Policy Guidelines and Procedures in the Preparation of the FY 2008 Budget Proposals

May 4, 2007

DBM NATIONAL BUDGET MEMORANDUM NO. 100-07

 

1.0 PURPOSE

1.1 To provide the overall macroeconomic and fiscal policy framework and thrusts for FY 2008-2010, within the context of the Medium-Term Philippine Development Plan, 2004-2010 (MTPDP) and other policy developments;

1.2 To prescribe the guidelines and procedures in the preparation of the FY 2008 agency budget consistent with Medium Term Expenditure Framework (MTEF) and Organizational Performance Indicator Framework (OPIF); and

1.3 To set the schedule of budget preparation activities.

2.0 BUDGET FRAMEWORK

2.1 The FY 2008 Budget shall uphold the commitment to fiscal consolidation and a balanced budget next year consistent with the medium term macroeconomic and fiscal framework under the MTPDP, as updated by the Development Budget Coordination Committee. Hence the budget, as a principal tool for national development shall prioritize key strategic programs and activities supportive of the 10-Point Legacy Agenda/SONA commitments and Millennium Development Goals to strengthen the foundation towards achieving sustainable prosperity and accelerate growth.

2.2 Reforms in public expenditure management shall continue to be vigorously pursued and mainstreamed in the planning, programming and budgeting systems as well as in the structure and composition of agency Programs, Activities and Projects (P/A/Ps).

2.3 The 2008 budget preparation exercise shall seek to achieve the following primary objectives:

2.3.1 Ensure consistency of the national budget to the President's development agenda within the context of overall fiscal discipline and consolidation through the MTEF.

2.3.2 Encourage agencies to focus efforts on the delivery of outputs directly contributing to their organizational goals; and clarify their performance and accountability consistent with the OPIF. This means that the Major Final Outputs (MFOs) shall be the primary elements/units for determining resource allocation. Moreover, these MFO allocations shall be the basis of the monitoring and evaluation of agency financial and physical performance.

2.4 MTEF

2.4.1 The MTEF shall be the government planning-budgeting framework to underpin a strategic and policy-based approach to budget preparation. Since it is policy-based and resource constrained, the MTEF provides a more credible approach for resource allocation and predictability in funding to national government agencies, encouraging efficient use of resources within budget constraints. It adopts a medium term perspective to decision-making that considers future costs of existing policies to determine the budget space for new programs/projects. Given the limited fiscal space, these new programs shall support the key sectoral priorities vital for growth and competitiveness.

2.4.2 The MTEF was initially implemented in 2006 for the 2007 budget preparation through the formulation for 2007-2009 of Forward Estimates (FEs), or the estimates of the future costs of existing policies. The FEs were matched with revenues to determine the budget space, available for new policies and priorities. It also served as validation instrument for determining the reasonableness of agency proposals on existing P/A/Ps.

2.4.3 For 2008, a new set of FEs for 2008-2010 has been formulated upon consultation with concerned departments/agencies. The first out-year is based on the 2007 GAA, represents the cost of continuing existing policies and programs at currently approved levels of activity and forms as the base for the next budget. The 2008 FEs become the indicative ceiling for 2008.

2.4.4 This new set of FEs shall be rolled out to future years and updated for policy changes, new program approvals and updated macroeconomic projections.

2.4.5 Inasmuch as national government agencies have been provided with extensive MTEF and FEs concepts, starting 2009, the preparation of the FEs shall be done by DBM in consultation with the agencies.

2.4.6 A paper on budget strategy (PBS) initially prepared in 2007 will continue to be the principal tool in integrating policy and strategic resource allocation. The PBS aims to assess and relate the progress in meeting development objectives with resource allocation.

2.4.6.1 After years of fiscal prudence, the government aims to cap its achievement at bringing down public debt with fiscal balance by the year 2008. To realize this objective, government shall continuously bring down its deficit target from 2.1 percent of GDP in 2006 to 0.9 percent in 2007, assisted by an improvement in the revenue effort from 16.9 percent in 2007 to 17.8 percent in 2008.

2.4.6.2 As approved by the President in 2007, the priority concerns over the medium-term shall be infrastructure build-up, improvement of the quality of basic education, and health services.

2.4.6.3 Following last year's procedure, the decisions of the DBCC and the President on the allocation of the fiscal headroom shall be communicated to concerned departments, including the screening criteria for new spending proposals.

2.5 OPIF

2.5.1 The OPIF is an approach to expenditure management that directs resources towards results or MFOs and measures agency performance by key quality and quantity indicators. It is a process that demonstrates the direct relationship between agency programs and activities and the goods and services that the agency is mandated to deliver to its external clients to achieve organizational outcomes as well as sectoral and societal goals under the MTPDP.

2.5.2 All Departments including their attached agencies/bureaus as well as the Other Executive Offices (OEOs) which have constructed their OPIF logframes and have identified MFOs and Performance Indicators (PIs), shall adopt the OPIF in the 2008 budget preparation. The development of logframes and PIs which were completed last year for twenty (20) Departments in time for the 2007 budget preparation has been cascaded down to the level of individual attached agencies for the formulation of the 2008 national budget.

2.5.3 These departments/agencies/OEOs shall ensure the alignment of their programs, projects and activities with their MFOs. Provisions for unlinked or non-strategic/low priority activities funded within FEs may be reallocated, to enhance core mandates as agencies continuously strive to achieve greater efficiency and value for money in spending government resources.

2.6 OTHER PUBLIC SECTOR REFORMS

2.6.1 As a means for further improving efficiency and effectiveness in government operations, agencies shall incorporate implications of the following public sector reforms on their budget proposals:

2.6.1.1 The Rationalization Program under Executive Order No. 366 shall continue to be the government's vehicle in conducting a strategic review of agency operations for the purpose of enhancing economy, efficiency and effectiveness.

2.6.1.2 Agencies are encouraged to undertake reasonable cost recovery measures for goods and services delivered to the public and other agencies to assist in the revenue enhancement effort of the government and encourage better service delivery.

2.6.1.3 The mandatory use of the Philippine Government Electronic Procurement System (PhilGEPS) in improving transparency and efficiency in procurement processes pursuant to RA 9184 shall be noted. Agencies shall register with PhilGEPS, strictly post bids and awards, and use harmonized bidding documents and generic manuals issued by the Government Procurement Policy Board (GPPB).

3.0 MACROECONOMIC AND FISCAL TARGETS

3.1 For 2008-2010, the economy is expected to be propelled by the private sector assisted by improved investment prospects in all sectors, OFW remittances and by the virtuous circle of prudent fiscal management. Hence, budget preparation shall be based on the following assumptions:

 

PARTICULARS	2007	2008	2009	2010
GNP Real Growth (%)	6.2-7.1	6.2-6.9	6.7-7.4	6.9-7.7
GDP Real Growth (%)	6.1-6.7	5.8-6.6	6.3-6.9	6.4-7.3
Inflation Rate (%)	3.3-3.8	3.0-4.0	2.5-4.5	2.5-4.5
91-day T-bill rate (%)	4.0-4.5	4.0-5.0	3.5-5.5	3.5-5.5
Foreign Exchange Rate (P/$)	48-50	48-50	48-50	48-50

Source: Development Budget Coordination Committee (DBCC).

* 2008-2009 figures are forecasts

 

3.2 GDP growth of 5.8 percent to 6.6 percent in 2008 will be bolstered by the stronger output of the agriculture sector, strong exports as well as higher government spending on capital projects.

3.3 It is expected that inflation will have a decelerating path due to stable food prices given the favorable outlook for agricultural production and a strong peso brought about by increasing OFW remittances. For budget formulation, the following shall be used:

3.3.1 For 2008, the mid-point of inflation rate range of 3.0%-4.0%, or 3.5%.

3.3.2 For 2009 to 2010, the point estimates to be used shall be 3.5% respectively.

3.4 The peso-to-dollar exchange rate is assumed to remain stable at the P48-P50 range. Likewise, interest rates, as indicated by the 91-day Treasury bill rates, are projected to decline. For budget formulation, the following shall be used:

3.4.1 Exchange rate of P49:$1.

3.4.2 For interest rate, high end of 5.0% for 2008; and midpoint of 4.5% for 2009-2010 based on information from the BTr.

3.5 Based on the aforesaid macroeconomic assumptions and the fiscal consolidation strategy of the government, the fiscal program approved by the DBCC for 2008 is as follows:

 

PARTICULARS	2006 Actual	2007 Program	2008 Proposed
Levels in Billion Pesos
Revenues	979.6	1,118.8	1,236.2
Disbursements	1,044.4	1,181.8	1,236.2
Surplus/(Deficit)	(64.8)	(63.0)	-
Percent of GDP
Revenues	16.3	16.9	17.0
Disbursements	17.4	17.9	17.0
Surplus/(Deficit)	(1.1)	(1.0)	-
Growth Rate
Revenues	20.0	14.2	10.5
Disbursements	8.5	13.1	4.6
Surplus/(Deficit)	(55.9)	(2.8)	(100.0)

 

3.6 The P1.236 trillion projected revenues represent a 10.5 percent growth over the expected revenue collections of 2007. This projection incorporates only existing legislative measures.

3.7 Consistent with the above aggregate fiscal targets, an obligation budget ceiling amounting to P1.227 trillion is proposed for 2008. This budget level is higher by P90.3 billion or 7.9 percent than the 2007 programmed level.

4.0 GUIDE TO DEPARTMENT/AGENCY BUDGET FORMULATION AND RESOURCE ALLOCATION

In accordance with the budget framework and expenditure reforms contained in the preceding sections, agencies shall follow the guidelines below to ensure the improved allocation of funds among competing sectors:

4.1 Forward Estimates

4.1.1 The future costs of existing programs shall be computed for the MTEF period (2008-2010) using the 2007 General Appropriations Act (GAA) as the base. These costs shall be compared with the FEs developed by DBM on a program/project level in consultation with the agencies and will be the basis for discussion with the agency during the technical budget hearings.

4.2 Department Ceilings for 2008

4.2.1 The department ceilings based on the forward estimates for FY 2008-2010 (gross of Retirement and Life Insurance Premium and other automatic appropriation) shown in Annex C are hereby issued.

4.2.2 The ceilings are guaranteed. Final 2008 budget for each department shall not fall below its ceiling.

4.2.3 Department heads shall have final discretion over the reallocation of the ceiling among its bureaus, regional offices and attached agencies, including component programs and projects.

4.3 Output-Based Budgeting OPIF

4.3.1 OPIF logframes shall show the relationships and the alignments of P/A/Ps with identified outputs and outcomes at the organizational, sectoral and societal levels. The budget proposals of the OPIF-ready departments/agencies/OEOs shall be configured by MFOs using MFO Budget Matrix (Form A). Performance targets for the MFOs shall be set using the Agency Performance Measures (Form B).

4.3.2 The MFOs are defined as the goods and services that a department or agency is mandated to deliver to external clients through the implementation of programs, activities and projects.

4.3.3 Agency P/A/Ps shall be attributed to appropriate MFOs. The P/A/P attribution process shall test the contribution/appropriateness of the P/A/P in the attainment and delivery of the MFOs.

4.3.3.1 P/A/Ps or its component activities that are neither attributable nor linked to any MFO shall be identified and indicated.

4.3.3.2 P/A/P attribution to the MFOs shall cover General Administration and Support Services, Support to Operations and Operations cost structure categories in the GAA. The method used for the attribution shall be attached to Form A.

4.3.3.3 Unlinked P/A/Ps and/or non-strategic/low priority component activities shall be identified and corresponding savings may be reallocated to on-going policies supporting core mandates.

4.3.3.4 Pending the approval of the agency Rationalization Plans (RPs), the P/A/P structure of the agency shall be on status quo. Any change in the P/A/P structure shall be addressed during budget execution either in the 2007 or 2008 budgets, whichever is appropriate.

4.3.4 OPIF-Based Performance Indicators/Targets

4.3.4.1 Appropriate key performance indicators/targets shall be identified per MFO. There could be several indicators/targets as the agency may find necessary to monitor and use. However, for focus and manageability, agencies are advised to present three (3) key indicators per MFO.

4.3.4.2 Performance Indicators (PIs), defined under NBC No. 501 (s. 2005) as performance measures to be used for the assessment of the delivery of MFOs contributing to organizational outcomes, can be expressed in either quantitative or qualitative terms:

a. Quantity Indicators — are measures of the volume of outputs. These indicators shall be well-selected and limited to those that best reflect the workload involved as well as the inputs required to deliver the MFOs.

b. Quality Indicators — are measures of "how well" an MFO is delivered. These may include measures of timeliness, cost-efficiency, accuracy, completeness, accessibility, compliance with standards or satisfaction of client needs.

4.3.4.3 Performance targets (PTs) are the achievable levels of accomplishment (quantitative and qualitative) pertaining to an agency's MFO-Performance Indicator consistent with its budget allocation within a one-year period. It is generally expected that PTs will rise with an increase in budget.

4.4 Total Resource Budgeting

4.4.1 Trust Funds, Revolving Funds and Special Accounts in the General Fund earmarked to support identified P/A/Ps as provided for under specific provisions of law, shall be fully reflected in the budget proposal. In relation thereto, all other proposed sources of funds, including use of income and all other cash collections should be identified.

4.4.2 Activities which are not funded out of the regular budget of the agency but have the probability of becoming real liabilities such as contingent liabilities arising from BOT projects and other multi-year obligations or multi-agency projects must be identified through a footnote in the agency budget proposal (BP 201 Forms).

4.4.3 Complementation in the identification and implementation of programs and projects among NGAs and LGUs shall be observed to avoid duplication, maximize benefits and promote greater efficiency in service delivery particularly for programs and projects that have been devolved to LGUs under the Local Government Code.

4.4.3.1 As part of the planning phase, the Agency Central Offices (ACOs) shall inform the Agency Regional Offices (AROs) of their program thrust, focus of agency budget and indicative distribution of the lump-sum funds. The AROs, on the other hand, shall formulate programs/activities/projects accordingly for submission to ACOs. The RDCs shall coordinate the conduct of consultations with AROs, SUCs and LGUs for the purpose of reconciling and confirming program thrusts and priorities of the national agencies in the region and to ensure they complement with programs and projects of the local government units.

4.4.3.2 ACOs, through the AROs, are enjoined to provide RDCs and DBM ROs with feedback information on RDC-endorsed programs/projects including regionally defined projects funded from nationwide lump-sums which they have included in their consolidated budget proposal to DBM. They shall also inform the pertinent RDC of the programs/projects which are finally submitted for congressional approval.

4.5 Gender and Development (GAD)

4.5.1 A GAD Plan shall be formulated outlining how agencies intend to include the priorities set in the Framework Plan for Women. GAD issues and concerns shall be considered in preparing the budget of the agency consistent with the provisions of DBM, NEDA and NCRFW Joint Circular No. 2004-1.

4.6 The specific costing guidelines in the preparation of the FY 2008 Agency budget proposals are contained in Annex A of this Memorandum.

5.0 SUBMISSION REQUIREMENTS AND TIMETABLE

5.1 The 2008 budget presentation shall adopt the MTEF and OPIF frameworks. Agencies shall accomplish OPIF Forms A and B following the guidelines in Section 4.3 of this Memorandum.

5.2 Agencies shall accomplish the pertinent Budget Preparation (BP) forms in accordance with expenditure and income accounts under the New Government Accounting System (NGAS) prescribed under COA Circular No. 2003-001 dated June 17, 2003. In the accomplishment of BP forms pertaining to the FY 2006 actual obligations, agencies shall include the obligations from all funds/sources (e.g., Regular, SPF, Continuing and Automatic Appropriations).

5.3 The Department Secretary/Head of the OEO shall ensure that the proposals submitted by their respective bureaus, offices and attached agencies are in accordance with the guidelines and submission schedule in this Memorandum.

5.4 The budget proposals must be duly endorsed by the Department Secretary/OEO Head and shall highlight the agency thrust and the major programs and projects.

5.5 In addition, the budget proposals of agencies involving specific concerns shall require the endorsement of the following:

 

Endorsing Agency	Subject of Endorsement
CHED	SUCs Budget
TESDA	Technical education and skills development programs
DA	Research and Development (R&D) in Agriculture and Fisheries
DOST	R&D in natural resources, environment, technological and engineering sciences
NSCB	Systems of Designated Statistics pursuant to EO 352
OP-CICT	Information Systems Plan in support of IT-related proposals
NCRFW	GAD Plan

 

5.6 Agency budget proposals shall include the following:

5.6.1 Five (5) complete sets of properly accomplished Budget Preparation (BP) Forms prescribed in Annex B and Forms A and B. (For agencies which are not yet OPIF-ready, their proposals shall basically consist of required budget preparation forms. However, they may also submit Forms A and B);

5.6.2 Inventory of equipment required under NBC Nos. 438, 446 and 446-A; and,

5.6.3 Five (5) copies each of the agency's FY 2005 and FY 2006 Accomplishment Reports.

5.7 The deadline for the submission of BP Forms shall be as follows:

5.7.1 May 15, 2007 — For FY 2006 Actual Obligations and Current Year Program;

5.7.2 June 1, 2007 — For FY 2008 budget proposals using BP forms under Annex B.

5.8 Submission by all national government agencies shall be to the Budget Technical Service (BTS), 2nd Floor, DBM Building III, General Solano St., San Miguel, Manila. SUCs shall submit these aforecited forms to the DBM-RO concerned.

6.0 BUDGET PREPARATION CALENDAR

Agencies are enjoined to adhere to the budget preparation calendar as contained in Annex D.

(SGD.) ROLANDO G. ANDAYA, JR.

Secretary

ATTACHMENT

Form A

 

Form B

 

ANNEX A

FY 2008Specific Guidelines

 

ANNEX B

Budget Preparation Forms

 

ANNEX C

FY 2008Department Budget Ceiling

 

ANNEX D

FY 2008Budget Preparation Calendar