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Budget Preparation This starts with the Budget Call and ends with the Presidents submission of the

proposed budget to Congress.

1. The Budget Call At the beginning of the budget preparation year, the Department of Budget and Management (DBM) issues the National Budget Call to all agencies (including state universities and colleges) and a separate Corporate Budget Call to all GOCCs and GFIs. The Budget Call contains budget parameters (including macroeconomic and fiscal targets and agency budget ceilings) as set beforehand by the Development Budget Coordination Committee (DBCC); and policy guidelines and procedures in the preparation and submission of agency budget proposals. Early Preparation Under the Aquino Administration, the DBM has established a new tradition of beginning the Budget Preparation phase earlier, to ensure that the National Budget is enacted on time. Under the new Budget Preparation Calendar, the Budget Call is issued in December (versus around April in the past); and the submission of the Presidents budget a day after the State of the Nation Address (in contrast to earlier practice where it is submitted during the late in the 30-day window that the Constitution prescribes). 2. Stakeholder Engagement A new feature in budget preparations which seeks to increase citizen participation in the budget process, departments and agencies are tasked to partner with civil society organizations (CSOs) and other citizen-stakeholders as they prepare their agency budget proposals. This new process, which was piloted in the preparation of the 2012 National Budget, is now being expanded towards institutionalization. Departments and GOCCs Mandated to Conduct CSO Consultations ORIGINAL SET (Piloted in 2012) NEW SET (Starting 2013) Department of Health Department of Education Department of Social Welfare and Development Department of Public Works and Highways Department of Agriculture Department of Agrarian Reform National Food Authority National Housing Authority National Home Mortgage and Finance Corp. Department of Tourism Department of Transportation and Communication Department of Interior and Local Government Department of Justice Department of Labor and Employment Department of Environment and Natural Resources Light Rail Transit Authority National Electrification Administration National Irrigation Administration

Note: All other departments and agencies are highly encouraged to undertake the process. Bottom-Up Budgeting For the first time in history, the National Budget for 2013 will be prepared using a breakthrough bottom-up approach. As opposed to the conventional way of allocating resources from top to bottom, grassroots communities will be engaged in designing the National Budget. The Aquino government, through the Cabinet Cluster on Human Development and Poverty Reduction, has identified 300 to 400 of the poorest municipalities and will engage these in crafting community-level poverty reduction and empowerment plans. This initial salvo of bottom-up budgeting will focus on rural development programs and the conditional cash transfer program, and will thus involve DA, DAR, DENR, DSWD, DepEd and DoH. These agencies will then include the community plans in their proposed budgets.

3. Technical Budget Hearings These are conducted after departments and agencies submit their Agency Budget Proposals to the DBM. Here, agencies defend their proposed budgets before a technical panel of DBM, based on performance indicators on output targets and absorptive capacity. DBM bureaus then review the agency proposals and prepare recommendations. 4. Executive Review The recommendations are presented before an Executive Review Board which is composed of the DBM Secretary and senior officials. Deliberations here entail a careful prioritization of programs and corresponding support, vis--vis the priority agenda of the national government. Implementation issues are also discussed and resolved. 5. Consolidation, Validation and Confirmation DBM then consolidates the recommended agency budgets and recommendations into a National Expenditure Program and a Budget of Expenditures and Sources of Financing (BESF). As part of the consolidating process, the deliberations by the DBCC will determine the agency and sectoral allocation of the approved total expenditure ceiling, in line with the macroeconomic and fiscal program. Heads of major departments are invited to this meeting. 6. Presentation to President and Cabinet The proposed budget is presented by DBM, together with the DBCC, to the President and Cabinet for further refinements or reprioritization. After the President and Cabinet approve the proposed National Expenditure Plan, the DBM prepares and finalizes the budget documents to be submitted to Congress. 7. The Presidents Budget The budget preparation phase ends with the submission of the proposed national budget the Presidents Budgetto Congress. The Presidents Budget consists of the following documents, which help legislators analyze the contents of the proposed budget: Presidents Budget Message (PBM) This is where the President explains the policy framework and priorities in the budget. Budget of Expenditures and Sources of Financing (BESF) Mandated by the Constitution, this contains the macroeconomic assumptions, public sector context (including overviews of LGU and GOCC financial positions), breakdown of the expenditures and funding sources for the fiscal year and the two previous years. National Expenditure Program (NEP) This contains the details of spending for each department and agency by program, activity or project, and is submitted in the form of a proposed General Appropriations Act. Details of Selected Programs and Projects This contains a more detailed disaggregation of key programs, projects and activities in the NEP, especially those in line with the national governments development plan. Staffing Summary This contains a summary of the staffing complement of each department and agency, including number of positions and amounts allocated for the same. Budget Legislation Alternatively called the budget authorization phase, this starts upon the House Speakers receipt of the Presidents Budget and ends with the Presidents enactment of the General Appropriations Act. 1. House Deliberations The House of Representatives, in plenary, assigns the Presidents Budget to the House Appropriations Committee. The Committee and its Sub-Committees then schedule and conduct hearings on the budgets of the departments and agencies and scrutinize their respective programs and projects. It then crafts the General Appropriations Bill (GAB).

In plenary session, the GAB is sponsored, presented and defended by the Appropriations Committee and Sub-Committee Chairmen. As in all other laws, the GAB is approved on Second and Third Reading before transmission to the Senate. (Note: In the First Reading, the Presidents Budget is assigned to the Appropriations Committee.) 2. Senate Deliberations As in the House process, the Senate conducts its own committee hearings and plenary deliberations on the GAB. Budget deliberations in the Senate formally start after the House of Representatives transmits the GAB. For expediency, however, the Senate Finance Committee and Sub-Committees usually start hearings on the GAB even as House deliberations are ongoing. The Committee submits its proposed amendments to the GAB to plenary only after it has been formally transmitted by the House. 3. Bicameral Deliberations Once both Houses of Congress have finished their deliberations, they will each constitute a panel to the Bicameral Conference Committee. This committee will then discuss and harmonize the conflicting provisions of the House and Senate Versions of the GAB. A Harmonized Version of the GAB is thus produced. 4. Ratification and Enrollment The Harmonized or Bicam Version is then submitted to both Houses, which will then vote to ratify the final GAB for submissi on to the President. Once submitted to the President for his approval, the GAB is considered enrolled. 5. The Veto Message The President and DBM then review the GAB and prepare a Veto Message, where budget items subjected to direct veto or conditional implementation are identified, and where general observations are made. Under the Constitution, the GAB is the only legislative measure where the President can impose a line-veto (in all other cases, a law is either approved or vetoed in full). 6. Enactment When the GAA is not enacted before the fiscal year starts, the previous years GAA is automatically reenacted . This means that agency budgets for programs, activities and projects remain the same. Funding for programs or projects that have already been terminated is realigned for other expenditures. Because reenactments are tedious and prone to abuse, the Aquino Administrationwith the support of Congresshas committed to ensure the timely enactment of a new GAA every year. Reenacted Budgets When the GAA is not enacted before the fiscal year starts, the previous years GAA is automatically reenacted. This means that agency budgets for programs, activities and projects remain the same. Funding for programs or projects that have already been terminated is realigned for other expenditures. Because reenactments are tedious and prone to abuse, the Aquino Administrationwith the support of Congresshas committed to ensure the timely enactment of a new GAA every year. Budget Execution This is where the peoples money is actually spent. As soon as the GAA is enacted, the government can implement its priority programs and projects.

1. Release Guildelines and Program The budget execution phase begins with DBMs issuance of guidelines on the release and utilization of funds. 2. Budget Execution Documents (BEDs) Agencies are required to submit their BEDs at the start of budget execution. These documents outline agency plans and performance targets. These BEDs include the physical and financial plan, monthly cash program, estimate of monthly income, and list of obligations that are not yet due and demandable. 3. Allotment and Cash Release Programming To ensure that releases fit the approved Fiscal Program, the DBM prepares an Allotment Release Program (ARP) to set a limit for allotments issued to an agency and on the aggregate. The ARP of each agency corresponds to the total amount of the agency-specific budget under the GAA, as well as Automatic Appropriations. A Cash Release Program (CRP) is also formulated alongside that to set a guide for disbursement levels for the year and for every month and quarter.

4. Allotment Release Allotments, which authorize an agency to enter into an obligation, are either released by DBM to all agencies comprehensively through the Agency Budget Matrix (ABM) and individually via Special Allotment Release Orders (SAROs). ABM. This document disaggregates all programmed appropriations for each agency into two main expenditure categories: not needing clearance and needing clearance. The ABM is the comprehensive allotment release document for appropriations which do not need clearance, or those which have already been itemized and fleshed out in the GAA. SARO. Items identified as needing clearance are those which require the approval of the DBM or the President, as the case may be (for instance, lump sum funds and confidential and intelligence funds). For such items, an agency needs to submit a Special Budget Request to the DBM with supporting documents. Once approved, a SARO is issued. 5. Incurring Obligations In implementing programs, activities and projects, agencies incur liabilities on behalf of the government. Obligations are liabilities legally incurred, which the government will pay for. There are various ways that an agency obligates: for example, when it hires staff (an obligation to pay salaries), receives billings for the use of utilities, or enters into a contract with an entity for the supply of goods or services. The GAA as Allotment Release The Aquino Administration plans to design the annual General Appropriations Act as the comprehensive allotment release document itself. This is being pursued in order to significantly speed-up the process of releasing the Budget and implementing the programs and projects that it funds.The 2013 National Budget, currently being prepared, is being designed in such way. This entails the disaggregation of all budget items into full detail, as well as the elimination of all lump-sum funds, save for a few exceptions such as the Calamity Fund. In other words, this reform significantly reduces the need for SAROs. 6. Cash Allocation To authorize an agency to pay the obligations it incurs, DBM issues a disbursement authority. Most of the time, it takes the form of a Notice of Cash Allocation (NCA); and in special cases, the Non-Cash Availment Authority (NCAA) and Cash Disbursement Ceiling (CDC). NCA. This is a cash authority issued periodically by the DBM to the operating units of agencies to cover their cash requirements. The NCA specifies the maximum amount of cash that can be withdrawn from a government servicing bank for the period indicated. The release of NCAs by DBM is based on an agencys submission of its Monthly Cash Program and other required documents. Others Disbursement Authorities. In contrast to NCAs, NCAAs are issued to authorize non-cash disbursements. CDCs are meanwhile issued to departments with overseas operations, allowing them to use income collected by their foreign posts for their operating requirements. 7. Disbursement This is the final step of the budget execution phase, where government monies are actually spent. The Modified Disbursement Scheme is mostly used, where disbursements of national government agencies chargeable against the Treasury are made through government servicing banks, such as the Land Bank of the Philippines. The budget process, of course, does not end when government agencies spend public funds: each and every peso must be accounted for to ensure that is used properly, contributing to the achievement of socio-economic goals.

Budget Accountability This phase happens alongside the Budget Execution phase. Through Budget Accountability, the DBM monitors the efficiency of fund utilization, assesses agency performance and provides a vital basis for reforms and new policies. 1. Performance and Target Outcomes Agencies are held accountable not only for how these use public funds ethically, but also on how these attain performance targets and outcomes using available resources. These performance measures are set alongside the preparation of the National Budget; and these are indicated in the OPIF Book of Outputs (See previous section on Public Expenditure Management). Prior to the execution of the enacted National Budget, these performance targets are firmed up during the preparation of BEDs.

2. Budget Accountability Reports (BARs) Submitted by agencies on a monthly and quarterly basis, BARs are required reports that show how agencies used their funds and identify their corresponding physical accomplishments. These include quarterly physical and financial reports of operations; quarterly income reports, a monthly statement of allotments, obligations and balances; and monthly report of disbursements. No Report, No Release Starting 2012, the DBM will be withholding certain fund releases to agencies if these fail to submit their Budget Accountability Reports. In particular, these will be funds from the Miscellaneous Personnel Benefits Fund (MPBF) for compensation adjustments under the Salary Standardization Law, provisions for unfilled positions and employee clothing allowances. These funds to be withheld are only limited to agencies MPBF allotments so that only the agencies are penalized and that the implementation of critical programs and projects will not be disrupted. Errant and compliant agencies will also be posted online for public scrutiny. 3. Review of Agency Performance The DBM regularly reviews the financial and physical performance of agencies. Actual utilization of funds and physical accomplishments, as indicated in the agencies BARs, are evaluated against their targets as identified via OPIF and in the agencies BEDs. Agency Performance Reviews (APRs) are conducted quarterly or every semester, as the case may be. An annual Budget Performance Assessment Review (BPAR) is conducted to determine each agencys accomplishments and performance by the year-end. The DBM regularly reports results to the President. 4. Audit Auditing is not within the DBMs jurisdiction, and is instead lodged under the Commission on Audit (COA). Nonetheless, auditi ng is critical in ensuring agency accountability in the use of public funds. The DBM use s COAs audit reports in confirming agency performance, determining budgetary levels for agencies and addressing issues in fund usage. 5. Performance-Based Incentive System The DBM is also in the process of establishing a performance-based incentive system which will recognize and reward good performance among government employees to help improve the efficiency of service delivery across all government institutions.

BUDGET FOR FISCAL YEAR 2014


Foreword As anyone running a household should know, a budget is a useful tool to help ensure that what limited money is available will be spent for the familys most important needs, like food, clothing and shelter. The Budget for the government serves a similar purpose: it is the master plan showing how limited public funds will be spent for priority services, projects and programs that citizens, especially the poor, need the most, in line with the countrys national development objectives. The 2014 Proposed Budget in Brief is a summary of the proposed National Budget for 2014 that the Aquino Administration recently submitted to Congress. It answers these questions: Where and how will government funds be spent in 2014? How will such spending fulfill President Benigno S. Aquinos Social Contract with the Filipino Peo ple, his boss? The countrys unprecedented economic growth is a testament to the heightened development that can be attained when citizens trust their government. It affirms that the Aquino Administrations reforms in the budget process have helped curb co rruption and ensure that public funds are spent prudently and effectively. This Proposed Budget in Brief will also show how the 2014 Budget will continue these reforms and realize the Aquino Administrations aspirations for the Filipino People, as enshrined in the Aquino Social Contract and the Philippine Development Plan 2011-2016. Moreover, it will show how the budget reflects the Aquino Administrations responsiveness to the challenges facing the country, including climate change. The 2014 Budget is a budget for inclusive development. It recognizes that the gains of economic growth should be shared by all Filipinos. Its goal is to continue accelerating economic expansion, while at the same time alleviating chronic poverty. This Proposed Budget in Brief illustrates how the Administration seeks to attain inclusive development through its proposed National Expenditure Plan for 2014.

Florencio B. Abad Secretary

Introduction In his Social Contract with the Filipino People, President Benigno S. Aquino III envisioned a Philippines with an organized and widely-shared rapid expansion of our economy through a gov- ernment dedicated to honing and mobilizing our peoples skills and energies as well as the responsi- ble harnessing of our natural resources. This was the dream of the Filipinos who elected him to office. One of the firsts tasks that the Aquino Administration faced was to eliminate the loop- holes in the budget process that allowed corruption to dissipate public funds. The losses from corrup- tion had meant that, for years, the Filipino people were deprived of services that they deserved: children were not getting the education and health care that they should have gotten, commuters en- dured substandard, even non-existing, roads. The taxes that the citizens were paying were not work- ing for their benefit and welfare. The 2011 Budget introduced reforms such as zero- based budgeting to ensure that public funds were spent only for public purposes. These reforms were essential for restoring a cynical publics trust in government. The 2012 Budget addressed hiccups in budget im- plementation. The mandate for the Budget was clearto ensure the delivery of the results outlined in the Aquino Social Contract. The 2013 Budget empowered the Filipino people through tighter prioritization of their needs, faster delivery of results, and a more open budget pro- cess. It emphasized that the government exists to serve the Filipino people. Kayo ang boss ko. The reforms introduced by the Aquino Administra- tion in the past three years have borne fruit. Restored public trust in government has meant a rejuvenated economy. The challenge now is to make such eco- nomic growth more inclusive, just, and equitable. All Filipinos must enjoy the prosperity that comes with sustainable economic development. This is the thrust of the 2014 Budget. In the preparation of the 2014 Budget, the Philippine Development Plan 2011-2016 and the five Key Result Areas identified in the Aquino Social Contract were emphasized as the measures by which programs and projects of the government were evaluated. Among the new initiatives introduced in the 2014 Budget are the treatment of the General Appropria- tions Act as a budgetary release document and the one-year validity of appropriations. These will en- hance predictability and certainty in the flow of public funds as well as enable faster execution of the budget process. The 2014 Budget builds on the successes made possi- ble by an honest and trustworthy government. It lays the foundation for inclusive development and sustains the momentum of reform. Ang daan matuwid ay ang daan tungo sa kasaganahan. Overview and Time Series The Proposed Budget for 2014: P2.268-trillion The proposed National Budget for 2014 is higher by 13.1 percent than the 2013 Budget of P2.006 trillion. Excluding debt servicing, the Budget by 14.6 percent higher year-on-year. It is also equivalent to 17.0 percent of gross domestic product (GDP).

Note: The 2010 to 2012 figures represent actual obligations; 2013 is bas ed on the current years program while 2014 is based on the proposed Budget. The National Budget is a financial plan to pursue priority programs and projects of the government in line with its economic growth and human development thrusts. It is an instrument for good governance, as government agencies are accountable for the delivery of measurable results through their respective budgets. In a nutshell, how is the government Budget crafted and approved? 1. Agencies craft their proposed budgets based on budget parameters set by the Department of Budget and Management (DBM) and other oversight agencies. 2. DBM reviews and consolidates these agency budgets into the proposed National Budget, and presents it to the President and Cabinet for approval. 3. The President then submits the National Expenditure Plan (NEP) to Congress. 4. Congress reviews the NEP, holds public hearings, effects changes and approves the Budget. The President then signs it into the General Appropriations Act (GAA). 5. Citizens must be informed and involved throughout the process. This is why the government has introduced means for citizens participation in the budget process.

Budget by Sector

Social Services represent government spending to improve the living conditions of citizens, particularly the poor, through education, health, social security and others. Because of the Aquino Administrations commitment to poverty reduction, the Social Services Sectors share of the total Budget pie will increase to 37.2 percent (P842.8 billion) in 2014, from 34.9 percent in 2013 and 28.2 percent in 2010. Economic Services are government expenditures that are intended to support economic development, including agriculture, transport infrastructure, tourism, among others. With its commitment to further expand the economy, the Aquino Administration likewise expanded the Economic Services Sector budget to P590.2 billion, or a year-on-year growth of 15.9 percent. Debt Burden includes interest payments on national governments domestic and foreign debt, as well as net lending to government corporations for their debt that are guaranteed by the national government. The Aquino Administration is committed to reduce the Debt Burden, thus, this sectors share of the Budget will be reduced to 16.6 percent in 2014, from 18 percent in 2013 and 20.6 percent in 2010. General Public Services are expenditures for general administration (such as fiscal management, foreign affairs, lawmaking, etc.) and public order and safety. With the Aquino Administration keeping overhead expenses in check, the General Public Services budget will be maintained at 16.1 percent in 2014, from 17.3 percent in 2013. Defense refers to expenditures that support the general effort to ensure national security, stability and peace. Consistent with the Aquino Administrations agenda to strengthening and reforming security forces, the Defense Sector budget will increase by 3.7 percent to P92.9 billion.

Budget by Expense Class

Personnel Services are for the payment of salaries, wages and other compensation of permanent, temporary, contractual, and casual employees of the government. Personnel Services will continue to have the largest share of the Budget at 30.4 percent in 2014, at P689.4 billion. Maintenance and Other Operating Expenditures or MOOEs are for the purchase of goods and services (e.g. supplies, maintenance, utilities, professional services, etc.) for the conduct of normal government operations as well as the implementation of programs. In 2014, MOOEs will grow by 17.6 percent to P375.3 billion because of increased expenditures for priority social and economic programs. Infrastructure Outlays are for roads, bridges, airports and other similar capital goods. Because of the Aquino Administrations commitment to support economic expansion, Infrastructure Outlays in 2014 will reach a total of P399.4 billion: a 35.5 percent increase from 2013 and will be equivalent to 3 percent of GDP. This includes the subsidies to GOCCs (P28 billion) and transfers to LGUs (P36.6 billion) for infrastructure projects. Other Allocations for Government-Owned or -Controlled Corporations or GOCCs include Subsidies for their corporate operations as well as Equity Infusion. For 2014, Subsidies will increase by 116.3 percent, while Equity will increase by 89.7 percent. The total allocations for GOCCs will total P46.7 billion or 2 percent of the 2014 Budget.

Allocations for Local Government Units or LGUs represent the legally-mandated Internal Revenue Allotment as well as other allocations and capital transfers to LGUs. For 2014, allotment to LGUs will increase by 13 percent, while Capital Transfers will increase by 15.9 percent. The total allocation for LGUs represents 13.6 percent of the total Budget for 2014. Debt Burden, as mentioned in the previous page, continues to decrease as a share of the total Budget because of the Aquino Administrations commitment to fiscal consolidation and stability.

Budget by Region

The budget for distribution among regions1 will increase by 26.4 percent, taking up 55.2 percent of the total Budget. Excluding the National Capital Region (NCR)2, Northern Mindanao (Region X) will experience the biggest growth rate at 24 percent, followed by CARAGA (Region XIII) at 22.6 and Eastern Visayas (Region VIII) at 20 percent. Among major island groups, Mindanao gets the biggest increase in growth rate at 16.4 percent, followed by Visayas and Luzon3 at 15.9 percent and 10.2 percent, respectively.

1With

the implementation of the Unified Account Code Structure, the breakdown of the Budget by region is computed based on the location of implementing units, not necessarily the location of programs and projects.
2NCR

gets the biggest share among the regions since the Office of the President, Vice-President, the Legislature and most other central offices are located here.
3Excluding

NCR.

Budget by Department and Special Purpose Fund

Top 10 Departments*

*The amounts indicated here include the departments allocations from Special Purpose Funds, such as the Miscellaneous Personnel Benefits Fund.