COUNTRY REPORT (Republic of the Philippines)

1. COUNTRY REPORT (Republic of the Philippines) Presented during the Performance Based Budgeting Training Program Civil Service College, Singapore 25 February to 7 March, 2008 By: Ms. Luz M. Cantor Ms. Jocelyn Cuaresma Mr. Julian D. Pacificador,Jr. Ms. Vicitacion A. Ugalino Ms. Marlene R. Vinluan

2. Introduction • Geography and Demography • History • Economy • Background of Public Financial Management (PFM) in the Philippines • The Legal Framework for PFM • The Institutional Framework • Four Phases of the Budget Process or Budget Cycle • Budget Preparation • Budget Legislation • Budget Execution • Budget Accountability • Salient Features of Appropriations

3. Successes Achieved in the Area of Performance Based Budgeting (PBB) • Public Expenditure Management (PEM) • Organizational Performance Indicator Framework (OPIF) • Advantages of OPIF • The OPIF Process • Little “Victories” in OPIF • An Analysis of Gaps in the PFM and Areas of Potential Reform • Weaknesses of the PEM • Weak revenue administration, • Unpredictability of funding, • Inadequate management information system, and • Weak internal control system in spending agencies • Challenge and Issues • Sustaining and Enhancing the OPIF Process • Prospects for Reform Planning and Implementation

4. Republic of the Philippines

5. Republic of the Philippines Capital: Manila Population : approaching 87 million (12th) Government: Unitary presidential constitutional republic Total Land Area: 300,000 km / 115,831 sq mi Religion: Predominantly Roman Catholic Official Language: Filipino and English

6. Republic of the Philippines Economy GDP (nominal) : Total - $117.562 billion 2006 Per capita - $1,351.718

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

8. 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”.

9. THE INSTITUTIONAL FRAMEWORK FOR PFM

10. Four Phases of the Budget Process or the Budget Cycle • Budget Preparation • Budget Legislation • Budget Execution • Budget Accountability

11. 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

12. 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

13. Development Budget Coordinating Committee A top level inter agency committee that sets the budget parameters - framework

14. DBCC Composition NEDA OP DOF BSP DBM resource allocation and management resource generation and debt management Presidential oversight overall economic policy monetary measures and policies

15. Major 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 revenuesmeasures and the extent and type of borrowings • Conducts periodic review and general examination ofcosts, accomplishments and performance standards

16. Budget Preparation Flow Chart President Submits Budget Proposal to Congress Budget Call Budget Consolidation DBCC approves budget parameters Approval by President and Cabinet Budget Hearings Cut-off for Inclusion of Items in Budget Proposal

17. 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

18. Budget Legislation Flow Chart Bicameral Conference Committee House Hearings/ Debate Senate Hearings/ Debate House Approval & Submission to Senate President Signs into Law Senate Approval

19. c) Budget Execution Flow Chart Agency/DBM prepares ABM Agency implements DBM releases SARO & NCA

20. d) Budget Accountability • Monitoring of agency budgetary performance • Comparison and evaluation of actual performance with initially-approved work targets in terms of: • financial • Physical • Revenue Collected (for agencies mandated to collect taxes and fees)

21. 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

22. The Commission on Audit (COA) Article IX-D of the Philippine Constitution provides the following functions of COA: • 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;

23. The Commission on Audit (COA) • 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; • Submit annual reports to the President and the Congress on the financial condition and operation of the government, • Recommend measures to improve the efficiency and effectiveness of government operations; and • Keep general accounts of government and preserve the vouchers and supporting papers pertaining thereto.

24. Salient Features of Appropriations • 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. • 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.

25. Salient Features of Appropriations (cont.) • 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.

26. Successes Achieved in the Area of Performance Based Budgeting

27. PUBLIC EXPENDITURE MANAGEMENT:OBJECTIVES • 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

28. PUBLIC EXPENDITURE MANAGEMENT:Key components in the Philippines THREE MAJOR COMPONENTS - mutually supportive • Medium-Term Expenditure Framework (MTEF) • Organizational Performance Indicator Framework (OPIF) • Procurement Reform

29. ORGANIZATIONAL PERFORMANCE INDICATOR FRAMEWORK (OPIF) 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

30. OPIF OBJECTIVES • 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

31. ANALYTICAL FRAMEWORK Logical Framework (Logframe) Approach in OPIF SOCIETAL GOALS SECTOR GOALS ORGANIZATIONAL OUTCOME MAJOR FINAL OUTPUTS P/A/Ps Budget (Impact) (Outcome) Performance Indicator/s for MFOs (Outputs) (Inputs) Targets

32. Attributes of Good Performance Indicators S – Specific M – Measurable A – Achievable R – Relevant T – Time-bound

33. Attributes of Good Performance Indicators C – Clear R – Relevant E – Economic A – Adequate M – Monitorable

34. OPIF Successes • Publication of 2007 OPIF book • Publication of 2008 OPIF book * Available at DBM website (www.dbm.gov.ph)

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

36. An Analysis of Gaps in PFM and Areas of Potential Reforms • Weaknesses in the present PFM: • Weak revenue administration, • Unpredictability of funding, • Inadequate management information system, and • Weak internal control system in spending agencies

37. Challenges and Issues in the Way Forward

38. A. Sustaining and enhancing the OPIF process • Mainstreaming of OPIF to all agencies of government including the legislative, judiciary, constitutional offices and SUCS; • Establishment of unit costs for a more realistic targeting and budget estimate exercise; • Enhancement of the cascading process at the agency and department levels; • Calibration/adjustments in the budget preparation, budget execution, and budget accountability systems to make them OPIF compliant; • 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; • Development of an enhanced performance monitoring and evaluation system along with an agency performance review and rating structure; • Harmonization of the OPIF reporting system with those adopted by other oversight and monitoring authorities; and • Conduct of continued capacity building and advocacy activities for better understanding, appreciation, and adoption of the OPIF in other national government agencies and instrumentalities;

39. B. Prospects for Reform Planning and Implementation 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.

40. B. Prospects for Reform Planning and Implementation Challenges (cont.) • The political reality in the country.