14 June 2018 | 10:00 am | Muralla 1, Bayleaf Hotel
To our development partners, my colleagues in the Department of Budget and Management, ladies and gentlemen: Good morning.
When I was appointed Budget Chief by President Duterte, I was determined to champion the modernization of the Philippine budgeting system. Admittedly, it is an ambitious and difficult quest, considering that in the past, similar bills were filed in Congress, but none get to first base. Hopefully this time around, with a reform-oriented President and a supportive Congress, we will have the Budget Modernization Bill (BRM) enacted into law within the year.
Today, I open this forum with the goal of further enlightening our development partners on the benefits to be derived from the Budget Modernization Program. Later, I will discuss the impact of the shift from two-year obligation-based budgeting to a one-year cash-based appropriation to the implementation of Foreign Assisted Projects.
I hope that after today’s meeting, we will all share the same determination to support the passage of this Bill. We believe that this Bill is necessary in our pursuit of rapid and inclusive development, especially with the help of multilateral organizations that share the same goals.
The Budget Reform Bill is one of the reforms being proposed by the administration, in an effort to promote greater fiscal transparency, accountability, and prudence in spending, and to improve the country’s Public Financial Management (PFM) System.
The bill mandates a shift from an obligation-based to a cash-based system. This implies a disciplined budgetary decision-making and approval process, highlighted by one year validity of appropriations, cash-based appropriations, and performance reviews based on actual disbursements.
If approved, this Budget Reform Law will address some of the major weaknesses in our PFM system, as identified in the World Bank’s Public Expenditure and Financial Accountability assessment. These weaknesses have been identified as low budget credibility, reliability, accounting, and reporting.
But even before the passage of the Bill, we have already started implementing key major PFM reforms to enhance budget reliability and credibility, as well as reporting.
Now, let me share with you our progress so far in this endeavor.
In 2017, our first year in office, we began the shift to the one-year validity of appropriations to address government underspending. By definition, underspending occurs when actual disbursements fall short of programmed spending. Underspending is unacceptable because it means unnecessary delays in the delivery of public services. Worse, it might mean outright failure to deliver services to potential beneficiaries.
In 2014, underspending reached 13%; in 2015, it was 12%. With the implementation of the one-year validity of appropriation --as well as other reforms such as the General Appropriations Act as the Allotment Order (GAAAO)-- underspending had been cut to 3% in 2017.
Next year, we will take our reforms a notch higher by shifting to an annual cash-based budget, from an obligation-based budget. This will ensure faster budget implementation and timelier delivery of public services.
Everyone knows that the national budget is a potent tool towards development. This is why we are very determined in pushing for the passage of this Bill. Its passage could be a game changer. Given that the national budget, in nominal terms, has increased three times, in such a short period of time, we need to change the way we do budgeting. We have to modernize the budget system. BAU or business as usual will mean failure.
We promised a better and more comfortable life for our countrymen. That is not possible if we do not change the way we do budgeting.
Public spending is now one of the biggest drivers of growth in the Philippines. But growth for growth’s sake is empty. Growth to be meaningful has to be inclusive. This is why we are serious in reforming our budgeting system. We believe that our sizeable investments in infrastructure and human development will only be felt by all, if our budgeting system is open, effective, and efficient.
With the budget reforms we have put in place during the last two years, we have built a strong momentum towards improving the lives of Filipinos. We should institutionalize these reforms by passing the Budget Modernization Bill.
Yet, there will be some who will refuse to see these changes. There will be critics and detractors. But you, our development partners, and I, should not be distracted. We should forge ahead and continue the quest for a better, safer, more prosperous, greener, more equal, and more beautiful Philippines.
On my part, I find comfort in the words of Sir Winston Churchill, a great English statesman. He said:
“You will never reach your destination if you stop and throw stones at every dog that barks.”