in fact be accelerated with propoor policies like improvements in the teims of trade for agriculture, irrigation infrastructure, and agrarian reform. These findings are largely consistent with the results of simulations done by the NPPS of NEDAusing the Dagum model. 18Note that the intercensal population growth between 1995-2000(2.36%) is even higher than that between 1990-1995(2.32%).

RosarioG. Manasait

is increasing at a higher rate (equal to its historical average rate of growth). In this scenario,poverty incidence could go down to 24% in 2015. In contrast, the fourth scenariowould be one where GNP grows at the' lower rate of 4.2%and where population grows at the higher rate of 2.3% yearly between 2002-2015.This scenario generatesthe smallest reduction in poverty, with poverty incidence projected to be equal to 31%in 2015.In this sense,this scenariowhich represents a business-as-usualsituation is the worst case. These simulations underscore the extreme importance for the Philippines to break away from old patterns if it is to win the battle againstpoverty. In this regard, it is critical for' the economy to grow on a sustained basis and to shift to a higher growth path. In turn, as indicated earlier, the higher economic growth targets that are set in the MTPDP are anchored on the expansion of investments and exports. But increasing the rate of economic growth is not enough. The simulations also show that it will be difficult for the country to achieve the MDG on poverty reduction even if the economy achieves t~e economic growth targetsin the MTPDPunlessa concertedpopulation .management program is put in plat:e to check the prevailing high rate of population growth. Alternatively, it is projected that if population persi,ststo grow at its present rate, then the economyhas to attain an economic growth of 5% in 2002 and 7% ev~ry year .thereafter if poverty incidence is to be cut down to 22% in 2015. It is notable that even under the best-casescenario~which adheres closely to the assumptionsused in the MTPDP, poverty incidence is projected to be equal to 36% in 2004.Thus, it appears that the 28% target for the proportion of poor families in 2004set in the MTPDP (which translates to a 33% target for the proportion 6f poor population) is not attainable. Moreover, the gap is large such that, even if the possible additional reduction in poverty due to assetreform and increased investments in rural infrastructure under the agricultural modernization program are taken into account, it is not likely. that this conclusion will be reversed.

Universal accessto basiceducation Some deterioration in the school participation rate is observed in 1990-2000(Figure 5). Likewise, the Philippine has not been successful

in increasing the completion rate at the elementary level from its 1990level of 67.6%(F~re 6). However, the Philippines' net enrollment rate is one of the highest in the region. This has come about largely because of the Constitutional mandate for free public education at the elementary and secondarylevel, the policy to establisha schoolin every barangay and to introduce multigrade classesin incomplete schools. Given the current rate of progress, it is not likely that universal accessto primary education in 2015 will be achieved. In contrast, universal accessto complete primary education by 2015 will be even more difficult to attain. Various studies (e.g., Philippine Education Sector Study, Philippine Commission on Education Reform) attributed the low completion rates to the poor quality of basic education in the country. The same studies also noted that adequate quantities of key inputs (teachers, textbooks, classrooms, teacher training, learning / instructional materials) are essentialin upgrading the quality of basic education and improving the completion rate given the perennial shortage in these inputs. For instance, in SY 2001-2002,the public school systemlacks38,050teachersand 8,442classrooms.On the other hand, although the textbook-pupil ratio per subjectareahasimproved significantly from 1:6 in 1999,shortages still hounds the system as the ratio stood at 1:2 in SY 2001-2002. In addition, government recurrent expenditure on basic education (which is used to fund teacher training, learning / instructional materials and other operational needs of the schools)has declined frpm P878per pupil in SY 1990-1991to P424in SY 2001-2002.19 An analysis of the profile of schoolleavers suggeststhat children drop out of school for economicreasons(e.g.,high costof education,2o need to seek employment and ill-health) as well as for pedagogic reasons(inability to cope with school work and lack of interest). This suggeststhe need for targeted subsidy for the poor, school feeding programs, and in-school health care in addition to improvements in school facilities and teaching quality. 19These figures are expressed in year 2000pesos. 20On the one hand, it is found from the Filipino Report Card on Pro-poor Services (WB 2001) that the school feespaid by children going to public schools are not inconsequential despite the fact that the Constitution mandates that free public elementary education. On the other hand, other out-of-pocket costs of public elementary schooling (including cost of textbooks, school supplies, transportation) is large (Maglen and Manasan 1999).

RosarioG. Manasan

Figure 5. MDG: Achieve universal acessto elementary education

.Participation .Participation *

rate in elementary education, SY 1990-1991 rate in elementary education, SY 2000-2001

MDG target in 2015

...MTPDP --Rate

target in 2004 of progress needed to reach target

Current

rate of progress

Figure 6. MDG: Achieve universal complete elementary education

.Completion

rate in elementary education, SY 1990-1991

.Completion

rate in elementary education, SY 2000-2001

...MDG *

target in 2004

MTPDP target in 2015 -Rate

of progress

needed

Current rate of progress

to reach

target

This paper argues that nonpedagogicissuesare better addressed by improvements in the overall economicopportunities than by direct interventions in the educational systemper se.This paper, thus, focuses on the resource requireJ;nents needed to support the adequate provision of critical inputs asthe key to the improvement of the quality of basic education and the completion rate at the elementary level. Under the MTPDP, the completion rate at the elementary level is projected to increase by 4.3 percentage point yearly from 68% in SY 2001-2002to 71%in SY 2002-2003to 77%in 2003-2004and 81% in 2004-2005.Given its record in the recent past and the shortfalls in resourcesthat are likely to emerge until 2006/2007(seebelow), these targetsappearto be overly ambitious. Thus, for purposes of estimating the resource requirements of the basic education sector, this study assuIilesinSteadthat the completion rate for elementary will increase by 1 percentage point yearly from 68% in SY2001-2002to 71%in SY 2004-2005and by an averageof2.6 percentagepoints yearly thereafter to 100%in SY2015-2016. Actualemollment in public elementary schoolswas 11.8million in SY 2000-2001and is growing at 2.4% yearly while that in public secondary stood at 4.0 million and is growing at 6%21annually. An analysi5'of the emollment data shows that gradually increasing the completion rate up to 100%in 2015will not alter the projected rate of in.creas.ein,.total enrollment in public schools because the gross parti~pap.on rate even in present time is in the vicinity of 110-115% . be<;a~e9f thehig,h repetition rate. Thus, in the medium term, the increa~esm,emollment due to higher completion rate will be offset by the reduction in the number of repeaters. Nonetheless, providing the projected number of students with adequateieachers, textbooks and classroomsimply that by 2015the number of public school teacherswill have to increaseby 70%relative to the number in 2001,22 the number of classroomsby 65%,23 and the stock of textbooks by 130%if the demand from increasingemollment is to be met.24At the same time, the financial requirement for other inputs like teacher training, learning / instructional materials and 21The growth in enrollment in public secondary schools has been particularly rapid in recent years because of the exodus of students from private schools following the marked increase in tuition fees in the latter. 22The required number teachers is estimated to reach 752,710in SY 2015-2016compared with 479,722in SY2001-2002.Note that in the latter year, the actual number of teachers fell short of the reQuirement bv 38.050.

RosarioG. Manasan

supplies will have to increase by some 390%in 2015 relative to its 2001 level.25To arrive at these estimates, the required number of teachers is derived by dividing total emollment by 3426while/the required number of additional classrooms is obtained by dividing incremental enrollment by 45 and adding the result to classroom shortage in previous year. On the other hand, the total number of textbooks required is obtained by multiplying number of students by 8 (the number of subject areas).27In all cases,the required number of inputs is multiplied by the unit cost to arrive at an estimate of the financial resources needed to achieve the MDG goal in basic education. The unit cost estimates for key inputs in basic education are given in Annex 1. Note that the financial requirement for basic education in the earlier years of the period under study are higher because the governmenthasto addressthe cumulative deficienciesin major inputs resulting from the recurrent shortagesin the previous years that have been noted earlier. In specific terms, Table 9 projects that the amount of resourcesneeded to meet the MDG in basic education will decline from a high of 2.9%'of GNP in 2002to 1.7%in 2015under MTPDP.28, In contrast, the resource requirement of basic education is estimated to decrease from 3.0% of GNP in 2002 to 2.1% in 2015 under an unchanged policy regime. The higher amount of resourcesneededin the business-as-usualscenario is due to the faster rate of increasein the number of students in the said scenario arising from the assumed higher rate of population growth.

23The required number of classroomsis estimated to reach 564,538in SY2015-2016compared with 351,356in SY 2001-2002. Note that in the latter year, the actual number of classrooms fell short of the requirement by 8,442. 24The required number of textbooks is estimated to reach 190.5 million in SY 2015-2016 compared with 121.4million in $Y 2001-2002.Note that in the latter year, the actual number of textbooks fell short of the requirement by 38.8million. 25This increase is due in part to the higher allocation that is considered adequate (P770per student) compared to actual allocation of P422 in 2001 as well as to the increase in the number of students. 26This figure is lower than the average class size of 45 largely because of problems in teacher deployment. 27In estimating the req~ired number of textbooks, it is assumed that textbooks have a fouryear 28Thislifespan. table is labeled "high cost" to distinguish it from the "low cost" estimates that will be presented later in the paper.

RosarioG. Manasan

Two alternative estimates of the amount of budgetary resources that will most likely be available for basic education are also derived in this study. Under the first scenario, it is assumedthat, in tandem with the higher share of the budget planned for the entire education sector assumed in the MTPDP, 29some intrasectoral restructuring of the education budget in favor of the basic education subsectorwill take place. This is in line with proposals to enhancethe capacity of state universities and colleges (SUCS)to raise their own revenues while allocating more government resources for needs-based scholarships in higher education and for the TESDA to devolve the operation of technical, vocational, education and training (TVET) institutions to LGUs and the private sector. In contrast, the second scenario refers to one where there is no changein the policy regime with respect to education finance. Under this scenario,the share of the education sectorin the total expenditure of the central government net of debt service and the IRA as well as the share of the basic education subsectorin the education budget are assumedto be equal to their average in 1996-2001(i.e., 28.5%and 81.8%,respectively). Table 10indicates that even with budget reform in the education sector as envisioned in the MTPDP, it is likely that the projected budget for basic education will not be sufficient to cover the resource requirements of the subsector in 2002-2005.In contrast, under an unchanged policy regime, a resource gap is projected until 2011.In specific terms, with budget reform in the education sector, the resourceshortfall is projectedto be 0.4%of GNP in 2002-2006.Without budget reform, the resource gap is estimated to reach 0.5%of GNP in

2002-2011. The lower resource gap in MTPDP scenario is attributable to two factors. One, on the demand side, as explained earlier, the estimated amount of resources needed to meet the MDG under MTPDP is lower than in the unchanged policy regime becauseof the assumed lower population growth rate. Two, on the supply side, lower economic growth and lower tax effort assumed in the unchanged policy regime necessarily imply a smaller national government budget (assuming a similar fiscal deficit target as in the MTPDP). 29This is relative to the aver~e in the last 5 years. In particular, the MTPDP provides that the share of the education sector in total expenditures of the central government net of debt service and the IRA will rise to 32.3% in 2004 compared to an average of 28.5% in

1996-2001.

lo@-;ill

Table 10. Resources available and resource gap in basic education (high cost assumption) Year

Available Available Resources Resources wi MTPDP -Unchanged Regime

2002

100,850

2003

104,334

87,274

2004 2005 2006 2007 2008

108,406 126,269 152,255 174,487 189,960

8$,733 101,259 116,333 133,647 150,151

2009 2010 2011

235,197 265,576 295,672

17(),043 192,340 215,554

2012

329,157

2013 2014

366,411 407,856

236,114 258,626

2015

453,963

2002-2006

592,115

2002-2011 2002-2015

3,310,393

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

2.94 2.52 2.11 2.21 2.40 2.47 2.42 2.70 2.74 2.74 2.74 2.75 2.75 2.75

2002-2006

2.27

2002-2011 2002-2015

283,271 310,253

Resource

Requirement wI MTPDP

Requirement -Unchanged

124,146 127,668 135,999 146,179 155,493 165,561 176,304 187,766 199,996 213,051 226,986 241,864 257,750 274,714

124,146 128,265 136,875 147,566 157,536 168,216 179,650 191,895 205,009 219,056 234,106 250,233 267,515 286,039

1,658,214

2,444,010

2,696,107

2,633,476

2.94 2.74 2.64 2.56 2.45 2.35 2.25 2.15 2.06 1.98 1.89 1.81 1.74 1.67

2.95 2.78 2.72 2.68 2.61 2.55 2.49 2.43 2.37 2.32 2.26 2.21 2.16 2.11

2.64

2.17

23,296 23,334 27,592 19,910 3,237 (8,926) (13,656) (47,431) (65,580) (82,621) (102,171) (124,547) (150,106) (179,249)

48,142 46,307 41,203 34,569 29,499 21,852 12,669 3,503 (2,008) (8,393) (15,756) (24,214)

302,468 (676,917)

0.55 0.50 0.54 0.35 0.05 (0.13) (0.17) (0.54) (0.68) (0.77) (0.85) (0.93) (1.01) (1.09)

252,097

0.56 0.89 0.95 0.84 0.68 0.52 0.41

0.28 0.15 0.04 (0.02) (0.07) (0.13) (0.18)

0.37

2.54 2.08

40,991

97,370

1,355,746

2.08 2.61

Gap -Unchanged Regime

Regime

689,485

2.38 1.89 1.76 1.84 1.93 2.02 2.08 2.15 2.22 2.28 2.28 2.28 2.29 2.29

Gap wI MTPDP

2.39

0.46 (0.53)

0.22

The discussion so far assumesthat the resource gaps identified in earlier years will be covered by mobilizing other sources of financing. If this does not materialize, however, said resource gaps have to be carried forward to subsequentyears. Table 11 shows the

RosarioG. Manasan

resource gaps for each year if the latter occurs. It shows that the projected budget for basic education will not be enough to fund the estimated financial resources needed to meet MDG targets in the subsector until 2009 (with budget restructuring) or 2015 (without budget reform in the education sector). Theseprojections, thus, provide an indication of the difficulties in achieving the MDG in basic education particularly under an unchanged policy regime. They also underscore the weak linkage betweenthe programmatic targets for various government programs and the budgetary resources that are set aside for said programs in the MTPDP. Generatingcostsavings Previous studies have noted inefficiencies in teacher deployment. In SY 1997-1998, for instance, average class size was 41 and 50, respectively, in public elementary and secondary schools. In comparison, the average student-teacher ratios were 35 in public elementary schools and 34 in public secondary schools. These numbers suggest an imbalance in the deployment of public school teachers. One problem is related to the constraints imposed under the Magna Carta for Public School Teachers regarding the re-assignment of teachers across geographical borders. Another relate to the current practice of assigning teachers to do administrative / clerical functions (that should otherwise be assigned to lower level positions) at the school and district offices. To take into account this problem as well as the need for grade level coordinators and the like, the DBM uses a teacher-pupil ratio of 1:34 in computing teacher requirements for budgeting purposes. On the other hand, studies have documented that LGUs are able to construct public schools cheaper than the DPWH. However, cost savings could be generated if proposals to (1) improve teacher deployment, 3Dand (2) introduce a new noncore subject (Makabayan) that will take the place of two existing ones in terms of number of textbooks required,31 and (3) make LGUs implement the school building program32 were carried out. The estimate of the

30For purposes of arriving at estimate of the resource requirement, it is assumed that the improvement in teacher deployment will result in a student-teacher ratio of 40 for incremental enrollment.

RosarioG. Manasan

resource requirement when lower cost interventions are put in place is shown in Table 12 while the resource gap is shown Table 13. A comparison of the Table 9 and Table 12indicates that the costsavings outlined above will yield an 11% reduction in resource requirement in basic education on the averagewhile a comparison of Table 10 and Table 13 suggest that the resource gap for 2002-2005/6is cut from 0.4% of GNP to 0.2%of GNP in 2002-2005/6with MTPDP and from 0.5% of GNP to 0.4% of GNP in 2011 under an unchanged policy

regime. MDG goals in basic health As indicated earlier, the Philippines posted considerablegainsin 19992000 in reducing the infant mortality rate (Figure 7), the under-S mortality rate (Figure 8) and the maternal mortality rate (Figure 9). However, a comparison of the rate of progress neededto reach target reduction and the maternal mortality rate with the current rate of progresssuggeststhat the government would have to.exert additional effort relative to what has been done in the past if the Philippines is to attain the MDG in this area.As such, there is a clear understanding on the part of the government of the need to continue to addressthe public health needs of the population, particularly those of poor families and economically backward areas. In line with this, the government institutionalized the Health SectorReform Agenda (HSRA) in 2000in order to better respond to the challenges of effecting further gains in the health sector. In particular, the HSRA is aimed at addressingthe following outstanding issues in the sector in the medium term. One, infectious diseases persist at high rates while chronic and degenerative diseaseshave become prevalent even as environmental and work-related factors remain unattended. Two, large variations in health status persist acrosspopulation groups, income classesand geographicareaslargely due to inequities in accessto health facilities and services and the limited coverageof social health insurance.Three,inadequatefunding and management systems have limited the impact of public health programs. At the same time, while resources for health remains inadequate, the funding that is available is inefficiently mobilized 31It is worth noting here that recent procurement reform instituted in the DepEd in 2000 has resulted in a 50% reduction in the unit cost of textbooks from PBOto P40. 32In this study, it is assumed that unit cost of schoolbuildings is cut by 20%.

Meeting the Millennium Development Goals

Figure 7. MDG: Reduce infant mortality rate

.Infant mortality rate 1990 .Infant mortality rate 1998 MTPDP target in 2004 *

MDG ta(get in 2015 Rate of progress needed to reach target

,..-

Current rate of progress

and used. Four, the effectivenessof the decentralized primary health care delivery system has been compromised becauseof the lack of coordination and cooperation among local government units. Thus, the HSRA seeksto undertake the following: .secure funding for priority public health programs; .promote the development of local health systemsand ensure their effective performance; .strengthen the capacities of health re~latory agencies;and .provide fiscal autonomy to government hospitals expand the coverage of the National Health Insurance Program (NHIP). Within this framework, the DOH in its National Objectives for Health (NOH) 1999-2004 outlines the following intermediate objectives that will contribute si~ficant1y in improving the overall health status of Filipinos (as reflected in reductions in the infant mortality rate, the under-5 mortality rate, the maternal mortality rate, the fertility rate and increasesin life expectancy):

RosarioG. Manasan

Figure 8. MDG: Reduce under-5 mortality rate

.Under-5

mortality rate 1990

.Under-5

mortality rate 1995

Under-5 mortality rate 1988 *

MDG target in 2015

--Rate

of progress needed to reach target

-Current

rate of progress

Figure9. MDG: Reducematernal mortality rate

.Maternal

mortality rate 1990

.Maternal

mortality rate 1998

...Maternal mortality rate extrapolation for 2000 based on achievement in 1990-1998 *

MDG target in 2015

-Rate -Current

of progress needed to reach target rate of progress

.reduce morbidity, mortality, disability and complicationsfrom diarrheas and other food and water-borne diseases (like typhoid, cholera, and hepatitis A), tuberculosis, HIV-AIDS. and other sexually transmitted diseases,hepatitis B, and other major diseases; .eliminate schistosomiasis,malaria, filiriasis, leprosy, rabies, vaccine preventable diseases(like measles,tetanus, diphteria and pertussis), vitamin A deficiency and iodine deficiency disorders as public health problems; .eradicate poliomyelitis; .espouse healthy lifestyle; .enhance health and nutrition of families and other special populations; and .promote environmental health and sustainabledevelopment. Specifically, the NOH sets the following targets: .increase the proportion of fully immunized infants from 89% in 1998to 95% in 2004and 98%in 2015;33 .increase the proportion of infants immunized againsthepatitis B from 37% in 1998to 95%in 2004and 98% in 2015; .increase the proportion of pregnant women receiving 2 doses of tetanus toxoid vaccine from 50%in 1998(FHSIS)to 80%in 2004and 90%in 2015; .increase the proportion of children given with Vitamin A supplement from 90%in 1998to 100%from 2004onwards so as to reduce the prevalence of Vitamin A deficiency from 38% in 1993to 15% in 2004;34 .increase the proportion of lactating women given with Vitamin 33Note that the 2000 Maternal and Child Health Survey reported that 65% of all children aged 12-23 months are fully immunized before turning one, a marked improvement from the 58% fully immunized child proportion found in the 1997. Discrepancies like this one in health statistics make it difficult to monitor rate of improvement in health outcomes. 34This target as well as those for vitamin A supplementation for lactating women, iron supplementation for pregnant and lactating women and iodine\ supplementation for women aged 15-40 refer to the high cost estimate. Under the low cost assumption, the coverage of Vitamin A micronutrient supplementation for children is assumed to decline to about 10 percentage points above the poverty incidence as food fortification takes effect from 2005 onwards. Moreover, poverty incidence is assumed to decrease from 32% in 2002 to 31% in 2003 and 30% in 2004, and by 1 percentage points per year every year thereafter up to 19% in 2015.

RosarioG. Manasan

A supplement from 49%in 1998 (FHSIS)to 56%in 2004and 80%in 2015so asto reduceprevalenceof vitamin A deficiency from 1%in 1993in 0.3%in 2004among lactating women and from 0.5%to 0.2%among pregnant women; .increase the proportion of pregnant and lactating women given with iron supplement from 64%in 1998to 74%in 2004 and 96% in 2015 so as to reduce prevalence of anemia from 51% in 1998 to 40% in 2004 amongst pregnant women and from 46%to 37%among lactating women; .increase the proportion of women aged 15-40 given iodine supplement from 21%in 1998to 35%in 2004and 90%in 2015 so as to reduce the prevalence of iodine deficiency from 36% in 1994to 20%in 2004; .reduce the prevalence of smear positive TB casesfrom 310 per 100,000population in 1997to 280 in 2004and 85 in 2015; increase the case detection rate (i.e., number of new smear positive cases detected relative to proportion of smear positives) from 45% in 1998to 70%in 2004and 92%in 2015; increase the proportion of identified TB cases given the Directly Observed TreatmentShortcourse (DOTS) from 50% in 1997to 100%in 2004onwards; .increase the proportion of clinically dia'gnosedmalaria cases given treatment from 17%in 2001to 40% in 2004;increaseto 5 percentage points yearly to reach 95% in 2015; sustain proportion of sprayed malaria A and B houses at 100% in 2002-2015;

.increase proportion of exposed population in schistosomiasis areas given stool examinations from 20% in 1999 (FHSIS)to 54% in 62% in 2004 and 100% in 2014 onwards; maintain proportion of those with positive stool exam given treatment at 100%; .provide assistanceto 18provinces/cities each year from 20022010to help them improve health facilities and allow them to be accredited providers under the NHIP; .sustain per capita expenditures in other public health programs at their 2002levels; and .increase indigent households emolled in NHIP from 0.3% of total number of poor households in 2001to 22.5%in 2004and 100%in 2015.

Meeting the Millennium Development Goals

Detailed information on the unit cost of the following critical public health interventions were obtained from the DOH: (1) expanded program of immunization, (2) tetanus toxoid vaccination for mothers, (3) control of tuberculosis, malaria, and schistosomiasis, (4) micronutrient supplementation, (5) rehabilitation and upgrading of rural health units and district hospitals, and (6) emollment of indigent population in the PhilHealth. Next, the financial requirement for the achievement of the MDG targets is computed as the product of the unit cost,the target population/ clienteleand the targetcoverage

rate. For instance, the unit cost of vaccines for expanded program immunization (EPI), including hepatitis B, is P104.80,that of syringes and needles is P12.07and that of freight/handling is P65.33 (or a total cost of P182 or U5$3.50)in 2001. At the same time, the DOH plans to expand EPI coverage from 89% (MTPDP) in 1998to 100%in 2004and onwards. Given these parameters and a target population of 3% of the total population for the EPI, the budgetary requirement of the vaccination program is projected to grow from P436million in 2002to P1.1 billion in 2015(Table 14).35On the whole, the amount of resources needed to support the attainment of the MDG on basic health with MTPDP is projected to increasefrom P9.1 billion (or 0.2% of GNP) in 2002 to P13.6billion (or 0.1% of GNP) in 2015and from P9.1 billion (0.2%of GNP) in 2002to P15.6billion (or 0.1%of GNP in 2015 under an unchanged policy regime). On the other hand, two alternative estimates of the amount of resourcesthat will most likely be made available in the health sector are provided in this study. The first one, consistent with the assumptions made in the MTPDP, provides that the budget for the health sector will be equal to 3.3% of total national government expenditures net of debt serviceand the IRA. In addition, it is assumed that the health department's allocation for tertiary serviceswill grow at the same pace as inflation and population growth and that the DOH sets aside the remainder of its total budget for basic health services.36In contrast, the second one allows the budget share of the health sector to be pegged at 3.1% of total national government

3SThe unit costs, target coverage and target clientele for the critical interventions mentioned above are summarized in Annex 1. 36It is notable that the resulting share of public health programs in the DOH budget under this assumption is larger than the historical budget share in 1996-2001(30%).

Meetingthe Millennium DevelopmentGoals

health sector to be pegged at 3.1% of total national government expenditures net of debt service and the IRA bas~d on its average share in 1999-2001and further assumesthat the DOH will allocate 30% of its budget to public health programs just as it had done in 1996-2001.In both cases,it is assumed that the department, which accounts for most of the basic health expenditures at the centra~ government level, will get 91% of total health sectorspending of the central government. Table 15 shows that based on the budget ratio assumed in the MTPDP, the allocation for the basic health is likely to reach P31.3 billion (or 0.1% of GNP) in 2002-2007compared with a resource requirement of P51.9billion (or 0.2% of GNP). Thus, the cumulative resource gap for the said period is computed at P20.6billion (or 0.1% of GNP). In contrast, under an unchanged policy regime, the amount of resources that will be allocated for the subsector is projected at P92.4 billion (or 0.08% of GNP) in 2002-2015compared with the resource requirement of P\158.4billion (or 0.14%of GNP), resulting in a cumulative resource gap of P66.0billion (or 0.06%of GNP). These projections suggest that the resourceneeds of the basic health sector are not likely to be financed even with the MTPDP assumptions. If the gaps identified above are not funded from other sources, said gaps have to be carried forward to subsequentyears. Appendix Table 3 shows the resource g~ps for each year if this occurs. It shows that the projected budget for basic health will not be enough to fund the estimated financial resourcesneeded to meet MDG targets in the subsectoruntil 2012 (under MTPDP) or 2015 (under an unchanged policy regime). Generating cost savings

It should be noted that costssaviilgs could be generatedin the delivery of micronutrient supplementation if the food fortification law is successfullyimplemented. Costestimatesare computed by assumjng that the coverage of micronutrient supplementation programs will gradually decline to about 10 percentage points above the poverty incidence and taking into accOuntthe likelihood that government will still provide micronutrient supplementation becausethe poor are not able to buy fortified food in sufficient amounts and targeted provision will be less than perfect. A comparison of Table 14 and Table 16 shows that while the resultin.ÂŁ?; reduction in the cost for

RosarioG. Manasan

Figure 10. MDG: Achieve universal accessto safe water

.Proportion

of HH with access to safe water, 1991

.Proportion

of HH with access to safe water, 1998

MDG target in 2015

--Rate

of progress needed to reach target

.-Current

rate of progress

Figure 11. WSSD:Achieve universal accessto proper sanitation

.Proportion

of HH with access to safe water, 1991

.Proportion

of HH with access to safe water, 1998

* -Rate

WSSD target in 2015 of progress needed to reach target Current rate of progress

proportion of households with accessto proper sanitation declined from 75% in 1991 to 69%in 1998. Table 17 projects that, with the assumed pace of poverty reduction under the MTPDP, the amount of resourcesneededto meet the MDG in low cost water and sanitation will increase from P1.6 billion (or 0.04%of GNP) in 2002to P2.8billion (or 0.02%of GNP) in 2015. With higher poverty incidence under an unchanged policy regime, the resource requirement for low cost water and sanitation is slightly higher. However, a comparison of t.heamount of resourcesthat is likely to be allocated for theseservices(assumedto be equal to 0.22%of the total expenditures of the central government net of debt service and IRA) with the resource needs37of the sector yields a cumulative resource gap of P4.4 billion (or 0.01% of GNP) in 2002-2010with MTPDP and a cumulative gap of P12.7 billion (0.01% of GNP) in

Table 17. Resource requirement for low-cost water supply/sanitation (in million pesos) Year

with MTPDP Water Sanitary Supply Toilets

unchanged regime

Total %

Water

Sanitary

Supply

Toilets

Total %

to GNP

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

946

613 650 690 722 749 792 831 928 981 1,037 1,095 1,144 1,207

2,706 2,842

0.04 0.04 0.03 0.03 0.03 0.03 0.03 0.02 0.02 0.02 0.02 0..02 0.02 0.02

2002-2015 17,635 12,315

29,950

0.02

997

1,051 1,083

1,098 1,154

1,194 1,254 1,316 1,381

1,448 1,518 1.,562

1,635

878

1,558 1,647

1,741 1,805 1,847 1,946

2,025 2,132 2,244

2,362 2,484 2,612

1023.58 1099.03 1161.47 1246.97 1317.21 1390.84 1492.99 1575.67 1691.24 1784.00 1914.68 2018.62 2166.30 2282.66 22,165

1,667 1,790 1,897 2,038 2,159 2,286 2,455 2,599 2,791 2;952 3,170 3,352 3,598 3,803

0.04 0.04 0.04 0.04 0.04 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03

36,557

0.03

642 .92 691 .29 735 .91 79.1.15.81 841 895 .39.31 962 1023 .06 1099 .~5.16 1168 1255 .08 1332 .96 1431 .93 1519 .99 14,391

37The estimate of the resource requirement assumes that government will provide these services only to the households that are below the poverty threshold.

Meetingthe Millennium DevelopmentGoals

Conclusions In 2002, the projected shortfall in the financial support for the attainment of the MDG is P29.4billion (0.7%of GNP or 3.9% of the national government budget) in the MTPDP scenarioand P30.2billion (0.7%of GNP or 4.0% of the national government budget) under an unchanged policy regime if the high cost assumptions are followed (Table 19). On the other hand, the cumulative resource gap for all basicsocialservicescombined in 2002-2006is projectedto reachPl19.9 billion (0.5% of GNP or 2.7% of the national government budget) if the MTPDP assumptions on growth and budget allocations materialize (Table 19). In contrast, the cumulative resource gap for the sameperiod assuming an unchangedpolicy regime is P229billion (0.9% of GNP or 5.3% of the national government budget). These figures indicate that it is not likely that the MDGs will be achieved unlessmore resourcesare forthcoming from other sources.Moreover, they underscore the weak linkage between the programmatic targets for various government programs and the budgetary resourcesthat are set aside for said programs in the MTPDP. They also highlight the fact that the Philippines cannotafford to be complacent and act as if it is businessas usual. While it cannot be denied that the policy thrusts embodied in the MTPDP are supportive of the attainment of the MDGs, said policies and programs are not enough. More needs to be done. The resourcegap ranges from an additional 2%-5%of the central government budget. Thus, if the government decidesto rearrangeits priorities to close the gap, it will need to increaseits human priority ratio (or the share of basic social services in national government's budget) from 15%to 17-20%. Six major challengesfacethe government if it is able to meetthe resource gaps in basic social services. One, the government has to improve its tax effort to enable it to increaseits obligation program without breaching its fiscal deficit targets. In this regard, it is notable that additional revenues equivalent to 0.8%of GDPcanbe genereated if excisetaxeson tobacco,alcohol and petroleum products are indexed while revenues equal to another 0.1%of GDP can be mobilized if the grant of fiscal incentives is rationalized. Taken together, these measureswill be sufficient to close the estimated financing gap. Two, given that the internal revenue allotment (which represents the share of LGUs in the tax collections of the central government) accounts for an increasing share of the central government budget, it

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RosarioG. Manasan

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is critical that LGUs are mobilized as effective partners in meeting the MDGs. However, becausenot all of the benefits arising from the provisions of basic social services can be internalized by local residents, it might be necessaryto design matching grant programs to encourageLGUs to spend more on said services. Three, all sectors should support budgetary reform initiatives that favor the basic social services.In the education subsector,these involve the reallocation of resourcesaway from tertiary education in favor of basic education. The Education SectorDevelopment Project of the Asian Development Bank would support such moves by rationalizing the budget allocations for SUCs by encouraging them to recover cost38and increasing the budget support for scholarships in higher education even as it proposes to increase the overall allocationto basiceducation.In this regard, it is important to recognize that it is difficult, if not impossible, to carve out a bigger slice of the budget for basic education without reform in the higher education sector. Four, cost savings can be realized by using more cost-effective modes of delivering services or by cutting back on waste and operational inefficiencies. In the education sector, this involves improvement in teacher deployment, a redesign of the curriculum and greater decentralization. In the health sector, theseinvolve costsaving interventions like food fortification that would shift some of the costs of providing health servicesto the private sector. The potential savings that can be generated from lower cost interventions are not small. In particular, if improvements in teacher deployment, school building construction, and food fortification are put in place, the cumulative resource gap is cut by 45-55%depending on policy regime (Table 20). In this case,the additional resources needed to finance the MDG will be brought down to an average of 0.3-0.7%of GNP (or 1.8-4.1%of the central government budget) in 2002-2005. Five, the government should continue to exert maximum effort to ensure that resources are used efficiently and effectively. In this sense,initiatives to improve governancethrough procurement system

38Contrary to conventional wisdom, public support for SUCs cannot be justified on equity grounds because the majority (75%) of students in SUCs are nonpoor. Moreover, Tan (2002) shows that the proportion of poor students to total number of students in the higher quality SUCs is even lower (less than 10%).

RosarioG. Manasan

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Meeting the Millennium Development Goals

reform should be maintained. For instance, modifications in the procurement procedures introduced in 1999-2000governing the acquisition of textbooks has reduced unit cost of textbooks by some

50%. Six, the government should promote a policy environment that is not only conducive to sustained growth but also allows the poor to participate in and benefit from such growth. Studieshave shown that the quality of growth is important if poverty is to be reduced at an acceleratedpace (Balisacanand Pernia 2001). One of the reasonsfor the higher estimates of the resource gap in the unchanged policy regime scenario is the fact that higher poverty incidence puts more pressure on the public provision of basic socialservices.In this regard, the higher investments in rural infrastructure should be sustained, if not intensified. Seven, it is imperative that the government pursues a stronger population managementprogram. The high rate of population growth that now prevails makes the task of poverty reduction more difficult and the financial cost of poverty alleviation more restrictive.

Annex Unit Cost of Interventions Critical for the Attainment of WSSD Targets Education

Unitcost1 Books: P40 per textbook;2\averageof 8 textbooks per student Classrooms: P360,OOO per classroom; average of 45 students per classroom Teachers:P8,446basic pay per month, Pl,OOOPERA (allowance) per month and approximately Pl,200 for retirement and life insurance premiums per year; assumesan average of 34 students per teacher (based on DBM formula) Other costs:P771 per student in 2000prices. This figure was derived from the MoaE budget of DECSin 1990which was equal to P878per student in 2000prices.3 Sincethen, the DECS' MoaE per student has continuously declined such that the 2001 level is 50% lower than the 1990level; decreased to P424in 2001. Target clientele -enrolment Elementary level: Actual 2000-2001 Estimate 2001-2002 Estimate 2002-2003 Secondarylevel: Actual 2000-2001 Estimate 2001-2002 Estimate 2002-2003

11,816,305 11,927,480 12,134,581 3,983,774 4,263,276 4,514,342

It is assumed that emollment in the elementary level will grow by 2.36%yearly from 2003onwards while that in the secondarylevel will grow by 6% yearly. Note that it is assumed that the completion rate will increasein government elementary schoolsfrom 68%in 2001 to 71% in 2004 and 92% in 2015. In public secondary schools, the

I Mandy Ruiz of DECS Budget Office provided information on computation of teacher requirements and unit cost of textbooks and classrooms. Miriam Coprado of SEDIP and Ellen Pelobello of IMC, likewise, provided useful information. 2 All prices in this section are in 2001prices. 3P771 is derived by netting out expenditures on textbooks.

Meeting the Millennium Development Goals

completion rate will increase from 67% in 2001 to 70%in 2004and 91% in 2015. In the early years of the projections, the repetition rate is relatively higher but declines over time. However, the reduction in enrollment resulting from this trend is reversed by the increasedue to the higher completion rates. Vaccine preventable disease control program; expanded program of immunization Unit cosf4 For children: Vaccines for children including oral polio (OPV), diphtheria, pertussisand tetanus(DPT),BCG,measles, and hepatitis B -PI04.81 Syringes and needles -P12.07 Other costsincluding freight and handling, safetybox, vaccine carrier, thermometer -P65.33 For pregnant women: Tetanus toxoid vaccine -P6.42 Syringes and needles: P3.75 Target clientele and coverage For children: Target population: 3% of total population Coverage of fully immunized infants: 89% in 1998;programmed to increaseto 95%in 2004;increasing in a linear fashion to reach 98% by 20155 Coverage of infants immunized against hepatitis B: 37% in 1998; programmed to increaseto 95%in 2004;increasingin a linear fashion to reach 98% by 2015 For pregnant women: Target population: 3.5% of total population Coverage: 50%in 1998(FHSIS);38% in 1998(NDHS); programmed to increaseto 80%in 2004;increasingin a linear fashion to reach 90%in 2015

.The author wishes to acknowledge the help of Dr. Sandoval and Dr. Geraldine Krimen for the prices and computations on EPI. 5DOH officials do not expect to reach 100%coverage ever because of difficulties in reaching a certain portion of population.

Rosario G. Manasan

Micronutrients supplementation Unit

cosf6

For children 6-59 months old: Vitamin A: P1 per capsule;given twice a year starting from 6 months For women: Vitamin A: P3.18per capsule;1 capsule per lactating woman Iron: PO.15per tablet; 1 tablet per day for 9 months (6 months during pregnancy and 3 months after) or 270 tablets Iodized oil capsule:P5.11 per capsule;1 capsule per year for women aged 15-40 Target clientele and coverage Vitamin A for children: Target population: children 6-59 months old or 12.2% of total population Coverage: 90%in 1998(FHSIS);programmed to increaseto 100%in 2004 (so as to reduce prevalence of low to deficient Vitamin A serum deficiency from 38%in 1998to 15% in 2004). For the low cost estimate, the coverage of Vitamin A micronutrient supplementation for children is assumedto decline to about 10 percentage points above the poverty incidence as food fortification takes effect from 2005 onwards. Two alternative assumptions were used for poverty incidence. The first one refers to the projected pace of poverty reduction that is premised on the successful implementation of the MTPDP. Under this scenario, the proportion of poor in total population is projected to decline from 40%in 2000to 22%in 2015. The second one refers to the projected pace of poverty reduction that is premised on an unchanged policy regime. Under this scenario,the proportion of poor population is projected to dropjrom 40%in 2000to 31%in 2015. Vitamin A for women: Target population: lactating women or 3% of total population 6 The assistance of Dr. ]oYcIe Ducusin, Dr. Divina Capuchino and Ms. Beth]oven are acknowledged.

Meeting the Millennium Development Goals -

Coverage: 49% in 1998 (FHSIS);programmed to increase to 56% in 2004and 80% in 2015 (so as to reduce prevalence of vitamin A deficiency from 1%in 1993in 0.3%in 2004 among lactating women and from 0.5%to 0.2%among pregnant women); in the low cost scenario,coverage of Vitamin A micronutrient supplementation for women will decline to about 10 percentage points above the poverty incidence as the food fortification program takes effect from 2005onwards. Iron for women: Target population: pregnant and lactating women or 3% of total

population Coverage: 64% (DOH/NOH) in 1998; programmed to increase to 74% in 2004 and 96% in 2015 (so as to reduce prevalence of anemia from 51%in 1998to 40%in 2004 among pregnant women and from 46%to 37%among lactating women); in low cost scenario, coverage of iron micronutrient supplementation for women will decline to about 15 percentage points above the poverty incidence as food fortification takes effect from 2005 onwards. Iodine for women: Target population: women aged 15-40or 21.5%of population Coverage: 21%in 1998;programmed to increaseto 35% in 2004and 90% in 2015 (so as reduce prevalence of iodine deficiency from 36% in 1994to 20% in 2004);in low cost scenario, coverage of iodine micronutrient supplementation for women will decline to about 10 percentagepoints abovethe poverty incidenceasfood fortification takes effect from 2005onwards. Tuberculosis control program Unit cost7 Cost of treatment: P926.40per case Other costs including laboratory: P67.70per casegiven treatment 7Mitos Gonzales and" Atoy" from the DOH Planning Office were interviewed.

RosarioG. Manasan

Target clientele and coverage Prevalenceof smearpositive caseswas 310 per 100,000population in 1997;programmed to decline to 280 in 2004and 85 in 2015

)

Case detection rate (or number of new smear positive casesdetected relative to proportion of smear positives) was 45% in 1998;programmed to increaseto 70%in 2004and 92% in 2015 Proportion of identified TB casesgiven treatment was 50% in 1997; programmed to increaseto 100%from 2004onwards

Malaria control program Unit cosfB Treatment per case Chloroquine for radical treatment: P6 (costof 10tablets per clinically diagnosed case) Chloroquine for chemoprophylaxis for pregnant mothers: P48 (cost of 2 tablets per week for 40 weeks for endemic population times 3.5%) Primaquine for clinically diagnosed and/ or P. falciparum cases:P1.17 (cost of 3 tablets per clinically diagnosed case) Primaquine for P. vivax: P5.46(cost of 14tablets for eachcaseof 30% of the number of microscopically diagnosed cases) Primaquine for resistant cases:P1.17(cost of 3 tablets for each of 25% of 70% of the number of microscopically diagnosed cases)9

Sulfadoxine / pyrimethamine: P60 (cost of 3 tablets for each of 25% of 70%of the number of microscopicallydiagnosed cases) Quinine sulfate: P12.60(cost of 42 tablets for each of 10% of 25% of 70% of the number of microscopically diagnosed cases)lO

8 Information obtained from Cecile Hugo of DOH. 9 70% is the expected proportion of p.falciparum casesand 25% is the expected proportion of p.falciparum caseswhich are resistant to chloroquine 1010%is the expected proportion of p.falciparum caseswhich are resistant to sulfadoxine/ pyrimethamine.

Spraying Insecticide for mosquito net treatment: P2,300per liter; assumesone liter is sufficient to disinfect 50 mosquito netsll Insecticide for indoor residual spraying: P2,000per kg.; assumesone kg is sufficient to spray 10 houses Target clientele and coverage Treatment Target clientele: expected number of clinically diagnosed casesis 42,543*5= 212,715in 2001;number of casesis assumed to decline by 5% yearly starting in 200312 Coverage: 17%(derived from the actual budget for drugs and number of casesin 2001);assumedto increaseto 30% in 2002, 35% in 2003;40%in 2004and by 5 percentagepoints yearly to reach 95% in 201513

Spraying

Target clientele: 99,083malaria A houses; 54,075Malaria B houses; 1,260,337houses in Malaria Epidemic Prone Areas (MEPA) and 11 million of endemic population in 2001 Coverage: 100%in 2001;programmed to be sustained at this level Schistosomiasis control program Unit COSf4

Treatment: P24 per case Nontreatment: P35.24per case(derived from actual expenditures in

1999) Target clientele and coverage Exposed population: 1,835,671in 2001;prevalence w~s 4,5% in 1997 and programmed to decline to 3.5% in 2002, 3.0%in 2003,2.5%in 2004and by 0.25percentagepoints yearly to 0.25%in 2015

II Each household is assumed to own 2 mosquito nets and treatment is done twice a year. 12The DOH's National Objective for Health calls for a 7% decrease in the morbidity rate per year in 1999-2004. 13The DOH's National Objectives for Health c~lls for sustaining 100%coverage in treatment. 14Information obtained from Ruth Martinez of DOH.

Proportion given stool exam: 20% in 1999(FHSIS);programmed to increaseto 54%,in 2002, 58%in 2003and 62%in 2004 Proportion of those with positive stool exam given treatment: 100% Proportion of exposed population subject to other nontreatment interventions: 20% in 1999 (FHSIS);programmed to increaseto 54% in 2002,58% in 2003and 62%in 2004 Degenerative disease control

Cost Total cost of P173.5million in 2002 (derived from actual obligations for this program in 1999 after adjusting for inflation and population growth); this amount is spent largely on information, education and communication programs to promote / advoc~te healthy lifestyle' Target clientele and coverage, Target clientele: entire population Local health systems development This intervention refers to capacity-building and techriical assistance to LGUs. In consonancewith the Health Sector Reform Agenda, it will alsoinclude DOH-a~sistedimprovement of LGU-operated health faciliti~s to help LGUs get ready for Phase2 of the National Health Insurance Program, thus improving their ability to provide health services at the local level. Cost15

Capacity building (including pool of doctors and doctorsto the barrios program): total cost of P98.6 million (based on 2001 budget after adjusting for inflation and population

growth)

Facilities improvement: unit cost of PO.45million per rural health unit; P12 million per district hospital; P22 million per provincial hospital

15Estimate of unit cost for facilities improvement came from Dino Aldaba of DOH.

102

Meetingthe Millennium DevelopmentGoals

Target clientele and coverage 18 provinces/ cities per year will be assistedfrom 2002-2010;average of 20 RHUs per province; 2 district hospitals per province and 1 provincial hospital per province Policy, planning, and regulatory services

Cost Total cost of P479.1 million in 2002 and adjusted for inflation every year thereafter (based on 2002 National Expenditure Program; actual expenditures in 1999is P661 million and for 2000is P535.4million) Other public health services Cost Total cost of P5.8 billion in 2002, P4.3 in 2003, P3.6 in 2004and adjusted for inflation and population growth every year thereafter (derived from HSRA estimates as the sum of total investments for public health programs excluding budget for schistosomiasis, tuberculosis, malaria, vaccine preventable diseases, and degenerative diseases); these figures are about double the P2.9 billion (in 2002 prices) that are allocated for these programs in the 1999 budget because of recognized underinvestrnents in earlier years

Target clientele and coverage Entire population Subsidy for indigents' premium in Philhealth

Unit cost National government s~bsidy: programmed to decreasefrom 80% to 50% of annual premium of Pl,188 per household (with LGU share increasing from 20%to 50%) Target clientele Target clientele: households with income below poverty line Coverage: Approximately 17,500poor households (or 0.3% of total

RosarioG. Manasan

103

number of poor households) are emoIled in PhilHealth in 2001; the proportion of poor households emoIled in PhilHealth is programmed to increase to 7.5% in 2002, 15% in 2003, 22.5% in 2004 and 30% in 2005, and increasing to 100% by 2015

Water supply and sanitation Unit cosf16

Water supply Deepwell: installation cost of P130,OOO per well; each deep well estimated to serve 25 households on the average Sanitary toilet: P2,OOO-P2,500 per bowl Target clientele and coverage Low cost water supply: 78% of households have accessto safe water in 1998;proportion of households with accessto safe water programmed to increase to 87% in 2015; government pays for water supply of poor families

only

Sanitary toilet: 69% of households have sanitary toilet in 1998; proportion of households with sanitary toilet programmed to increaseto 87% in 2015;government pays for sanitary toilet of poor families only

16Cost information was obtained from Laila Flores of DPWH (for water supply) and Joselito Riego de Dios of DOH (for latrines).

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Appendix Table 3. Resources available and resource gap in basic health (high cost, gap in earlier years carried forward to subsequent years) Available Resource Resource Gap Gap Resources Requirement Requirement MTPDP Unchanged Unchanged MTPDP Unchanged Assumption Regime MTPDP Regime Assumption Regime Assumption Available

Year

Resources

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

3,609 4,438 4,100 4,748 6,109 8,271 10,482 13,080

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109,445

15,629

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9,113 8,002 7,647 8,291 9,061 9,787 10,371 10,945 11,791 11,404 12,042 12,636 13,070 13,645

0.09

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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13,387 14,122 14,918 15,620

0.08 0.07 0.07 0.07 0.07 0.08 0.08

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5,733 10,653 15,389 20,586 26,349 32,543 39,204 46,087 53,555 60,284 67,450 74,833 82,425 90,054

625,145

158,406

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About the Author Rosario G. Manasan is a Senior ResearchFellow at the Philippine Institute for Development Studies.Sheholds a Ph.D. in Economics from the University of the Philippines Schoolof Economics. Shewas a postdoctoral fellow at the MassachusettsInstitute of Technology. Shespecializesin public finance and fiscal policy and has written and published numerous studies on these areas. Her most recent work is the second volume of this 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 analyzes 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 ManagingUrbanization Undera Decentralized Governance FrameworkVolume 1. Her numerous studies have been published in local and international journals. Shehas served as adviser and consultant to many government, international and private

institutions.