Approaches and Techniques in

Budgeting: The Philippine

Experience
Ms. Lea S. Aceron
Discussant
Definition and Orientations
Is the process of allocating financial resources for intended programs,
projects, services, and activities to empower the organization to carry
out stated goals and objectives (Briones, 1996)
Entails the management of government expenditures that will create
impact from the production and deliver of goods and services while
supporting a healthy fiscal position.
Three orientations
Control, Management and Planning
Importance
It enables the government to plan and manage its financial resources
to support the implementation of various programs and projects that
best promotes the development of the country.
Government can prioritize and put into action its plans, programs and
policies within the constraint of its financial capability as dictated by
economic conditions.
Orientation in Budgeting
A. Control Orientation in budgeting is the process of enforcing
limitations and conditions set in the budget and in appropriations, and
of securing compliance with spending restrictions imposed by central
authorities. If the budget details the allowances for items of expense,
central budgeters will be required or at least motivated to monitor
agency actions in order to enforce the limits.
Orientation in Budgeting
B. Management Orientation involves the use of budgetary authority at
both agency and central levels to ensure the efficient use of staff and
other resources in the conduct of authorized activities. In
management-oriented budgeting, the focus is on agency outputs –
what is being done and produced and at what cost and how does
performance compare with the budgeted goal? This orientation is best
illustrated in a performance budget. It is more concerned with the
operations and results rather than control, with efficiency rather than
the legality of expenditures.
Orientation in Budgeting
C. Planning Orientation refers to the process of determining public
objectives and the evaluation of alternative programs. To use the
budget for planning, central authorities must have information
concerning the purposes and effectiveness of programs. They must also
be informed of multi-year spending plans and of the linkage between
planning, spending, and public benefits.
According to Schick, three important developments
influenced the evolution from a management to a
planning orientation in the sixties:
1. Economic Analysis – the emergence of macro and micro analysis
has had an increasing part in the shaping of fiscal and budgetary
policy;
2. The development of new information and decision technologies has
enlarged the applicability of objective analysis to policymaking; and
3. There has been a gradual convergence of planning and budgetary
processes.
Approaches Used Since 1937
Line Item Budgeting (LIB)
Performance Budgeting (PB)
Planning, Programming and Budgeting System (PPBS)
Zero Based Budgeting (ZBB)
Line-item Budget Approach
“Item of Expenditure Approach”
Manifestation of process budgetary, “incremental,fragmented, non
programmatic and sequential.”
During its Legislation or authorization Phase, the legislature wielded
so much influence on agencies of their choice.
The lawmakers were able to pinpoint “objects of future choice”
especially those referring to new positions.
Advantages of Line-item Budget Approach
Offers simplicity: easily budget for the agency based on historical
expenditures required in previous years.
Easy to justify the expenditures.
Straightforward, simple to administer, and readily understood.
On the basis of the United States’ long experience in
utilizing the line-item budget approach, Allen Schick was
able to lay down ten advantages:
1. It enables central authorities to control inputs; that is, to control
the cost of inputs before the expenditure is made or obligated.
2. It provides external control by legislators and central monitors who
are not beholden to a particular agency.
3. Line-item control is especially effective for salaries and purchases,
which together account for the bulk of state government spending,
perhaps 90 percent or more in some instances.
On the basis of the United States’ long experience in
utilizing the line-item budget approach, Allen Schick was
able to lay down ten advantages:
4. Control is uniform. Each agency is governed by the same accounts
and standards.
5. Control is comprehensive. No item escapes control surveillance.
6. Control is exact. It can be imposed with pinpoint precision on the
class of actions or expenditures that central officials want to control.
7. Control is routine. The records upon which control is built are
required in the ordinary course of activity: purchase specifications,
personnel actions, voucher approvals, travel authorizations, etc.
On the basis of the United States’ long experience in
utilizing the line-item budget approach, Allen Schick was
able to lay down ten advantages:
8. There are multiple opportunities for control. Central authority can be
exercised at many points in the expenditure process and throughout
the fiscal year.
9. Both aggregate and detailed control are promoted. Line-item
supervision ensures that the expenditure ceilings established by law or
administrative fiat will not be breached, but it also permits control to
extend down to particular items.
10. Line-item controls established the basis for budget cutting. To bring
the budget into a desired relationship with income, central controllers
are able to delete or reduce items until the target is reached.
Performance Budgeting
“Activity” or “functional” budgeting.
Objects of expenditures are deemed as significant factors in relation
to what they used for and not in relation to their specific character.
The Budget, accounting and auditing modernization project was
launched in July 1954 in collaboration with US management;
introduced as part of package reforms.
Budgetary improvements represented an attempt in initiate requisite
changes in an area relatively neglected in the past.
Reforms to help government cope with social, economic and political
problems.
Advantages of Performance Budgeting
Gives comprehensive and reliable information.
Helps individual legislature to understand what the government is doing
and what the costs are.
Improves legislative examination of budgetary requirements and enables
the legislative financial committee to decide more easily on the basic
expenditure issues.
Makes possible the submission and consideration of budget for a shorter
length of time.
Enables administrators to place responsibility upon subordinate officials
for the clear execution of the provisions made by the legislative body.
Permits effective performance in reporting on budgeting and
management.
Disadvantages of Performance Budgeting
Executive agencies pointed out that there’s indifference in the
execution of programs, and lack of understanding on the part of key
operation officials.
Lack or absence of performance measures, personnel processing
technical skills and competencies.
Streamlining the government’s organizational structure impeded the
success of PB. Only 1/50 plans presented in the Congress in 1955 was
approved.
Lack of Congressional support leading to RA No. 992 changed to
downright hostility on the part of the Congress.
A performance budget is one which states:
a) The short term and long term goals in the major functional areas
for which funds are requested;
b) The programmes in each function and activities or projects in each
programme proposed for the accomplishment of the goals in the
various functional areas;
c) The cost of the programs and activities or projects proposed;
d) The qualitative and quantitative data for the program and activities
proposed
A performance budget is one which states:
e) The organization units responsible for carrying out the programmes;
f) The sources and amount of all money receipts and expenditures; and
g) The units of work measurement which measure the results of
programs, projects and activities
Components of Performance Budgeting
Systems:
1. Functional and Activity Classifications
2. Performance Measurements
3. Performance Reports
Planning, Programming and Budgeting System
Answer to the need for an economic allocation of resources and the
undertaking of government policy, program analysis, and cost utility
analysis to improve the policy decision process of government.
The scheme requires agency managers to identify program
objectives, develop measuring program output, calculate total
program costs over the long-run, prepare detailed multi-year program
and financial plans, and analyze the costs and benefits of alternative
program designs.
The system provides a strong linkage between planning and
budgeting.
Planning, Programming and Budgeting System
Martial Law in September 1972, PD No. 1 – reorganization of the
entire government system – formulate short term and long term
development plans and to monitor.
Creation of NEDA (National Economic and Development Authority)
Navy attempted to workout the said Model for the entire National
Defense in 1976
PAGBA (Philippine Association of Government Budget Administration)
and CESDP (Career Executive Service Development Program) devoted
several conferences to discuss its merits
Advantages of Planning, Programming and
Budgeting System
Provides clear linkage between planning and budgeting.
Officers techniques which might help solve the problem of resource
allocation and setting of positions.
Offers logical, objective approach to planning and budgeting.
Allows administrators to evaluate anticipated results of proposed
programs and systems alternatives and to compare results from
different proposals.
Disadvantages of Planning, Programming and
Budgeting System
Brought a damaging gap between publicity and performance.
Only a tool and never makes decision
Zero-Base Budgeting Approach
An operating, planning, and budgeting method which requires every
agency manager to justify its entire budget-systems in detail and
transfers the burden of proof to each manager why he should spend
any money.
It underscores the analysis of all budgetary expenditures to answer
effectiveness in achieving organizational goals.
Yearly analysis, evaluation, and justification of each activity, program
or project starting from a “zero” performance level.
A budget based on need not want.
Basic ZBB Terms
A Decision Unit is a major activity, group of related activities, cost
center or organizational unit which requires significant managerial
decisions on performance and funding levels.
The Decision Level is the level of the organization responsible for
analyzing, reviewing, ranking, and grouping activity justification
document. Each division, regional office, and bureau are required to
analyze and rank activities.
Basic ZBB Terms
The Levels of Performance and Funding
a) Current Level (CL) – level of performance and funding that is required to
carry on the current year’s service or output level without major policy
changes; also referred to as “business as entusual” level.
b) Minimum Level (ML) – level of performance and funding below which an
activity is not feasible to operate because it cannot make a constructive
contribution towards fulfilling an objective.
c) Enhancement Level (EL) – the level of performance and funding above
the current level wherein increased output and service will warrant the
serious review of higher management; the enhancement level may be
divided into EL (1) and EL (2) where EL (2) is higher than EL (1) and is
closer to attaining completely the objective of an activity.
Basic ZBB Terms
The Activity Justification Document (AJD) Decision package is a
document that identifies and describes a specific operation in a
manner that enables management to evaluate and rank it against other
operations competing for limited resources and to decide whether to
approve or disapprove it.
An AJD contains all three levels of performance funding besides the
following information: objectives, description of activity, alternative
methods considered, and output performance measurement.
Ranking is the process by which higher level managers evaluate an
array activity levels in descending order of priority.
Zero Base Budgeting
Introduced in 1977 during the preparation of Calendar year 1978
National Budget
Section 8 of PD 1177 (Budget Reform Decree) – Legal Basis
Established benchmark for outlays category: (Personal Services,
Maintenance and Operating Expenses and Equipment
Justified its used due to lack of managerial involvement in budgeting,
limited priority setting of projects and activities, lack of performance
measurements and cost benefit analysis, unnecessary spending, weak
planning and budget linkage, inadequate probing organization and
methods of operation and ineffective allocation of resources.
Eight Steps Necessary to Establish in an
Agency
1. Development and issuance of agency planning assumption and policy
guidelines;
2. Identification of decision units;
3. Identification of objectives for each decision unit;
4. Identification and evaluation of alternative methods of accomplishing
objectives;
5. Analysis of different levels of performance and funding;
6. Preparation of activity justification documents of decision packages;
7. Ranking of activities at various performance and funding levels; and
8. Consolidation of activity justification documents and accomplishment of
standard budget preparation forms.
Advantage of Zero Base Budgeting
The most important programs and projects are allocated, enough
funding rather than distribute the resources thinly among the many
activities and achieve nothing in the end.
Disadvantages of Zero Base Budgeting
Support from Top Management
Translation of Concepts
Management System
Insufficient training of agency personnel
Lack of guidance in its implementation
Insufficient central staff
Emphasis on forms or too much paperwork
Difficulty in translating concepts to more comprehensive concrete
terms which are digestible and palatable to end users
Budgeting in the Philippines
2009 Profile
Budgeting in the Philippines – 2009 Profile
General overview of the Philippine System of Budgeting
Divided into two parts:
1. Budget Formulation Process
2. Role of Congress in Approving the Budget
Special Characteristics
1. A commitment to fiscal discipline
2. Tax compliance and corruption
3. Subsidies: government-owned and controlled corporations
4. The Development Budget Coordinating Committee
5. The national planning function
6. Unprogrammed funds and special purpose funds
Arroyo Administration
Major turning point for budget policy
Restoring fiscal discipline and sustainability a key priority
Averted fiscal crisis by severe expenditure restraint
Primary expenditure declined by two percentage points of GDP
Marked by political/governance challenges
Declared that the country was on the verge of a “fiscal crisis” and
identified the budget deficit as the “most urgent problem”
“Sometimes stamping out deficits can show
growth. But ignoring them can kill the
economy.”
Public Expenditure Management
“The programme of restoring fiscal strength is premised on the
painful fact that the government could, very soon, no longer afford to
subsist on borrowed funds”.
Promotes 3 Outcomes
1. Aggregate Fiscal Discipline – Spending with means
2. Allocative Efficiency – Spending on the right priorities
3. Operational Efficiency – Spending with value for money
Medium-term Expenditure Framework
Known as “activity” or “functional” budgeting, the Hoover
Commission succeeded in creating a feeling of novelty and
excitement for the post-war generation of public administrators.
6-year fiscal plan of projected revenues and deficit targets
“forward estimates” – to show the baseline cost of continuing
existing policies.
1999 then reintroduced in 2006 as analytical tool.
Several Changes in Implementation of MTEF
Significant share of the budget in accounted for by capital projects, which
are by their nature one-off.
There is a systematic issue with revenue forecasting, which inflates the
MTEF in terms of fiscal space for new expenditures.
High degree of flexibility is permitted in the implementation of the budget,
both to “claw back” expenditures in view of actual revenue receipts and
because of extensive in-year reallocations.
Great efforts is needed to keep the MTEF up-to-date throughout the year.
Great importance is thus placed being integrated into the same units that
deal with the annual budgeting, rather than being placed in a special unit.
Paper on Budget Strategy
New initiative Originated in 2006
Internal document used as a basis for discussion within the
Development Budget Coordinating Committee (DBCC) for deciding on
priority sectors for the use of new resources
Three priority sectors have been consistently identified: education,
health and infrastructure development. In 2008, agriculture and
welfare were added because of the global rice crisis
Arroyo Administration
Achieved impressive fiscal outcomes including governance challenges
and most recently the effects of the global financial crisis.
Central and long-standing fiscal problem in the Philippines has to do
with revenue mobilization, both in terms of broadening the tax bases
and increasing tax rates and tax collection.
Philippines suffers from rampant tax evasion and complicit corruption
in the revenue collection agencies.
Must be emphasized that the impressive fiscal outcome and
implementation of modern budgeting reforms have been
accomplished within the most challenging environment.
Arroyo Administration
The Congress has a very active and vocal role in the budget process in
the Philippines. Majority of members of both the House and the
Senate are also members of their respective chamber’s budget
committee is most noteworthy.
The budget approval process is often tense between the House of
Representatives and the Senate and within the Bicameral Conference
Committee.
The Constitution gives the President extraordinary power vis-à-vis the
Congress in budgetary matters, which has served to counteract the
effects of these practices.
Budgeting in the Philippines
DBM
Department of Budget and Management
Aquino Administration
“Daang Matuwid” – Ituloy ang Paggugol na Matuwid
A Budget for Inclusive Development
Passed the budget on time for six consecutive years
Budget reaffirms the belief that no one should be left behind as the
country progresses
To link budgets to agency performance through Performance-
Informed Budgeting and enable citizens to hold agencies accountable
for delivering their targets through the use of their budgets
Budget Transparency
Agencies are required to publish key budget information and reports
through their respective websites
Transparency Seals
Open Data Initiative
People’s Budget
Performance-Informed Budgeting
Publication of performance in the budget documents submitted to
Congress
Strengthens the accountability of government for spending with
measurable results
A set output and outcome indicators and targets are presented in the
NEP and GAA for each MFO
Advantages of Performance-Informed
Budgeting
Adoption of the PIB has made the budget more understandable to
the layman because it simplified budget presentation.
Easier to gauge the performance of an Agency. Compared to the
traditional line-item based budgeting, it links funding to results.
Strengthens the direct relationship between planning, budgeting, and
outcomes, and enhances transparency and accountability in the
allocation of limited resources.
Bottom-Up Budgeting
A demand-driven budget-planning process.
Institutionalizes people’s participation in the budget process to gain a
better understanding of their needs and requirements and ensure
that these are met.
Open Government Partnership in 2015 has recognized the BuB
program as one of three Best Practices in Fiscal Transparency from
around the world.
Advantages of Bottom-Up Budgeting
Fiscal Output to be produced by the Local Communities Produced by
Local Poverty Action Team per municipality/city composed of equal
representation from LGUs and CSOs.
LPRAP will come from budgets of participating agencies
Summary
Reforms were essential for restoring a cynical public’s trust in
government.
Budget addressed hiccups in the budget implementation.
Empowered people through tighter prioritization of their needs,
faster delivery of results and more open budget process
Emphasized that the government exists to serve Filipinos
It lays foundation for inclusive development and sustains the
momentum of reform.
Duterte Administration
“The thought that dominated my being was to make good on my
promise to the people to bring change in government, not a change
that is passing, but a change that can survive the test of time”.
PRRD SONA 2017
“Budget for Real Change”
A budget for and by the people, the 2017 Budget invests in programs
and projects that will help realize the collective aspirations of
Filipinos.
Supporting the Philippine Development Plan 2017-2022
Duterte Administration – Key Principles
1. Credible and Disciplined Fiscal policy
2. Fiscal space focused on equitable and social order
3. Budget reflecting our policies
4. Strengthening transparency, participation and accountability
5. Enhancing partnerships with local governments to ensure
sustainable development
Duterte Administration – Key Expenditure
Priorities
1. Promoting and enabling and Supportive Economic
2. Reducing Inequality in Economic Development Opportunities
“Pagbabago”
3. Increasing potential for Growth “Kaunlaran”
4. Enhancing the Social Fabric “Malasakit”
5. Foundations for Inclusive and Sustainable Development
Program Convergence Budgeting
An approach to facilitate and incentivize coordination between
agencies on priority inter-Agency programs.
National Budget Memorandum No. 114 in 2012 sets out guidelines
for building and sustaining cooperation in the development and
implementation of priority programs.
The lead Agency for each program has the responsibility to ensure
collaboration and coordination among all the agencies participating in
the program.
Program Expenditure Classification (PREXC)
Evolved from the Organizational Performance Indicator Framework
(OPIF) being approach to expenditure management that directs
resources towards results and accounts for performance by
identifying Major Final Outputs.
Logical continuation of Performance-Informed Budgeting (PIB).
Reflects in the budget link between strategies, budgets and results
and facilitates the monitoring and evaluation of programs with the
performance indicators attached to each program.
Restructures an agency’s budget to group all recurring activities as
well as projects under appropriate programs or key strategies.
Advantages of Program Expenditure
Classification
Strengthens the link between planning and budgeting by clearly
articulating how government’s strategies and investments under each
program are linked to the attainment of desired sectoral and socio-
economic results.
Enables various stakeholders to better manage the public expenditure
management process through programs and sub-programs of the agencies.
Does not replace the line-item budget structure. Rather, it groups the line
items more coherently under programs and sub-programs; and adds
performance information which should enable program managers,
legislators, and the general public to better understand the purpose of
expenditure and who should benefit from it.
Objectives of Program Expenditure
Classification
NEDA and DBM – better understand how programs and strategies
implemented by individual agencies lead to the achievement of
desired societal goals; and, based on this, more strategically allocate
resources to successful programs.
PREXC is consistent with, and supports the Planning Tool submitted
by Cabinet Secretaries
Implementing Agencies – better manage and ensure that agency
operations and expenditures are clearly linked to the delivery of
agency mandates, facilitating the evaluation of the effectiveness and
efficiency of programs; and, based on this, appropriately hold
respective managers and units accountable for overall performance.
Objectives of Program Expenditure
Classification
Congress – analyzes and appropriates each agency’s budget based on
better appreciation of agency objectives, strategies, and performance
in the past years; and, based on that, better performs its
congressional oversight role.
Citizens and civil society organizations- better monitor performance
of key agency programs and make evidence-based recommendations
to government; and, based on this, hold agencies accountable for
performance.
Program Expenditure Classification
From
Outcome indicators at the organizational level
Agency-level outcome (i.e. organizational outcome)
and output (i.e. major final output or MFO) targets
“Line Items” defined as Programs, Activities, and
Projects (PAPs) grouped under each MFO
To
Outcome Performance Indicators at a lower level of
Programs to show how programs and strategies
contribute to achieving an agency’s objectives
Outcomes and output targets assigned at the Program
level to facilitate the measurement of the
effectiveness of Programs
Line Items, whether recurring activities or projects,
grouped by program
Program Expenditure Classification
Other Tools
Unified Accounts Code Structure (UACS)
Government-wide harmonized classification system for financial transactions
which is used by the Commission on Audit (COA), Bureau of the Treasury
(BTr), Department of Finance (DOF), and DBM
Enables orderly and transparent budgeting, accounting, and auditing of each
budget item
Allows timely, accurate reporting of actual receipts and expenditures against
budgeted, programmed revenues and expenditures; and secures the integrity
of the Budget as enacted by Congress
Other Tools
Tier Budget Approach
Allows for the use of the performance information-both financial and
non-financial accomplishments – in assessing new spending proposals
of agencies
Streamlines the budget process by separating the discussion and
deliberations of the requirements of ongoing policies with the new
spending proposals
Other Tools
GAA as Release Document (GAARD)
And the creation of Full-Time Delivery Units (FDUs) have facilitated
the swift and efficient implementation of the Administration’s
expenditure program
It allows agencies to enter into contracts, complete the procurement
process and kick-start the implementation of programs/projects on
the very first working day of the fiscal year, because the disaggregated
budget items in the GAA are already considered released to their
respective agencies.
Forward Estimates (FEs)
Concepts was first introduced around 2007 as part of the
implementation of the MTEF
It has now been given a more important role in the annual budget
process through the introduction of the 2TBA process
Estimates of the future costs of on-going policies, programs and
projects of the Government for the next three years