Gov’t spending inching up?

Has government spending really improved as claimed by the Department of Budget and Management (DBM)? The answer is a mixed bag. For public spending that makes a lot of difference in job creation and poverty alleviation such as public works and social welfare, the answer is NO. For other social spending such as education and health there was a slight improvement. And for DPWH, DoH, DA, DSWD, and DoTC, actual public spending from January to May, appropriately measured, was only half of planned spending.

Surprisingly, it was spending for the military and police where actual spending has exceeded programmed spending — DND by almost half, DILG by about 20%.

Budget Secretary Abad said that “the departments and agencies are now catching up with their spending. With their catch-up plans in place, we are expecting further improvements in the next months ahead.”

DBM compared disbursements from January to May in 2011 against those from January to May in 2011 and came up with the following conclusions:

Among the top spenders, the agencies whose spending performance during the period improved year-on-year were:

DSWD whose spending grew 74.7% to P7.1 billion from P4.1 billion the year before,

DoH whose spending rose 14.7% to P8.0 billion from P7.0 billion.

DND, up 9.9% to P42.9 billion from P39.0 billion.

DepED whose expenditures inched up by 0.9% to P74.5 billion from P73.9 billion.

The agencies whose expenditure performance declined during the period were:

DPWH whose spending plummeted by 71.8% to P21.3 billion from P75.4 billion.

DA whose spending dropped by 39.2 % to P7.2 billion from P11.84 billion.

DOTC which recorded a 5.6% decline to P6.0 billion from P6.4 billion.

DILG whose spending contracted 4.1% to P34.8 billion from P36.3 billion.

Misleading analysis

The above analysis gives the false impression that public spending has improved. For example, DSWD appears to have done a great job with spending higher by 74.7% compared to last year’s level.

It is inappropriate to measure the efficiency in spending by comparing this year’s spending with last year’s level. Priorities have changed. We know that the budget for DSWD has more than doubled because of the cash transfer program. Naturally spending has to be higher this year compared to last year even if DSWD is unable to spend its budget efficiently.

We also know that the DPWH budget this year is much lower compared to last year’s. Expectedly, infrastructure spending will be lower this year even under the best circumstance; and it could be worse if in addition to the lower budget, spending is slower.

Correct analysis

A more appropriate and correct analysis is to compare actual spending with programmed spending for the same year, a comparison of how much the Executive Department has spent relative to how much Congress has authorized it to disburse.

In the absence of an explicit programmed spending level on a monthly basis, assume that government spending is done in 12 equal installments (a conservative assumption given the announced front-loading strategy of the government). Thus a rough program level from January to May is 5/12 times the annual budget for the agency.

One can then compare actual with programmed disbursement. What’s the result?

For some departments, the ratio has slightly improved from January to April to January to May: for DepEd from 0.78 to 0.86; DA, from 0.43 to 0.49; and for DSWD from 0.46 to 0.50.

DepEd has performed the best although it continues to spend below its programmed level. DA continues to spend less than half of its programmed budget, though improving. DSWD, contrary to claims that its disbursements has jumped impressively, continues to struggle in spending what Congress has authorized it to spend. The latter is meeting only half of its goals as of May 2011.

The two infrastructure agencies — DPWH and DOTC — are stuck in their mediocre performance level. Faced with a sharply reduced infrastructure budget, DPWH’s ratio of actual to programmed spending remained unchanged at 0.53. For DOTC, the ratio barely moved, from 0.44 (January to April) to 0.45 (January to May).

DBM has this to say on the severe underspending in public infrastructure: “Infrastructure and other capital outlays (CO) registered only at P34.8 billion as of April, less than half of the 2010 disbursements of P74.0 billion. The marked deceleration of the demand by contractors/service providers for payment of due and demandable obligations from the Department of Public Works and Highways (DPWH) was noted during the first four months of the year.

“As of end April, settlement of DPWH accounts payable reached only P14.4 billion, only a third of the P46.3 billion of obligations claimed and paid during the same period last year when infrastructure spending was boosted by the completion of big-ticket projects of the previous administration.”

But the lower accounts payable in the first four months of 2011 is easy to explain: public construction practically stopped during the third and fourth quarter of 2010. With fewer ongoing projects there is very little accounts payable to settle.

DBM further adds: “The DPWH also attributed the delay in project implementation to the influx of requests for realignments from regional and district offices and other stakeholders even after bidding activities had started, the magnitude of which was estimated to be more than 40% of the line-item projects released.” Incredible!

What happened to zero-based budgeting? –Benjamin E. Diokno, Businessworld