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 pr vietnam 483 x329 10May2018

Secretary Benjamin E. Diokno, PhD
Department of Budget and Management

 

Esteemed guests, ladies and gentlemen, good morning/good afternoon!

It is an honor to be amongst the most noble and daring reformers of Southeast Asia and Korea, to share ideas on public sector reforms in and for our respective countries in particular, and for the region in general, from the perspective of a wider lens and a profound yet pragmatic discourse.

But before I share some of the Philippines’ major development strategies and experiences in this regard, under the leadership of President Rodrigo Roa Duterte, allow me to thank the Korea Research Institute of the University of New South Wales, Australia for organizing this very important event, which would definitely expand our knowledge understanding, as we learn from country experiences.

Without further ado, let me now bring to the table some of the key game-changing reforms from the Philippines, which have helped secure and maintain the country’s place as an economic tiger and as a leader in fiscal openness in the region.

 

Promoting Fiscal Discipline and Sustainability for Effective Resource Allocation

Let me begin with the Administration’s expansionary fiscal policy, which has kept us on a secure footing on the path towards our country’s goal of real transformation. One of its major thrusts is raising the target deficit to 3% of GDP, from a level of only 2%, to enable massive spending on infrastructure and social services. 

As you know, one of President Duterte’s expressed goals is to usher the country into the “Golden Age of Infrastructure.” And in order to achieve this, the government has launched the “Build, Build, Build” program, supported by a budget of PhP8.1 trillion, to be implemented over six years, from 2017 to 2022. It is the largest allocation for infrastructure development in the Philippines for any six-year period.

So we are looking to be engaged in massive government spending over these six years. It is indeed ambitious, but this will be a strategic move for the Philippines – perhaps the most significant of the reforms that the Duterte Administration will implement in pursuit of the President’s agenda of change. This massive spending is important, considering that for the past 50 years, infrastructure spending in the country only accounted for an average of 2.6% of GDP, way below the 5% of GDP global benchmark. With little investments having been poured into the sector in the past, it is not surprising that the Philippines ranked in the bottom half for infrastructure indicators in the Global Competitiveness Index. Hence, the need for a grand infrastructure program – the Build, Build, Build.

Through this Program, the country envisions to put in place a modern and efficient public transportation system – better roads, bridges, airports, seaports, and railway systems – that will ensure accessibility to even the most far-flung areas. In the long run, this will propel a sustained economic growth through an improved and more convenient movement of materials and products throughout the country, and generate quality jobs for the Filipinos.

Building a nation also requires building its people. Focused on this with equal priority, the government is also investing heavily in social services, targeting for these a hefty share of 40 percent of the national budget by 2022. This will secure bigger allocations for education, healthcare, and social welfare to produce competitive and productive labor force in the country.

In an unprecedented move that has seen the Administration surmounting all obstacles to its implementation, President Duterte has just passed a law that provides full tuition subsidy for students in State Universities and Colleges (SUCs), local universities and colleges (LUCs), and state-run technical-vocational schools. Aside from free tuition, the law also provides for free miscellaneous and other school fees for students enrolled in these tertiary collegiate institutions. For technical-vocational students, free training and training-related expenses are also provided including, among others, living allowance, starter toolkit, and cost of accreditation.

This means one thing for the Filipinos – easier access to all levels of education, from kindergarten to tertiary. Indeed, a well-educated citizenry is an empowered citizenry!

Now, all these expenditure priorities will expectedly translate to higher disbursements for the government, which are projected to reach 20.0 percent of GDP by 2022, compared with 17.1 percent of GDP in the past 30 years.

[1]

Overall, the Duterte Administration’s aggressive but manageable fiscal policy is geared towards sustaining the growth momentum at 7.0 to 8.0 percent over the medium term. It will also lay a stronger foundation for inclusive growth, with poverty incidence targeted to be reduced from 21.6 percent in 2015 to 14.0 percent by 2022[2]. 

To complement this expansionary policy, the Duterte Administration pursued the improvement of the Philippine tax system, primarily through the landmark Tax Reform for Acceleration and Inclusion (TRAIN) which was passed into law in December 2017. Dubbed as TRAIN, it is considered as a corrective measure for an outdated, complex, and inequitable tax system.

Allow me to share with you some of the TRAIN’s major features: 1) Lowering of personal income tax rates; 2) Broadening of the Value-Added Tax base; 3) Increase in the excise taxes on petroleum products and automobiles, and taxation for sugar-sweetened beverages.

Basically, the tax reform will fuel our development priorities so we can move from point A to point B – from where we find ourselves at present, to our desired destination. As the country spends more on infrastructure and social services, we will naturally need more revenues to finance our spending. The TRAIN is estimated to contribute about PhP1 trillion to the government’s coffers from 2018 to 2022. For five years, 70% of the revenues generated from TRAIN are earmarked infrastructure projects, while the remaining 30% are for targeted social services.

 

Pushing for a More Responsive Service Delivery

When I was appointed Budget Chief under the present Administration, I was determined to champion the Budget Reform Bill, which seeks to modernize the Philippine budgeting system. Admittedly, it is an arduous pursuit, considering that prior to our term, a similar bill was ushered in Congress but did not get the legislators nod. Hopefully this time, with a supportive Congress, we can have the Bill enacted within the year.

If approved, this Budget Reform law will address the major weaknesses in our public financial management (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. It will likewise make our current PFM reforms irreversible.    

Pending the passage of the Bill, we have already started implementing key major PFM reforms to enhance budget reliability and credibility, as well as reporting.

In 2017, we began the shift to the one-year validity of appropriations to address government underspending. In 2014 and 2015 alone, underspending reached 13% and 12% respectively. With the implementation of the one-year validity, as well as other reforms such as the General Appropriations Act as the Allotment Order (GAAAO), underspending had been successfully trimmed down to 3% in 2017.

By 2019, we will take our reforms a notch further by shifting to an annual cash-based budget, from an obligation-based budget. This is seen to ensure faster budget execution and timely delivery of government services.

We will abandon the old practice of obligation-based system, where funds are considered “spent” once we enter into a contract or makes a promise to pay. With the annual cash-based budget, we will ensure that for a budget to be considered “spent,” the inspection, verification, actual payment, and delivery of goods and services must be within a fiscal year. Thus, enabling the timely implementation of government programs and projects. With due consideration to logistics, payments will be accepted and extended up to three months of the following year under a system we call Extended Payment Period.

To lessen the birth pains involved in any transition, hand-holding sessions are being conducted for government agencies and other stakeholders. Introducing change has never been easy, but if people are well-informed of its purpose and benefits, it would be easier for them to embrace the change.

Complementing these shifts, we have also introduced changes in the procurement system and processes to ensure faster and efficient public service delivery. As we all know, the government, given its limited budget, has to find the most economical means in acquiring goods and services. 

For one, we have revised the Implementing Rules and Regulations of RA 9184, or the Government Procurement Reform Act, in 2016 to streamline procurement processes that derail program implementation.

We have likewise enhanced our procurement system by launching a better government electronic procurement portal (PhilGeps) Version 1.5, which incorporated a more advanced operating system. Under this new system, online bid and submission and payment can now be accepted through PhilGeps. We have also devised a feature to facilitate requests for purchase orders, quotations, and other transactions under what we call e-catalogue.

But to effectively move forward with all these changes, we have to ensure that our greatest asset – our manpower in the government – are well-compensated, proportionate to their functions and to their counterparts in the private sector.

Firstly, our government recognizes peace and order as the bedrock of the 10-point socioeconomic agenda of the Administration. With this, and in fulfilment of his campaign promise, President Duterte signed Congress Joint Resolution No. 1, s. 2018, which increases the base pay of around 380,000 military and uniformed personnel (MUP) in the country.

We expect a 58.7% average increase in pay for all MUP ranks by FY 2018, and further extending it to 72.18% by FY 2019. In fact, in 2016, we have also increased the combat duty pay given to the officers and enlisted personnel of our Armed Forces of the Philippines and uniformed personnel of the Philippine National Police. From PhP500 a month, we have increased it to PhP3,000 – a hefty 500 % increase – in consideration of their exposure to high-risk environments in the conduct of their duties.

Secondly, we have also continued the implementation of the third tranche of the salary increase for civilian personnel under the Salary Standardization Law. Once we have completed delivery of the fourth tranche next year, we will again commission a salary benchmarking to determine the compensation level appropriate for our public servants from 2020 until the end of the Administration’s term in 2022.

 

Strengthening Transparency, Participation and Accountability

The Administration also ensures that our government is transparent and open -- in all means and all the time. I hope we agree that trust is a very important issue for us public servants. When we are trusted, we can get the support of our people. This is why we have to improve civic engagement at all levels – from local to national – to to create a culture of transparency and openness.

As an indication of his commitment to this, one of the first executive acts of President Duterte upon his assumption into office in 2016 was the issuance of Executive Order No. 2, which directs all agencies in the Executive Branch to uphold the people’s constitutional right to information and for full disclosure in public service. As of January 2018, all our 189 national agencies have already crafted their Freedom of Information Manuals. To make it more convenient for citizens to request for information, an electronic Freedom of Information portal has been developed. As of March this year, a total of 3,802 requests for information to 268 government agencies have been made.

Our experience in promoting transparency and participation over the years has proven to be fruitful as well. And the Philippines’ improving global ranking Open Budget Survey is a testament to this. For 2017, we are 1st in Asia for transparency, 3rd in the world for public participation, and 14th in budget oversight. In fact, the Philippines is among only four countries in the world to have achieved a moderate score in public participation. Definitely, for the next round of survey, we hope to maintain, if not exceed our current standing.

 

Conclusion

When the Administration was crafting its medium-term plan, our Philippine Development Plan 2017-2022, those involved in the process, without any iota of doubt, made the Filipino people’s aspiration – a life that is strongly rooted, comfortable, and secure – the end goal of everything.

This I strongly believe is the ultimate foundation of all development pursuits of the Administration, reflected through the gains we have achieved so far since we implemented the many reforms of the Administration.

Reforming the government is not an easy task. And I know you will all agree with this.In fact, normally, any big change will be met with resistance. Not because they may find these too laborious or time consuming. Not because they may be too ambitious to pursue. But because perhaps, for the first time, the will find themselves simply in unfamiliar territory. Perhaps too because they are not used to seeing radical changes being pursued vigorously, changes that embody what “real change” – a genuine transformation – really means.

But this is what the Filipino people really want, for the country in general, and for their family and themselves. And this is what the Duterte Administration aims for, and will consistently and persistently endeavour to achieve. This real positive change for the Philippines – and inevitably, as we share the ideas and experiences in our pursuit of this – for the region.

Thank you and good day.  


[1] Consistent with the medium term fiscal targets and growth assumptions approved during the 171st Development Budget Coordination Committee (DBCC) meeting on December 22, 2017.

[2] Philippine Development Plan, 2017-2022.

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