2011 fiscal outlook looks bleak
October 21, 2011 at 14:00
Recent fiscal numbers — the August expenditure report and the September tax collection performance by the Bureau of Customs and the Bureau of Internal Revenue — and the Aquino administration’s last-minute attempt to revive government spending point to a disappointing 2011 fiscal performance. The promised front-loading of public spending turned out to be a dud; the much-hyped public-private partnership initiative seems dead in the water.
As of August 2011, actual public spending for public infrastructure was way below what was programmed: P74.3 billion versus P161.2 billion, or an underspending of about P86.9 billion or by 53.9%.
If the budget program was carried out as planned, budget deficit should have been P200 billion by August 2011; it turned out to be P34.4 billion. For the rating agencies and the government’s bean counters the low deficit number is pleasing to the ears. But for the jobless and a great number of Filipinos who were denied the benefit of higher economic activity and better public services, this is criminal.
And because this underperformance has been going on for the last three quarters, here’s my best guess on how the 2011 fiscal numbers would turn out. Total public spending would be around P1.5 trillion, compared to the program level of P1.7 trillion.
About half of the government’s public infrastructure program will be unimplemented.
The Bureau of Customs will miss its original revenue goal of P320 billion by 14%; recently, this goal has been revised downward to P276 billion. BIR missed its September revenue target and has to collect P254 billion to meet its full year target of P940 billion. My best estimate is that BIR will miss its original revenue target by about P19 billion or by 2%.
The government’s original deficit target is P300 billion. My best guess is that it will be half that or P150 billion.
With the promised front-loading of public spending heading for a disaster and the PPP initiative stuck in the bureaucratic labyrinth, the Aquino administration has to change tack to make up for lost grounds. Hence, the P72 billion fiscal stimulus program was born.
Sadly, the mislabeled “fiscal stimulus” is too little, too late, and unfocused. It’s not fiscal stimulus in the true sense of the word. Fiscal stimulus is a set of government measures, normally involving higher spending or lower taxes, aimed at giving a positive jolt to economic activity.
But the P72-billion “fiscal stimulus” does not involve new money. As President Aquino carefully explained the new spending initiative will be financed by “savings” in the past, partly arising from serious underspending. In fact, it would be instructive which slow, moving projects were discontinued in the process of generating the “savings” for the stimulus package.
The level of public spending will not increase. In fact, DBM just reduced its 2011 expenditure cash program from P1.7 trillion to P1.6 trillion. It is in this sense that I call the P72-billion plan “catch-up plan with a twist” — the twist being replacing slow-moving and discontinued projects with new ones.
The stimulus program is too feeble — it’s only 0.7% of a P10-trillion economy, assuming all of it can be spent between now and the end of the year. But a closer look of the new spending package would suggest that effectively only one of 10 pesos would translate into economic activity this year, with a huge component leaking out of the economy in the nature of imports.
The stimulus program is too late. With 10 weeks to go before the end of the year and with a slow-moving bureaucracy, the spending package will not help perk up the economy this year.
The project selection lacks focus. Are the projects chosen really meant to generate jobs and perk up economic activity nationwide? Are the funds really meant to be spent during the final weeks of the year?
But the more I look at the details of the stimulus package, the more I’m convinced that it won’t meet its desired objective. With limited time, I expect that, at best, only one-tenth of the proposed outlay will be spent this year, the rest will be spent next year.
Why would the so-called fiscal stimulus program not work? Let me count the ways.
First, the stimulus package was poorly conceived and done in a rush. Some P72.1 billion has been identified as funding source, but only about P50 billion of new spending items have been identified, some even in broad terms. What happened to the P22 billion? Are they yet to be identified? Or have they been identified but kept in the dark (this is out of character for an administration that is committed to daylight)?
Why not use the P22 billion to fix the shortage of classrooms, now estimated at around 66,800 classrooms? Don’t make the students wait and suffer until 2016.
Building classroom facilities is better than most of the projects in the list because it fits the desirable characteristics of an effective fiscal stimulus program — quick-disbursing, labor intensive, pro-poor, and distributed all over the country.
Second, a significant chunk of the economic stimulus package is in the nature of imports, thus perking up other economies. These include the purchase of additional train cars for MRT (P4.5 b), the rehabilitation of LRT 1 and 2, PAGASA’s radar system (P425m), the equipment for the various specialty hospitals (Heart Center, Children’s Hospital, and Lung Center).
Third, a sizable part of the economic stimulus package is in the nature of political accommodation, not pump-priming. Here are some examples.
• P750-million assistance to Quezon Province. This project will not create a single job nor will it stimulate the economy. Of course, it will improve the financial picture of the the National Power Corporation.
• P6.5b support to local governments: But when will local government units learn to govern with greater autonomy if they can always run to the central government for assistance? Local government units, after 20 years of decentralization, should be made to face a hard budget constraint.
• P8.6-billion financial support to the Autonomous Region of Muslim Mindanao. The amount is too big, unspecified, and could be subject to abuse.
• P1.8-billion financial support for the Cordillera People’s Liberation Army and the MNLF; the amount is unspecified and could be subject to abuse.
Fourth, a large amount is in the nature of financial engineering, not job creation. Some examples:
• P400-million infusion as government equity to the Home Guarantee Corporation. This amount is not going to stimulate spending.
• P1.5 billion for the National Health Insurance for the premium subsidies for indigents. But NHI is awash with cash.
Fifth, some proposed new projects are not urgent and are of dubious value. As such, these projects should go through the regular budget process. For example:
• P625 million for the conduct of a survey of farmers and fisherfolks to be administered by the DBM, the National Statistics Office, Department of Agriculture, and the Department of Agrarian Reform. The data needed may be derived from existing surveys. What’s the role of DBM is this survey?
• P1.1 billion for human resource development for BPOs. Why is the government subsidizing such a lucrative industry?
Spending government funds is not like a faucet which, when opened, discharges water instantaneously. It has to be planned (ideally on a multi-year basis), budgeted, programmed, executed, monitored, and disbursed in an orderly way, observing all the time existing prudential rules and regulations.
For example, the P6.5-billion assistance to depressed local government units (LGUs) won’t show up as part of the national income accounts until after it has gone through a process. First, the list of LGU beneficiaries has to be prepared. Second, DBM has to release the the appropriations (SARO) and the cash to each beneficiary LGU.
Third, once the SARO is received and the cash deposited to the account of the LGU, the local chief executive (governor, city mayor or municipal mayor) has to prepare a request for supplemental budget for submission to the local council. Fourth, the local council acts — approve, approve with amendments, disapprove — on the request. Fifth, the LCE has to approve, line-item veto, or disapprove, the budget resolution.
Sixth, the supplemental budget has to be submitted to DBM or its regional offices for review. Finally, after DBM’s review, funds may be disbursed but only if the job or activity has been done. It’s a tedious process and it can’t be done in a few weeks.
In sum, don’t expect all of the P6.5-billion additional assistance to local government units to be spent this year.
Finally, the ease with which the Aquino administration was able to slice and dice the 2011 budget — its own budget — and generate some P72 billion of new spending initiatives, only suggests that the much ballyhooed “zero-based-budgeting” is overrated.
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By: Benjamin E. Diokno – Core
Source: Business World, October 18, 2011
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