Reset

The January-May 2012 actual fiscal numbers suggest that the kinks that bug project implementation in the Aquino administration remain. Using the most likely case, spending for public infrastructure and other capital outlays, will be off by about 30% during the first half of the year. A pickup in the third quarter is unlikely because of the monsoon rains and typhoons.

In a few days, Aquino will be on his third year in Malacañang. There is a growing consensus that the bureaucracy has moved rather slowly. Some departments have not performed up to par.

Unfortunately, time is not on our side. We’ve lagged so much behind our ASEAN-5 neighbors during the past decade. And there’s a lot of catching up to do.

The telltale sign that government projects were not moving as fast as planned was when President Aquino warned his men: use, or else lose, your budgets. By implication, the early approval of Aquino’s first two budgets didn’t make a difference, and that the kinks are in the Executive Department.

Here’s my take on the “use-it-or-lose it” policy. On the assumption that the budget allocated for each department is already too small relative to its needs, this policy will have the effect of penalizing the potential beneficiaries of government programs.

The “use-it-or-lose-it” policy implies some massive realignment of appropriations, from slow-moving to fast-moving ones. The process of slice-and-dice will leave concerned groups and citizens at a loss in their task of monitoring performance. By definition, it’s hard to monitor a moving target.

The “use-it-or-lose it” policy if applied on a massive scale undermines the congressional power of the purse. It reorders priorities. Last year, funds for public infrastructure were realigned to higher salaries and employee benefits, equity contribution and subsidies.

That could happen again this year.
MISSING OPPORTUNITIES ONCE MORE

In 2012, the total program for public infrastructure and other capital outlays (this expenditure item should be presented separately for transparency) is P287 billion, of which “hard” infrastructure would be P194 billion. The big-ticket items for public infrastructure include roads and bridges (P88 billion), airports and navigational facilities (P6.5 billion), ports and lighthouses (P6.1 billion), basic education facilities (P17.4 billion), farm-to-market roads (P8.2 billion), irrigation (P25 billion), and Light Rail Transit Authority (P8.0 billion).

For the first half of the year, the plan was to spend P143.5 billion, or half of the P287 billion. But from January to May, total disbursements was only P77.3 billion. In order to meet the program, the government has to spend P76.2 billion in June. With only a few days left in June, that would be unlikely. My best guess is the government will miss its infrastructure spending target for the first half of the year by around 30%.

Similarly, the government will miss both its personal services spending and its miscellaneous and other operating expenses targets by 12%.

In its totality, the national government has to spend some P258 billion for the month of June in order to meet its first half expenditure target of P927 billion. That’s a tall order!

It would be idiotic to be cheerful about the lower-than-planned budget deficit, especially when the smaller budget deficit was due to government’s failure to implement projects on time and its failure to meet its revenue goals.

The target budget deficit for the first half of the year is P109 billion; the actual deficit as of May was only P22.8 billion.

There was no conscious effort to compress public spending. The harsh reality is that departments and offices failed to move programs and projects according to schedule. Apparently, the early approval of the budget was not a sufficient condition for success. The front loading of budget releases didn’t work either.

Talking of fiscal space is totally irrelevant. The core of the matter is how Malacañang can crack the whip to get the roads and bridges, airports and seaports, school buildings, irrigation facilities, farm-to-market roads and so on done as soon as possible.

On the tax side, the issue is how to secure steady financing, how to improve the tax-to-gross domestic product ratio sooner and sustainably. In the first quarter of 2012, tax effort was only 12.5%. It’s been stuck at that level for quite some time, and it is insufficient to finance the government’s high and rising expenditure needs. Both tax collecting machineries — the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BoC) — failed to meet their revenue targets, with the BoC in a much deeper hole.

For the first half of the year, BIR’s revenue goal is P535 billion. From January to May, it has collected only P440 billion; thus, it needs to collect P95 billion in June in order to meet its half-year target. Doable — but with a lot of difficulties.

The BoC’s target for the first half of the year is P167 billion, of which it had collected P120 billion from January to May. It has to collect some P47 billion in June in order to meet its target — definitely unreachable, even with BoC’s best efforts. Its tax base has contracted: imports are tumbling down, oil and oil product prices are falling, and the peso is appreciating in value.

The “use-it-or-lose-it” policy looks good on paper but it has serious drawbacks. It unnecessarily denies potential beneficiaries of the benefits from the prompt completion of government programs and projects. It reorders priorities, but not necessarily consistent with what’s best for the economy. It makes monitoring of projects doubly difficult.

If the delays were due to the failure of the agency head to provide consistently the leadership needed to move projects, then the first best solution is to replace the head with better men or women.

After two years in office, the President should already know who among his men are doing well, coasting along, or lagging behind. Some of them have been repeatedly bypassed by the Commission on Appointments. And with mid-term elections just around the bend, it may be an opportune time to reset.

Benjamin Diokno is professor of Economics at the School of Economics, University of the Philippines (Diliman). He was formerly secretary of budget and management in the Estrada Cabinet and undersecretary for budget operations in the Aquino 1 administration. –Benjamin E. Diokno, Businessworld