To the members of the media, industry leaders in business and finance, fellow workers in government, esteemed guests: Good morning.
I have the pleasure of sharing with you the reforms we, the economic managers, have undertaken to bring to life President Duterte’s promise of real change. One year into his term and I can say with confidence that we have successfully laid the groundwork for a wealth-generating and wealth-distributing economy. By the end of the year, we project GDP growth to lie within our targeted band of 6.5 to 7.5 percent. All the Administration’s efforts are then aimed to elevate the Philippine economy into upper-middle income status by 2022, with poverty incidence reduced to 14 percent from 21.6 percent in 2015.
As Budget and Management Secretary, let me elaborate on my Department’s efforts regarding fiscal policy, Public Financial Management (PFM), and public sector efficiency to support the economy’s growth trajectory.
Expansionary Fiscal Policy
The Duterte Administration is embarking on an expansionary fiscal policy to aid in the financing of our ambitious infrastructure program, “Build Build Build”, and our massive investments in human capital development. These two spending priorities are the foundations of future economic growth and must be granted the commensurate funding given our development context.
Hence, we have increased the planned deficit from 2 to 3 percent of GDP in the medium-term. With a higher deficit, the fiscal space has increased from P175 billion in 2018 to P254 billion in 2022.
We will then borrow money to finance the deficit following an 80-20 mix in favor of domestic sources. This strategy is designed to minimize our exposure to foreign exchange fluctuations and enable us to better manage our debts.
Furthermore, our borrowings will be complemented by increased revenue collection courtesy of the tax policy and tax administration reforms being introduced by the Department of Finance (DOF). The Tax Reform Program will contribute additional revenues ranging from P134 billion in 2018 to P270 billion in 2022.
In spite of the increased deficit, our debt-to-GDP ratio is projected to fall to 37.7 percent in 2022 from 40.6 percent in 2017, earning the envy of many countries, both emerging and advanced. This is straightforward because the nominal rate of economic growth, about 7 percent plus inflation of about 3 percent, outpaces our borrowings at 3 percent. Naturally, the debt-to-GDP ratio is bound to fall. The rule of thumb, similar to the European Union’s membership requirement, is that an economy’s debt-to-GDP ratio should not exceed 60 percent – we are comfortably below that.
These figures should allay the fears of debt alarmists claiming that our spending and borrowing patterns will imminently lead to a debt crisis. I assure you, we have learned from the mistakes of President Marcos.
Spending Priority: Infrastructure Development
With financing taken care of, the “Build, Build, Build” program will usher in the Golden Age of Infrastructure in the Philippines. This is one of the signature socio-economic development strategies of the Duterte Administration. This will not only open up economic opportunities and cut down the cost of doing business, but also disperse economic activity to the lagging regions as they are connected to the growth centers.
Filipinos can also breathe a sigh of relief as mass transport systems will be a priority under “Build, Build, Build”. We want our countrymen to spend more time with their families or be productive rather than get stuck in traffic day-in and day-out.
In measurable terms, we will spend P8 to P9 trillion on public infrastructure from 2017 to 2022. Infrastructure spending will be hiked from 5.4 percent of GDP in 2017 up to 7.3 percent of GDP by 2022. For 2018, the proposed budget for infrastructure totaled P1.1 Trillion, which is 6.3% of GDP. This is a 27.9% increase from 2017’s infrastructure allocation of P858.1 Billion.
“Build Build Build” will also generate more than 1 million jobs annually in the medium-term, boostingthe inclusive development agenda of the Duterte Administration. With a sound and sustainable fiscal strategy, the Philippines may look forward to modern infrastructure and a more dynamic economy.
Spending Priority: Human Capital Development
Another pressing concern is developing our young population into an agile and competent workforce. In an aging world, we have a young population whose median age is about 23 years old. We recognize that this can be an asset or a liability.
This is why the Social Services sector (education, healthcare, social protection, among other things) will continue to be given the biggest share in the proposed P3.767 trillion budget for 2018 with P1.42 trillion, a 38 percent share in the overall budget. For perspective, it also accounted for 40 percent of the P3.35 trillion Budget for FY 2017, or some P1.35 trillion.
The government will sustain this level of support as the share of social sector expenditures to GDP is planned to rise from 8.5 % of GDP this year to 9.2% of GDP by 2022.
We must take full advantage of our demographic window, and this will largely depend on the productivity and quality of our labor force. This obviously requires higher investments on human
DBM Budget Reforms
Given the expansionary fiscal policy, a typical concern is the government’s absorptive capacity in utilizing these billions of pesos. Can we really move such an enormous amount of money? Of course, most doubts are based on the underspending – that is, the difference between actual disbursements versus programmed disbursements – of past administrations.
While some of the apprehensions are valid, they do not necessarily apply to the Duterte Administration. For one, last year’s spending pattern shows significant improvement: underspending has narrowed to 3.6 percent. This is significantly less than the 13.3 percent and 12.8 percent deviations observed in 2014 and 2015, respectively. Take note that we only took over in the second half of 2016.
Next, our first semester performance for 2017 reveal greater potential in achieving our spending targets. National government spending recorded a robust 22.6 percent growth in June 2017, the highest posted so far this year. Disbursement as of the first semester grew by 9.0 percent, much higher than the 6.0 percent growth registered for the first five months of the year.
For the first half of 2017, spending is almost on the dot vis-à-vis the program, with underspending registering at 0.4 percent or about P5.9 billion. Considering that the program for the first semester is P1.337 trillion, this is an enormous improvement.
But given poor public spending in recent history, you may be tempted to ask: what has changed to produce a recovery in public disbursements? Hence, let me run down some of the reforms we have instituted at the Department of Budget and Management (DBM) over the past year to improve not only efficiency in spending but also fiscal transparency and accountability.
● In response to the observations that procurement issues have delayed budget implementation, the Duterte administration has revised the Implementing Rules and Regulations of the Procurement Reform Act (RA 9184). This already took effect in 2016. The revision will quicken the procurement process, make it less vulnerable to arbitrary delays, and streamline the documentary requirements without sacrificing the integrity of the process.
● We are also using technology to better fulfill our mandate. The Budget and Treasury Management System (BTMS), an integrated financial management system for the national government, is on track for implementation this year. It is already being piloted by the DBM and the Bureau of Treasury, and we will gradually introduce it to the line agencies. Our vision is that all spending and oversight agencies will use one integrated system for budget planning and tracking before we step down in 2022.
● Specific to infrastructure, the hybrid-PPP setup is also another policy that the economic managers have adopted to speed up the roll-out of infrastructure projects. Our recent experience with PPP suggests that it takes 29 months until the first shovel hits the ground. We feel that this is too long, so we have revised our primary PPP approach. Rest assured that the private sector still has a major role to play given that the Operations & Maintenance of projects will still be bid out to the private sector. At the same time, we now welcome unsolicited proposals subject to Swiss challenge to allow greater participation from the private sector
Beyond efficiency, we also value transparency and accountability in the budget process.
The DBM continues to publicly disclose essential budgetary documents. We are also one of the first agencies to comply with the President’s Executive Order on right to information in the Executive Branch.
These are all part of an effort to affirm our commitment to the Open Government Partnership, a global initiative in which the Philippines is one of the eight founding members. Under the Duterte administration, the fourth Philippine OGP National Action Plan has been developed and is currently being implemented.
Other efforts outlined in the plan include the hotline number 8888 where citizens can forward their complaints and grievances on acts of red tape and corruption, and the creation of Newly-Institutionalized Government Bodies on Participatory Governance, such as the Offices of Participatory Governance (OPG), and Strategic Action and Response (STAR) under the Office of the President, and the Cabinet Cluster on Participatory Governance.
DBM Legislative Agenda
Beyond the reforms I just mentioned, the DBM is also aggressively pushing for its legislative agenda to improve public sector efficiency and Public Financial Management (PFM).
First is the Budget Reform Bill, a major legislative measure that seeks to institutionalize the budget reforms we have so far established and will revolutionize our method for preparing, executing, and accounting the Budget.
A noteworthy provision in the Budget Reform Bill is the shift to a one-year, cash-based Budget. As you know, we have an obligations-based Budget and prior to the 2017 Budget, obligations were even allowable for two years. This has caused confusion and undisciplined execution of the Budget, culminating in our recent experiences of gross underspending.
The Budget Reform Bill will address these efficiency and accountability issues. The said bill has already been filed in both Houses of Congress, and is undergoing committee deliberations.
Second is the Government Rightsizing Program. The pursuit of the National Government Rightsizing Program is in line with the directive of the President to all agency heads to streamline the operations of their respective agencies. The government bureaucracy must be lean, clean, and nimble to address the people’s urgent needs.
There have been many changes in the economic and socio-political environment in the country, as well as advancement in technology, and it seems that the bureaucracy has not adjusted accordingly. Now, the government has acquired an unnecessary proliferation of agencies with redundant, duplicating, or overlapping mandates and functions. There are some agencies which have outlived their purpose and there are services provided by certain agencies which could be better provided by the private sector. It is indeed time that we revisit and re-study the organization and operations of the different agencies of the government.
The Program thus is a reform mechanism that aims to enhance the government’s institutional capacity by implementing transformational initiatives and improving public service delivery through the elimination of redundant, unnecessary, or overlapping functions, programs, and projects.
Clearly, the Duterte Administration is serious in its pursuit for real change that will translate to the improved welfare of our citizens. As your government, we promise that we will not let up in our efforts to give our countrymen the quality public service they deserve. As your economic managers, we also commit to the prudent management of public resources and steer the Philippine economy to its highest potential.
It will not be easy, but I assure you that it will be worth it. So please join us in this arduous but highly-rewarding journey. Sooner rather than later, we will witness what a modern Philippines would look like: upgraded infrastructure, competent and productive labor force, social cohesion, and effective and accountable governance.
Thank you and mabuhay!