the proposed 2005 national budget

THE PROPOSED 2005 THE PROPOSED 2005 NATIONAL BUDGETNATIONAL BUDGET

Senate Committee on FinanceSeptember 20, 2004

A Commitment to Reform A Commitment to Reform and Responsible Developmentand Responsible Development

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Presentation Outline

Developments in the 2003 and 2004 BudgetsMedium-Term Fiscal ProgramThe Proposed 2005 National Budget


Developments in the 2003 and 2004

Budgets


2003 and 2004 Budgets(in billion pesos)

2003 2004

CURRENT OPERATING EXP. 709.9 763.1 53.2

Personal Services 279.4 287.4 7.9 M O O E 68.5 86.9 18.5

Subsidy 22.8 4.5 (18.3) Allotment to LGUs 112.8 112.8 - Interest Payments 226.4 271.5 45.1

CAPITAL OUTLAYS 109.6 93.0 (16.6)

Infra.and Other CO 76.7 62.1 (14.6)

Equity 4.6 1.1 (3.4)

Capital Transfers to LGUs 28.3 29.8 1.5

NET LENDING 5.6 5.5 (0.1)

TOTAL OBLIGATION 825.1 861.6 36.5

PARTICULARSLevels

Inc/(Dec)


New GAA Dept./Agencies 341.8 341.8 341.8 334.2 Support to GOCCs 3.9 3.9 3.9 4.7 Assistance to LGUs 142.6 142.6 142.6 142.6 Other SPFs 67.1 67.1 67.1 71.8 Total New GAA 555.3 555.3 555.3 553.1

Automatic Appropriation Interest Payment 223.2 230.7 271.5 271.5 Net Lending 5.5 5.5 5.5 5.5 RLIP 14.3 14.3 14.3 14.3 MVUC - - 5.9 5.9 CARP - - 5.6 5.6 Others 5.7 5.7 5.7 5.7 Total Automatic Appro. 248.7 256.1 308.5 308.5

Total Program 804.0 811.5 863.8 861.6

ParticularsFY 2003 Level

FY 2003 Full Reenactment

FY 2003 Reenacted

FY 2003 Original Program

FY 2004 Budget(in billion pesos)


Status of FY 2004 Budget, as of July 2004(in billion pesos)

Releases Balance

New GAA Dept./Agencies 334.2 317.8 16.4 Support to GOCCs 4.7 4.0 0.7 Assistance to LGUs 142.6 141.1 1.5 Other SPFs 71.8 51.9 19.9 Total New GAA 553.1 514.8 38.4

Automatic Appropriation Interest Payments 271.5 149.5 122.0 Net Lending 5.5 1.5 4.0 RLIP 14.3 14.1 0.2 MVUC 5.9 1.6 4.4 CARP 5.6 5.6 0.0 Others 5.7 5.2 0.4 Total Automatic Appro. 308.5 177.5 131.0

Original Program 861.6 692.2 169.4

Additional ProgramUnprogrammed 4.5 4.5 0.0Continuing 10.2 10.2 0.0Automatic appro. 3.1 3.1 0.0

Total add'l. prog. 17.8 17.8 0.0

Total Program 879.4 710.1 169.4

ParticularsFY 2003

Reenacted


Fiscal Performance, Jan-June 2004

Program Actual

Revenues 626.6 305.5 676.4 332.8 343.3 Disbursements 826.5 385.1 874.2 412.4 423.4

Surplus/ (Deficit) (199.9) (79.6) (197.8) (79.6) (80.1)

Jan-JuneParticulars

Full Year Jan-June

2003 Actual 2004

Full Year Program

(in billion pesos)

P80.1 billion deficit for the first semester is 0.7 percent higher than that of last year

-4.6-4.0 -4.2

-3.6 -3.6-5-4-3-2-10

2003 FullYear Actual

2003 Jan-June

2004 FullYear

Program

2004 Jan-June

Program

2004 Jan-June Actual

Deficit as Percent of GDP


• Salary increase of uniformed personnel

• Additional requirements for pensions

• Conduct of elections in 2004

• Additional utilization of Marcos wealth for CARP

• New Payment Scheme for accounts payables for public works

Assessment: 2003 vs. 2004

(in billion pesos)

Jan-June

Actual Program Actual

Personal Services 133.4 141.8 142.5

Maintenance Expenditures 30.5 28.3 35.1

Capital Outlays 35.7 32.7 49.9

Local Govt. Units 69.8 72.2 72.0

GOCCs 1.8 2.7 2.2

IP/Net Lending 113.9 134.7 121.7

Total 385.1 412.4 423.4

Particulars

2003 2004Jan-June


• New Payment Scheme in accounts payables for public works

• Higher allocation for CARP

• Additional requirements for the conduct of elections

Assessment: 2004 Actual vs. Program (in billion pesos)

Program Actual

Personal Services 141.8 142.5 0.7

Maintenance Expenditures 28.3 35.1 6.8

Capital Outlays 32.7 49.9 17.2

Local Govt. Units 72.2 72.0 (0.2)

GOCCs 2.7 2.2 (0.5) IP/Net Lending 134.7 121.7 (13.0)

Total 412.4 423.4 11.0

Excess/ (Shortfall

Particulars

2004Jan-June


Assessment: 2003 vs. 2004

195.2 189.9214.3 227.1209.5 214.0

0

100

200

300

Q1 Q2 Q3 Q4

2003 2004

2003 and 2004 Quarterly Disbursements

(in billion pesos)

135.0 139.0142.6169.9156.2159.8

0

100

200

300

Q1 Q2 Q3 Q4

2003 and 2004 Quarterly Disbursements, Net of Interest Payments

(in billion pesos)


Accounts payable increasingly a burden

Introduced measures to improve accounts payable management

• Direct payment system for public works installed

• Payment predictability

Assessment: Actual vs. Program (in billion pesos)

Program Actual

Current Accounts 775.9 354.7 825.9 393.3 400.7

Prior Years' Accounts 50.6 30.4 48.4 19.1 22.7

Total Disbursements 826.5 385.1 874.2 412.4 423.4

Particulars

2003 Actual 2004

Full Year Jan-JuneFull Year Program

Jan-June

End-2003 As of March 31, 2004 As of June 30, 2004Aging of Accounts 3 months 3 months 4 months

* *

* Reflects accounts payable under the new system. Comparison between the new and old system is as follows:

Full Year Program Jan-June Program Jan-June ActualOld System 48.4 30.1 33.7New System 37.4 19.1 22.7


Fiscal Performance: Directions for S2 2004

(in billion pesos) Monthly average of non-interest spending of P50 billion (August to December) manageable

Compression of expenditures will continue in the second semester

Interest payments to go up substantially in the second semester

2003July to July Aug to

July to Dec Dec Actual Dec

Personal Services 142.8 143.8 21.8 122.0 Maintenance Expenditures 48.0 37.6 7.6 30.0 Capital Outlays 44.5 41.1 7.3 33.8 Local Govt. Units 75.0 72.4 11.8 60.6 GOCCS 13.0 2.8 1.0 1.8 interest Payments/Net lending 118.1 153.1 29.2 123.9 TOTAL 441.4 450.8 78.6 372.2

Particulars

2004


Austerity ProgramSuspension of expenditure items such as foreign and local travels, purchase of motor vehicles, advertisements, etc.Reduction of at least 10% of services of non-permanent personnel e.g., consultants and consumption of supplies, utilities, etc.Suspension of tax expenditure subsidiesAdoption of a scheme to compensate overtime servicesStrict prioritization of capital expenditures and realignment or use of savings to fund capital programs under the 10-point agendaStrict compliance with the Government Procurement Reform Act


Expenditure Risks for the Remainder of the Year

Increased pressure on interest payments due to interest rates and foreign exchangeNeed to reduce aging of accounts payablesAbsorption of NPC debtAdvances for guaranteed obligations


Medium Term Fiscal Program


Policy Objectives

Balance the national government budget in 6 yearsReduce CPSD to GDP ratio to 3% in 6 yearsReduce Public Sector Debt to GDP ratio to 90% in 6 years


Deficit and Debt Targets, 2004-2010(Percent of GDP)

00.2

1.22.1

2.93.6

4.2

3.0

3

3.94.6

6.06

6.7

0

1

2

34

5

6

7

8

2004 2005 2006 2007 2008 2009 2010

NG Deficit CPSD

58

90

78

137.5

0

20

40

60

80

100

120

140

160

2003 2004 2005 2006 2007 2008 2009 2010

NG Debt PS Debt


(6)

(4)(2)

0

24

68

10

1214

16

1820

22

Expenditure 18.1 17.6 17.0 18.6 20.2 19.8 19.1 19.1 18.9 18.4 18.6 19.4 19.2 19.8 19.3 19.6 19.6 19.2 18.5

Revenue 13.0 15.1 14.1 16.5 16.8 17.7 18.0 17.7 19.9 18.9 18.9 19.4 17.4 16.1 15.3 15.3 14.1 14.6 14.4

Deficit (5.1) (2.4) (2.9) (2.1) (3.5) (2.1) (1.2) (1.5) 1.0 0.6 0.3 0.1 (1.9) (3.8) (4.0) (4.0) (5.3) (4.6) (4.2)

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Aquino Ramos Estrada Arroyo

National Government Fiscal National Government Fiscal Position,Position,1986-20041986-2004(percent of GDP)


0

200

400

600

800

1,000

in b

illion p

eso

s

0

5

10

15

20

25

perc

ent of GDP

in P Billion 108.1 121.6 142.5 173.5 223.5 248.7 262.0 276.9 330.2 371.9 416.1 491.8 537.4 580.4 682.5 707.1 742.0 825.1 861.6

% of GDP 17.8 17.8 17.8 18.8 20.7 19.9 19.4 18.8 19.5 19.5 19.2 20.3 20.2 19.5 20.3 19.2 18.4 19.2 18.5

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

NG Expenditures Trend, 1986-2004Aquino Ramos Estrada Arroyo


Debt Service Burden, 1986-2004(Percent Share)

80.0

20.0 69.6

30.481.4

18.675.3

24.7 68.5

31.5

Interest Non- Interest

1986

1992

1998

2001

2004


Economic

Social

Defense

Gen. Public Service

0

10

20

30

40

50

60

70

80

90

100

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Expenditures by Sector Net of Debt Burden, 1986-2004(Percent Distribution)


BUDGET FLEXIBILITY MARGINS

PS

27%

INTEREST

28%IRA

7%

INFRA

9%

OTHERS

29%

PS

37%

INTEREST

16%

IRA

14%

INFRA

10%

OTHERS

23%

PS

33%

INTEREST

32%

IRA

16%

INFRA

6%

OTHERS

13%

1992

2004

1997


0

5

10

15

20

25

Expenditures 17.8 17.8 17.8 18.8 20.7 19.9 19.4 18.8 19.5 19.5 19.2 20.3 20.2 19.5 20.3 19.2 18.4 19.2 18.5

Capital Outlays 3.6 3.0 2.3 3.0 3.5 4.0 3.2 3.1 3.8 4.2 3.6 3.9 3.5 3.2 3.3 2.7 2.5 2.5 2.0

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

NG Expenditures, Total vs. Capital NG Expenditures, Total vs. Capital Outlays, 1986-2004Outlays, 1986-2004(percent of GDP)(percent of GDP)


Policy Objectives: Expenditures

1. Rationalize expenditures towards key strategic items of the 10-point agenda

2. Increase national government capital spending from 2.1 to 4.0 percent of GDP

3. Limit PS from 6.2 to 4.8 percent of GDP4. Reduce interest payments and debt

servicing as a percentage of GDP


Expenditure Targets, 2004-2010

(Percent of GDP)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Interest Payments

Personal Services

Capital Outlays

Interest Payments 5.8 5.9 5.6 5.1 4.7 4.2 3.7

Personal Services 6.2 5.7 5.5 5.3 5.1 5.0 4.8

Capital Outlays 2.0 2.5 2.7 3.0 3.4 3.9 4.0

2004 2005 2006 2007 2008 2009 2010


Action PlanAdministrative Measures

A. Rationalization of Personal Services 1. Objectives

Deactivation of functions no longer relevant Consolidation/rationalization of duplicating

functions Strengthening of important functions

2. Mechanics Voluntary but time-bound separation

opportunity but with option to (1) remain in government service; or (2) be separated with incentives


B. Creation of a Philippine Infrastructure FundC. Improvement of Management and Control

of GOCCs Improve operational responsibility of supervising

departments/agencies Impose moratorium on establishment of

subsidiary GOCCs pending assessment of subsidiary operations of all GOCCs

Action Plan: Administrative Measures


D. Fully implement devolution provision of the LG Code

MFC to be primary conduit for funds (except IRA and mandated shares to LGUs)

E. Focus budget to 10-Point Agenda and increase safety nets

F. Transfer to the General Fund of all balances of dormant accounts

Action Plan: Administrative Measures


Legislative Measures

A. Enactment of Fiscal Responsibility Bill Reduce public debt to more manageable levels

by imposing debt cap No new expenditure without new revenue

measure

B. Enactment of Reorganization Bill to conduct major reorganization

Action Plan


C. Rationalize government retirement and pension schemes Ensure sustainability of retirement

and pension benefits

Action Plan: Legislative Measures


D. Rationalize government compensation system Simplify position classification Improve compensation for highly

competitive posts Simplify compensation structure and

implement performance-based compensation system

E. Remove automatic guarantee provisions in certain GOCCs

Action Plan: Legislative Measures


The Proposed 2005 National Budget


The Proposed 2005 Budget is very conservative . . .

Core budget Represents only expenditures that can be funded by existing revenues and targeted deficit financing

Strictly adheres to the priorities of the 10-point agenda


2005 Fiscal Program

2004 Proposed (in PB) (in percent)

Revenues 676.4 758.5 82.1 12.1

Tax 596.4 677.7 81.3 13.6 Nontax 80.0 80.8 0.8 1.0

Disbursements 874.2 943.0 68.8 7.9

COE 754.2 812.9 58.7 7.8

CO 111.0 122.5 11.4 10.3

Net Lending 9.0 7.6 (1.4) (15.5)

Deficit (197.8) (184.5) 13.3 (6.7)

Increase/(Decrease)Particulars

2005


Reconciliation of Disbursements to Obligation Program(in billion pesos)

= P943.0 BCASH

BUDGET = P907.6 BOBLIGATION

BUDGET

Paid Current Budget

Obligations

Paid Prior Years’ Payables

P49.0 B

P894.0 B

Paid Current Budget Obligations

Unpaid Current Obligation

P894.0 B

P13.6 B


Core Budget . . .

P 907.6 billionNominal

(%)Real (%)

Increase over 2004, including interest payments

5.3 0.8

Increase over 2004, excluding interest payments

2.7 (1.8)


Budget Level by Expense Class (in billion pesos)

Growth Rate

Current Operating Expenditures 763.1 803.3 88.5 5.3

287.4 289.3 31.9 0.7

86.9 86.5 9.5 (0.4)

4.5 4.5 0.5 (0.1)

112.8 121.3 13.4 7.5

271.5 301.7 33.2 11.1

93.0 96.7 10.7 4.0

62.1 64.3 7.1 3.5

1.1 0.2 0.0 (83.3)

29.8 32.2 3.6 8.3

5.5 7.6 0.8 38.2

861.6 907.6 100.0 5.3

Capital Outlays

Net Lending

Allotment to LGUs

TOTAL

Infra/Other Capital Outlays

Equity

Capital Transfers to LGUs

Personal Services

Maintenance Expenditures

Subsidy

Interest Payments

2005 Particulars

2004 Adjusted Proposed 2004-2005 % share


1.9

(0.4) (0.0) 8.5 Higher revenue base

30.2 Higher outstanding debt

3.7

2.2

(1.0)

2.5 Higher revenue base

2.1

46.0

Capital Outlays

Net Lending

Allotment to LGUs

TOTAL

Equity

Capital Transfers to LGUs

Personal Services

Maintenance ExpendituresSubsidy

Interest Payments

Infra/Other Capital Outlays

Annualized salaries of teachers, uniformed and military personnel, etc.

Particulars Increase/ Decrease

Remarks

Current Operating Expenditures 40.2

Increases in the BudgetIncreases in the Budget(in billion pesos)(in billion pesos)


Budget Level by Recipient Unit(in billion pesos)

National Government lfkAgencies 433.5 437.7 1.0

Gov't-Owned and lfkControlled Corp. 11.2 12.3 10.3

Local Governments lfk(IRA, etc.) 145.4 155.9 7.2

Interest Payments 271.5 301.7 11.1

Total 861.6 907.6 5.3

Growth RatePARTICULARS2004

Adjusted2005

Program


Budget Level by Sector (percent share)

Economic24.1%

Social32.6%

Defense5.9%

General Public

Services18.8%

Debt Service18.6%

Economic20.6%

Social28.8%

Defense5.4%

General Public

Services17.1%

Debt Service28.1%

Economic17.5%

Social28.0%

Defense4.9%

General Public

Services15.5%

Debt Service34.1%

1998

2003

2005


Budget Level by Sector, Net of Debt Burden & IRA (percent share)

Economic23.7%

Social44.4%

Defense9.9%

General Public

Services22.0%

2003

Economic26.7%

Social41.0%

Defense9.8%

General Public

Services22.5%

2005

Economic28.4%

Social40.7%

Defense8.8%

General Public

Services22.1%

1998


Budget Level by Region(in billion pesos)

Nationwide 142.8 15.7 -

Central Office 413.3 45.5 -

Regionalized 351.5 38.7 100.0

NCR 36.3 4.0 10.3

LUZON 146.8 16.2 41.7

Region I 22.7 2.5 6.5

CAR 10.9 1.2 3.1

Region II 15.9 1.7 4.5

Region III 30.5 3.4 8.7

Region IV 44.4 4.9 12.6

Region V 22.4 2.5 6.4

% of Regionalized

BudgetParticulars Levels

% of Total budget


Budget Level by Region…con’t.(in billion pesos)

VISAYAS 75.2 8.3 21.4

Region VI 30.9 3.4 8.8

Region VII 22.7 2.5 6.5

Region VIII 21.5 2.4 6.1

MINDANAO 93.3 10.3 26.5

Region IX 15.2 1.7 4.3

Region X 17.4 1.9 4.9

Region XI 16.1 1.8 4.6

Region XII 15.2 1.7 4.3

CARAGA 14.9 1.6 4.3

ARMM 14.5 1.6 4.1

Total 907.6 100.0

% of Regionalized

BudgetParticulars Levels

% of Total budget


Amount Amount

NCR 35.5 3,260 14 36.3 3,255 15

Region I 19.8 4,397 6 22.7 4,923 5

CAR 10.0 6,830 1 10.9 7,280 1

Region II 14.9 4,908 2 15.9 5,111 4

Region III 28.0 3,000 15 30.5 3,183 16

Region IV 39.6 2,983 16 44.4 3,270 14

Region V 20.6 4,085 9 22.4 4,354 10

Region VI 27.5 4,173 7 30.9 4,594 8

Per Capita Rank

RegionRankLevel Level(PB) (PB)

20052004Per Capita

Budget Level by Region Budget Level by Region Per capita allocationPer capita allocation


Budget Level by Region Budget Level by Region Per capita allocationPer capita allocation

Amount Amount

Region VII 20.4 3,271 13 22.7 3,564 13

Region VIII 18.4 4,750 5 21.5 5,439 3

Region IX 15.0 4,786 4 15.2 4,725 6

Region X 14.7 3,794 11 17.4 4,377 9

Region XI 16.1 3,943 10 16.1 3,867 12

Region XII 14.6 4,105 8 15.2 4,152 11

CARAGA 10.9 4,836 3 14.9 6,493 2

ARMM 10.5 3,398 12 14.5 4,562 7

Per Capita Per Capita Rank

RegionRankLevel Level(PB) (PB)

20052004


Top Ten Departments(in billion pesos)

DepEd (incl. Sch. Bldg. Prog.) 109.5 1 112.0 1DPWH 47.2 2 49.5 2DND 45.5 3 46.2 3DILG 43.6 4 43.9 4DAR 14.8 5 14.7 5DA (incl. AFMA-DA) 13.3 6 14.3 6DOH 10.4 7 10.3 7DOTC 10.4 8 8.0 8Judiciary 7.6 9 8.0 9DOF 6.5 10 6.8 10

PARTICULARS2004 2005

Levels Levels Rank Rank


Sources of Programmed Appropriation(in billion pesos)

New General Appropriations

548.7 411.2 63.7 45.3

Automatic Appropriations 312.9 496.4 36.3 54.7

Interest Payments 271.5 301.7 31.5 33.2 Net Lending 5.5 7.6 0.6 0.8 Others 35.9 187.1 4.2 20.6

Total 861.6 907.6 100.0 100.0

2005 Program

PARTICULARS

Levels Percent Share

2004 Adjusted

2005 Program

2004 Adjusted


Expenditure Policies1. Focus on the 10-Point Legacy Agenda

Among the major provisions are the following:Strengthening the agriculture, industry, services, and infrastructure sub-sectors to generate employment opportunities:

AFMA - P18.9 B CARP - P14.7 B Trade and industry - P3.0 B Tourism - P1.4 B

Using transportation networks to decentralize development to the countryside:

total infra program - P56.5 B

Education: Allocation for DepEd, SUCs, TESDA and CHED – P131.4 B P3.2 B to build 3,000 schoolbuildings increased student support from P2,500 to P4,000 (GASTPE –

P1.8 B)


Expenditure Policies2. Encouragement of agencies to raise/generate

additional revenues to improve service delivery Retention and use of excess income (Sec. 5 of the Gen. Provisions)

The Permanent Committee may authorize agencies to retain and use income in excess of yearly targets

Clarification of items that may be constituted into Revolving Fund (Sec. 6 of the Gen. Provisions) Receipts from business-type activities, including sales of products by

agencies, maybe constituted into a Revolving Fund as maybe authorized by the Permanent Committee.

Income from rentals and fees imposed for board and lodging may be constituted into a Revolving Fund for the maintenance and other operating expenses or capital outlay requirements of said buildings and facilities.


Expenditure Policies

3. Institutionalization of the “streamlining the bureaucracy” program

4. Full implementation of Local Government Code Proposed treatment of IRA as automatic appropriation Conversion of MDFO to MFC Transfer of DOF and DILG FAPs to MFC

5. Ensuring provision for ARMM in nationwide projects


6. Recognition of earmarked revenues

(in billion pesos)

Revenues 26.2 732.3 758.5 Disbursements 23.6 919.4 943.0

Surplus/(Deficit) 2.6 (187.1) (184.5)

TotalSpecial

Accounts/Funds

ParticularsGeneral

Fund



6. Recognition of earmarked revenues…con’t.

(in billion pesos)

DPWH 6.7 6.7 DA 1.4 0.8 DOF 1.3 0.9 DOE 1.2 0.5 OEOs 1.2 1.2 Foreign Grants 0.5 0.5 Special Share to LGUs 1.9 1.9 Others 11.9 11.0

Total 26.2 23.6

Particulars Revenues Expenditures



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THE PROPOSED 2005 THE PROPOSED 2005 NATIONAL BUDGETNATIONAL BUDGET

the proposed 2005 national budget

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