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COUNTRY REPORT

(Republic of the Philippines)

Presented during the Performance Based Budgeting Training Program

Civil Service College, Singapore25 February to 7 March, 2008

By:Ms. Luz M. Cantor

Ms. Jocelyn CuaresmaMr. Julian D. Pacificador,Jr.Ms. Vicitacion A. UgalinoMs. Marlene R. Vinluan

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I. IntroductionA. Geography and DemographyB. HistoryC. Economy

II. Background of Public Financial Management (PFM) in the Philippines

A. The Legal Framework for PFMB. The Institutional Framework

1. Four Phases of the Budget Process or Budget Cycle

a. Budget Preparationb. Budget Legislationc. Budget Executiond. Budget Accountability

2. Salient Features of Appropriations

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III. Successes Achieved in the Area of Performance Based Budgeting (PBB)

A. Public Expenditure Management (PEM)B. Organizational Performance Indicator Framework

(OPIF)1. Advantages of OPIF2. The OPIF Process

C. Little “Victories” in OPIFIV. An Analysis of Gaps in the PFM and Areas of Potential

ReformA. Weaknesses of the PEM

1. Weak revenue administration,2. Unpredictability of funding,3. Inadequate management information system, and4. Weak internal control system in spending agencies

V. Challenge and IssuesA. Sustaining and Enhancing the OPIF ProcessB. Prospects for Reform Planning and Implementation

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LOGO Republic of the Philippines

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LOGO Republic of the Philippines

Capital: ManilaPopulation : approaching 87 million (12th)Government: Unitary presidential constitutional republicTotal Land Area: 300,000 km / 115,831 sq miReligion: Predominantly Roman CatholicOfficial Language: Filipino and English

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EconomyGDP (nominal) : Total - $117.562 billion

2006 Per capita - $1,351.718

Republic of the Philippines

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II. Background of Public Financial Management

(PFM) in the Philippines

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LOGO A. The Legal Framework for PFM

Article VI, Section 29 of the Philippine Constitution sets the basic rule for the use of government funds where it states: “ No money shall be paid by the Treasury except in pursuance of an appropriation made by law”.

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B. THE INSTITUTIONAL FRAMEWORK FOR PFM

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LOGOFour Phases of the Budget Process or the Budget Cycle

a) Budget Preparation

b) Budget Legislation

c) Budget Execution

d) Budget Accountability

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LOGO a) Budget Preparation

Executive branch consolidates the annual budget proposal of the executive, legislative, and judicial branch of the government.

estimation of revenues determination of budgetary priorities consistent within the MTPDP translation of approved priorities into expenditure levels

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LOGO Submission of the Budget

The President shall submit within thirty (30) days from the opening of each regular session of the Congress as the basis for the preparation of the General Appropriation Act, a national government budget, consisting of estimated receipts based on the existing and proposed revenue measures, and of estimated expenditures.

Article VII, Section 22 (1)Philippine Constitution

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A top level inter agency committee that sets the budget parameters - framework

Development Budget Coordinating Committee

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monetarymeasuresandpolicies

resourcegenerationand debtmanagement

overalleconomicpolicy

resourceallocationandmanagement

Presidentialoversight

DBCC Composition

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LOGOMajor Functions of the DBCC

Establishes the level of annual government expenditure programs

Determines the proper allocation of expenditure

Allocates the amount set for each development activity

Assesses the reliability of revenue estimates Recommends appropriate tax or other revenues

measures and the extent and type of borrowings

Conducts periodic review and general examination ofcosts, accomplishments and performance standards

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LOGO Budget Preparation Flow Chart

DBCC approves budget parameters

Budget Hearings Cut-off for

Inclusion of Items in Budget Proposal

Approval by President and Cabinet

Budget Call

Budget Consolidation

President Submits Budget Proposal to Congress

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LOGO b) Budget Legislation

The legislature (Congress) approves the appropriations bill and the President signs it into law.

Several forms of appropriations:

General Appropriations Law Public Works Acts Supplemental Appropriations Law Automatic Appropriations

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LOGOBudget Legislation Flow Chart

House Hearings/ Debate

House Approval & Submission to Senate

Senate Hearings/ Debate

Senate Approval

President Signs into Law

Bicameral Conference Committee

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LOGO c) Budget Execution Flow Chart

Agency/DBM prepares ABM

DBM releases SARO & NCA

Agency implements

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LOGO d) Budget Accountability

Monitoring of agency budgetary performance

Comparison and evaluation of actual performance with initially-approved work targets in terms of:

financialPhysicalRevenue Collected (for agencies

mandated to collect taxes and fees)

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LOGO Rationale/Purpose

Monitor the efficiency of government’s fund utilization

Assess agency performance Provide a vital basis for sound

decision and policy making for rational allocation of scarce resources

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LOGOThe Commission on Audit (COA)

Article IX-D of the Philippine Constitution provides the following functions of COA:

a. Examine, audit and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property owned or held in trust by, or pertaining to the government;

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LOGOThe Commission on Audit (COA)

b. Promulgate accounting and auditing rules and regulations including those for the prevention and disallowance or irregular, unnecessary, excessive, extravagant or unconscionable expenditures, or uses of government funds and properties;

c. Submit annual reports to the President and the Congress on the financial condition and operation of the government,

d. Recommend measures to improve the efficiency and effectiveness of government operations; and

e. Keep general accounts of government and preserve the vouchers and supporting papers pertaining thereto.

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LOGOSalient Features of Appropriations

1. Once an appropriation is released in the form of an allotment covered by either an Agency Budget Matrix (ABM) or a Special Allotment Release Order (SARO), it becomes available for incurrence of an obligation.

2. Appropriation for personal services are valid only for the year, while those for MOOE and CO are treated as continuing appropriations for 2 years: unused portions of appropriation for MOOE & CO are carried forward for another year.

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LOGOSalient Features of Appropriations (cont.)

3. Automatic appropriations are those appropriations authorized under existing laws other than the General Appropriations Act which are programmed annually in accordance with Section 26, Book VI of EO 292. Examples of these are:

• Internal revenue taxes and import duties associated with foreign loans and grants,

• Tax expenditure subsidies, • Debt servicing,• Retirement and life insurance premium of government

employees,• Drawdown on guaranteed lending to government

corporations, and• Various special accounts and funds.

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III. Successes Achieved in the Area of Performance

Based Budgeting

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Aggregate Fiscal Discipline living within our means

Allocative Efficiency spending on the “right things” or

“right priorities”

Operational/Technical Efficiency obtaining the best value for money

PUBLIC EXPENDITURE MANAGEMENT:

OBJECTIVES

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THREE MAJOR COMPONENTS - mutually supportive

Medium-Term Expenditure Framework (MTEF)

Organizational Performance Indicator Framework (OPIF)

Procurement Reform

PUBLIC EXPENDITURE MANAGEMENT:

Key components in the Philippines

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OPIF is an accountability framework based on:

Explicit recognition by agencies of the Government’s expenditure priorities (sector goals and organizational outcomes)

Identification of Major Final Outputs (MFOs) and PAPs to achieve those priorities

Identification of performance indicators by agencies that show how well they are delivering services (outputs) to achieve Government outcomes/objectives

Monitoring performance and publicly reporting results (both successes and failures) to ensure transparency and accountability of government operations

ORGANIZATIONAL PERFORMANCE INDICATOR FRAMEWORK (OPIF)

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To shift emphasis from ‘input’ to ‘output’ focused budgeting

Inputs still important in costing MFOs & assessing efficiency

To Encourage departments & agencies to focus on the delivery of outputs (goods & services) to achieve Government goals (outcomes/objectives)

To specify and document expected performance of each agency and hold them accountable for its achievement

To report to the President, Congress and the public on the efficiency of output delivery by agencies

To provide the Government with a better basis for assessing the effectiveness of agency outputs in meeting intended outcomes

OPIF OBJECTIVES

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Logical Framework (Logframe) Approach in OPIF

ANALYTICAL FRAMEWORK

SOCIETAL GOALS

SECTOR GOALS

ORGANIZATIONAL OUTCOME

MAJOR FINAL OUTPUTS

P/A/Ps

Budget

Performance Indicator/s

for MFOs

(Impact)

(Outcome)

(Outputs)

Targets(Inputs)

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LOGO Attributes of Good Performance Indicators

S – Specific

M – Measurable

A – Achievable

R – Relevant

T – Time-bound

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LOGO Attributes of Good Performance Indicators

C – Clear

R – Relevant

E – Economic

A – Adequate

M – Monitorable

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LOGO OPIF Successes

1. Publication of 2007 OPIF book

2. Publication of 2008 OPIF book

* Available at DBM website (www.dbm.gov.ph)

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IV. An Analysis of Gaps in PFM and Areas of Potential Reforms

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LOGOAn Analysis of Gaps in PFM and

Areas of Potential Reforms

A. Weaknesses in the present PFM:

1) Weak revenue administration,

2) Unpredictability of funding,

3) Inadequate management information system, and

4) Weak internal control system in spending agencies

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V. Challenges and Issues in the Way Forward

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LOGOA. Sustaining and enhancing the OPIF

process

1. Mainstreaming of OPIF to all agencies of government including the legislative, judiciary, constitutional offices and SUCS;

2. Establishment of unit costs for a more realistic targeting and budget estimate exercise;

3. Enhancement of the cascading process at the agency and department levels;

4. Calibration/adjustments in the budget preparation, budget execution, and budget accountability systems to make them OPIF compliant;

5. Selection of “key” performance indicators and measures at the major organizations level (department) which shall be the focus of monitoring and evaluation at oversight level;

6. Development of an enhanced performance monitoring and evaluation system along with an agency performance review and rating structure;

7. Harmonization of the OPIF reporting system with those adopted by other oversight and monitoring authorities; and

8. Conduct of continued capacity building and advocacy activities for better understanding, appreciation, and adoption of the OPIF in other national government agencies and instrumentalities;

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Challenges: Systematic improvement would

require concerted and coordinated efforts on multiple fronts.

Certain features of the Philippine PFM system are inconsistent with the notion of international “standard” behind the PEFA framework due to the country’s constitutional design and other long-held practices.

B. Prospects for Reform Planning and Implementation

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LOGO B. Prospects for Reform Planning

and Implementation

Challenges (cont.)

3) The political reality in the country.