Opportunities lost in government underspending

Benjamin E. Diokno

Posted on November 05, 2014

THE AQUINO III administration is known for its culture of underspending, of not being able to disburse what Congress has authorized it to spend. Recent fiscal numbers suggest that the extent of underspending is getting worse, not better. Is this a case of not learning from past mistakes, or pure incompetence, or poor budget planning?

With the huge backlog in public infrastructure, deepening poverty, and stubbornly high joblessness, it is near criminal for the administration not to be able to spend what little has been authorized by Congress.

In the past, I have argued that the government should spend annually the equivalent of at least 5% of its gross domestic product (GDP) for public infrastructure in order to make up for past neglect and to allow it to catch up with its ASEAN-5 neighbors. In recent years, it has spent roughly 2% of GDP.

Imagine the foregone benefits of having an improved public infrastructure. More and better roads could have eased the mounting traffic congestion. Higher spending for public infrastructure could have created tens of thousands of direct and indirect jobs. It could have reduced unemployment, alleviated poverty, and eased hunger incidence.

Yet, the Aquino administration has failed to implement the budget Congress has approved, which incidentally was not much different from what the President has asked for. When times are hard, when poverty is endemic, and when the economy is struggling mightily to make itself competitive with its neighbors, higher rather than lower government spending for public infrastructure and investment in human capital is justified.

Under such a condition, government underspending is a curse, not a virtue. Fiscal conservatism, aiming for budget balance or low deficit, in the midst of economic hardships is ill advised.

In 2011, the President asked for, and Congress approved, an expenditure program worth P1.711 trillion. Actual spending was P1.557 billion, or an underspending of P154 billion.

Fiscal authorities promptly claimed credit for government underspending. Promptly, they boasted of the large and growing “fiscal space.” Seriously? That’s like bragging to the entire world (with an eye on the credit rating agencies, of course) that it has the will to inflict pain on its suffering people.

In 2012, the President asked, and Congress dutifully agreed, for a P1.84-trillion spending program. Actual disbursements turned out to be P1.778 trillion, or an underspending of P62 billion.

In 2013, the President asked for, and Congress approved, a P1.984-trillion budget. At the end of the year, the Aquino administration spent P1.88 trillion, or an underspending of P104 billion.

In 2014, for the first three quarters of the year, Congress has authorized the President to spend P1.73 trillion. Actual spending at the end of the third quarter was only P1.456 trillion. Underspending was a staggering P274 billion.

From January 2011 to September 2014, total government underspending was a whopping P594 billion. This despite the P140 billion to P150 billion spending for the Disbursement Acceleration Program (DAP), which was declared unconstitutional by the Supreme Court. More pain for the suffering masses, enormous payoffs for the few favored DAP beneficiaries.

Can you imagine how many roads, bridges, irrigation canals, school buildings, airports, seaports, water systems, housing, and so on could have been built with the P594 billion?

Imagine the number of safer and better communities that could have been built to secure and protect some Filipinos from the vicissitudes of flooding, typhoons, volcano eruptions, and similar catastrophes?

Imagine the tens of thousands of new direct and indirect jobs that could have been created had the P594 billion been spent productively in some well-selected programs and projects.

Given the Aquino III administration’s history of underspending, what right does it have seeking a 14.8% increase for the 2015 budget -- from P2.3 trillion to P2.6 trillion, or an increase of about P300 billion? Clearly the Department of Budget and Management (DBM) has not prepared the 2015 budget carefully as evidenced by the 270-page errata submitted by DBM to the House after substantial work has been done on the 2015 budget.

Clearly the 2011 to 2013 budgets were sloppily prepared. Otherwise, there would have been no need for the DAP.

Has Budget Secretary Butch Abad deliberately created a huge slack in the 2015 budget which he could then declare as “savings” after two quarters, knowing how inept some department secretaries are in executing their programs and projects?

In the private sector, such incompetence and scheming are not tolerated. Corporate executives get fired for being inept. Also, the chief financial officer (CFO) who doesn’t know how to prepare a budget properly or who deviate widely from the approved budget during project implementation usually get axed.

With so much incompetence and illegalities going around in President Aquino’s circle of friends, an increasing number of Filipinos are asking for some heads to roll. Regrettably, the odds that such bloodletting would take place are rather slim.

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Benjamin E. Diokno is a former secretary of Budget and Management.