Policy Guidelines and Procedures in the Preparation of the FY 2006 Budget Proposals

April 25, 2005

DBM NATIONAL BUDGET MEMORANDUM NO. 098-05

 

1.0 PURPOSE

1.1 To provide the overall macroeconomic and fiscal policy framework and priority thrusts for FY 2006-2008, within the context of the Medium-Term Philippine Development Plan, 2004-2010;

1.2 To prescribe the guidelines and procedures in the preparation of the FY 2006 agency budget; and,

1.3 To set the schedule of budget preparation activities.

2.0 BUDGET FRAMEWORK

2.1 The FY 2006 Budget shall be anchored on the strategies and targets in the government's Medium Term Philippine Development Plan (MTPDP) 2004-2010. Accordingly, it shall support the Ten-Point Legacy Agenda of the Administration that aims to eradicate poverty by building prosperity for a greater number of Filipinos. Thus, over the medium term, the government shall aim to undertake programs and activities that effectively achieves the following targets and outcomes under the Legacy Agenda:

• Creation of six to ten million jobs;

• Education for all;

• Balance the national budget;

• Develop transportation networks and digital infrastructure;

• Provision of power and water to all barangays;

• Decongestion of Metro Manila;

• Development of Clark and Subic as logistics centers in Asia;

• Automation of the electoral process;

• Just completion of the peace process; and

• Closure of the wounds caused by division due to EDSA 1, 2, and 3.

Likewise, as contained in the MTPDP, the government shall implement programs and projects supportive of its Millenium Development Goals.

2.2 Government will hasten fiscal consolidation through aggressive revenue mobilization while sustaining enhancements in expenditure allocation and debt management. Concerted effort in improving tax policy and collecting taxes and non-taxes is being undertaken in coordination with Congress in the light of the demand for a more effective antipoverty, anti-corruption and employment generation effort by the government. However, the calibrated enhancement of the provision of infrastructure, economic and social services with the enactment of tax laws and revenue administrative measures will bring down public debt to a more sustainable level while improving public services. This will improve investor confidence in the country which will translate to investment inflows and lower interest rates.

Therefore, the budget for FY 2006 shall ensure the progressive reduction of the budget deficit from 3.4% of GDP in 2005 to 2.7% of GDP to 2006 and that of the consolidated public sector deficit from 3.8% of GDP to 2.8% of GDP during the same period.

2.3 Agencies shall maximize the use of existing resources by focusing them on programs and projects that will achieve the targets under the Ten Point Legacy Agenda and Millennium Development Goals. More particularly, agencies shall comply with the following guides: CAIHTE

2.3.1 Invest in programs and projects under the Medium Term Public Investment Plan (MTPIP), making these the centerpieces of their proposals.

2.3.2 To lessen borrowing costs, pertinent programs and projects funded from ongoing and newly approved official development assistance (ODA) shall in particular, be prioritized to take advantage of their highly concessional terms. However, should these be clearly established to be performing poorly, duplicative or unlinked to the department Major Final Outputs (MFOs), they shall be ranked of lower priority, if not terminated or cancelled and their resources redeployed to priority PAPs.

2.4 Public Expenditure Management Reforms

In order to improve expenditure allocation and promote efficiency, effectiveness, transparency and accountability in government operations, agencies shall implement the following public sector reforms and incorporate their implications on their budget proposals:

2.4.1 Administrative and legislative tax reforms.

 To ensure that budget balance is achieved by 2010 at the latest, and the dire need for funds for economic and social services are assuaged, concerned agencies shall see to it that appropriate measures are taken to implement tax laws more efficiently and effectively, especially those recently passed. Necessary reforms in the tax structure shall also be pursued in Congress.

2.4.2 Recovering the cost of delivering public goods and services.

 As far as practicable, the cost of the delivery of public goods and services must be recovered through "user pay" and imposing appropriate fees and charges. Increases in fees and charges, however, must be compensated by improved efficiency and transparency in service delivery. Moreso, that as a policy, agencies can retain revenues collected in excess of targets to upgrade service delivery mechanisms.

2.4.3 Greater recourse to the Government Electronic Procurement System (GEPS)

 For efficiency and transparency, agencies shall use the GEPS for announcing their bid opportunities to domestic and foreign suppliers and contractors in order to secure the best bid proposals. Moreover, as mandated by RA 9184, they shall also report the result of the award of their biddings through the GEPS as well as use the harmonized bidding documents issued by the Government Procurement Policy Board.

2.4.4 Shift the focus on effectiveness and efficiency of service delivery rather than bargaining over inputs.

 To rationalize expenditures, the proposed budgets of agencies shall give emphasis on outputs and results/outcomes rather than inputs and outputs. This is the essence of budgeting for performance. Wider use shall be made of the Organizational Performance Indicator Framework (OPIF) as a means of resource allocation. This means aligning programs and projects to agreed upon Major Final Outputs (MFOs) and assigning key quality and quantity performance indicators to MFOs and assessing actual performance against these indicators. The results of the reviews of agency performance and project portfolios shall be used as the basis for evaluation of agency budgets and the discontinuation of projects.

2.4.5 Continue the implementation of austerity programs within government entities.

 The continued adoption of economy measures put in place under A.O. 103 shall be encouraged to generate savings for the implementation of priority and urgent programs/projects.

2.4.6 Rationalization of functions and organizations of government entities.

 To enable the enhancement of service delivery and promotion of greater efficiency, agencies should prioritize the use of its resources on vital core services, thereby eliminating duplications with other programs within the same department or with other agencies of the national government. They shall also scale down, phase out or abolish low priority programs, projects and activities. For this purpose, EO 366 issued on October 2004 provides for incentives and safeguards for affected personnel.

2.4.7 Ensure greater complementation with LGU programs.

 For clarity of roles, agencies shall avoid funding activities which have been devolved to LGUs or engage in a cost sharing scheme with low-income LGUs on non-income generating but socially-oriented programs. Subsidies given to LGUs will have sunset clauses and specific objectives and performance targets agreed with LGUs.

3.0 MACROECONOMIC AND FISCAL TARGETS

3.1 Economic performance in 2006 is targeted to strengthen, to achieve the following socio-economic goals enunciated in the Medium Term Philippine Development Plan:

3.1.1 A per capita income of P63,375-66,355, around 16 percent higher than 2004;

3.1.2 Generation of around 1.3-1.5 million new jobs and the reduction of the unemployment rate to 11.6% from 11.8% in 2004; and,

3.1.3 Reduction of poverty incidence to 22.93%-23.95% from the 2004 level of 28.4%.

3.2  Under this scenario, the following macroeconomic assumptions shall guide agencies in the formulation of the 2006 budget proposals:

 

PARTICULARS	2005	2006	2007	2008
GNP Real Growth (%)	5.5-6.4	6.5-7.5	6.9-7.8	7.0-8.0
GDP Real Growth (%)	5.3-6.3	6.3-7.3	6.5-7.5	6.8-7.8
Inflation Rate (%)	5.0-6.0	4.0-5.0	3.0-4.0	3.0-4.0
Foreign Exchange Rate (P/$)	55.00-57.00	55.00-57.00	55.00-57.00	55.00-57.00

Source: Development Budget Coordination Committee (DBCC), February 21, 2005

 

3.3 These parameters are based on the following assumptions:

3.3.1 Economic growth in 2006 and in the near term is expected to be led by higher investments and export expansion. Specifically, the industry sector, growing by 7.2 percent with higher infrastructure spending, is projected to be the main anchor of economic expansion, posting the highest growth among the sectors. On the other hand, the 6.5 percent growth in the services sector is expected on account of the following: 1) the sustained growth in information and communications technology (ICT)-related businesses, and 2) better prospects for private services and the financial and banking sector as business confidence improves. The agriculture sector is expected to grow by 4.2 percent, with the anticipated increase in agricultural productivity as agribusiness lands are being developed by both the government and the private sector. DETACa

3.3.2 Inflation in 2006 is targeted at a range of 4.0-5.0 percent, and is expected to be reduced to 3.0-4.0 percent starting 2007 based on anticipated lower global oil prices and a moderate depreciation of the peso vis-à-vis the American dollar. The 91-day Treasury bill rate is expected to average 7.5-8.5 percent in 2006.

3.3.3 The peso-to-dollar exchange rate is expected to be at P55-P57 to the US dollar in 2006. The peso will be supported by strong capital inflows with expectations of improved investor's sentiment and of higher remittances by overseas contract workers. For purposes of estimating agency budgets, agencies shall use P56:$1.

3.4 The 2006 fiscal program which will sustain the process of fiscal consolidation in accordance with the Plan strategies as follows:

 

PARTICULARS	2004 Actual	2005 Program	2006 Proposed
Levels in Billion Pesos
Revenues	699.8	783.2	884.4
Disbursements	886.8	963.2	1,044.4
(Surplus/Deficit)	(187.1)	(180.0)	(160.0)
Percent of GDP
Revenues	14.4	14.7	14.9
Disbursements	18.3	18.1	17.7
(Surplus/Deficit)	(3.9)	(3.4)	(2.7)
Growth Rate
Revenues	11.7	11.9	12.9
Disbursements	7.3	8.6	8.4
(Surplus/Deficit)	(6.4)	(3.8)	(11.1)

 

3.5 Consistent with the above aggregate fiscal targets, a budget ceiling amounting to P1.0 trillion is indicated. This budget level increases by P78.2 billion or 8.5 percent over the 2005 approved budget, including the interest payments on the liabilities of the National Power Corporation which were assumed by the national government last December 31, 2004.

4.0 GENERAL AND PROCEDURAL GUIDELINES

In accordance with the budget framework and expenditure reforms contained in Section 2, agencies shall follow the guidelines below to ensure the improved allocation of funds among competing sectors:

4.1 Performance-Based Budgeting

The FY 2006 budgetary requirements of an agency shall take into account their physical and financial accomplishments during the immediately preceding year and current year. Quality and quantity performance indicators in accordance with the OPIF as contained in Annex A shall also be put in place and shall be increasingly used for performance management. The costs incurred by the agency in the production of its MFOs shall be used as gauge of its efficiency and ability to accomplish more with less.

4.2 Value for Money

Agencies shall utilize their resources on programs and projects that employ strategies and processes that have been proven or are recognized to be effective and efficient in terms of producing more for less. The over-design of programs and projects shall be avoided to facilitate implementation and keep down costs while ensuring the delivery of the desired outcomes. Thus, in the case of infrastructure projects, value engineering shall be implemented in the design phase of major projects.

4.3 Resource Optimization

Agencies are encouraged to maximize their budget and undertake innovative ways to enhance their revenue possibilities through the following:

4.3.1 Cost Recovery Measures and Revenue Enhancement

4.3.1.1 The cost of government services to the public should, as much as possible, be fully recovered through user fees. The identification of programs with the potential to generate revenues are encouraged and should be considered by the agency in view of the greater flexibility being afforded in the use of excess income. Attention is called to the provisions of Joint DOF-DBM Circular 2000-2 which mandate the periodic review of fees and charges.

4.3.1.2 In cases where revenues are already being generated for services rendered, measures such as the improvement of the quality of service delivery and reduction in the cost of production should be adopted to further increase revenues.

4.3.2 Focused Resource Utilization

4.3.2.1 Agencies shall refrain from undertaking activities and programs which other national government agencies, LGUs or government corporations are mandated by law, to perform.

 Examples of these activities include credit programs which are better implemented by government financial institutions and certain rural infrastructure, agricultural and health care services which have been devolved to the LGUs.

4.3.2.2 Agencies shall exclude expenditure items which can be financed by government corporations or the private sector. As an example of the former, employees who are retiring shall be encouraged to avail of the GSIS retirement package. aDSIHc

4.3.2.3 Agencies may propose changes in their P/A/P structure to improve or focus the same in accordance with their mandate, consistent with the OPIF and EO 366. Any concomitant modification in organization and staffing shall be allowed provided that the scrap and build policy will be observed and budgetary requirements are within the authorized provision for personnel services. Any proposal which would lead to the creation/expansion of agencies or organizational units, including task forces, inter-agency committees and interim bodies, is disallowed.

4.3.2.4 The strategic review of agency operations shall be undertaken to rationalize and accommodate the requirements of new loan or grant assisted projects within the agency budget. This review should include, as part of the objective, the use of organic structures and staff within the agency and the use of regular agency funds as GOP counterpart for foreign assisted projects.

4.3.3 Total Resource Budgeting

4.3.3.1 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.

4.3.3.2 Funding requirements of 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 disclosed.

4.3.3.3 Budget proposals should also consider all available resources within a specific area or locality. Hence, programs to be undertaken shall be consistent with the development plan of said area such that resources from all stakeholders namely national agencies, local governments, congressional allocations and private initiatives will complement each other.

4.4 Full Disclosure and Transparency

4.4.1 In the allocation of their budget, agencies are expected to consult their major stakeholders to ensure that their concerns and priorities are addressed and included in the agency's budget proposal.

4.4.2 To further strengthen the participative approach in the formulation of the FY 2006 budget, AROs and SUCs are encouraged to undertake preliminary consultation with their respective RDCs for the purpose of inputting the latter's recommendation and suggestion. The RDCs are required to endorse the programs and projects submitted by the AROs for inclusion in the FY 2006 budget proposals of their agency central offices (ACOs) and CHED in the case of SUCs. Likewise, AROs and SUCs shall provide feedback to their RDCs on their final agency budget proposals and RDC endorsed programs and projects.

4.4 n Other Policy Considerations

4.4.1 A Gender and Development (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.

4.4.2 Agencies are encouraged to include programs and activities designed to address the following:

4.4.2.1 Poverty reduction and human development targets consistent with the Millennium Development Goals;

4.4.2.2 Strategic employment generation and facilitation strategies whether direct or indirect, in the different sectors and geographic areas;

4.4.2.3 Kapit-Bisig Laban sa Kahirapan (KALAHI) Programs; and

4.4.2.4 Concerns of the Senior Citizens and the Differently Abled. ETHIDa

4.5 The specific guidelines in the preparation of the FY 2006 Agency budget proposals are contained in Annex B of this Memorandum.

5.0 BUDGET CEILINGS

The indicative budget ceiling of each agency for FY 2006, which is hereby shown in the attached ANNEX D, corresponds to their specific appropriation levels under the FY 2005 GAA (i.e., net of Retirement and Life Insurance Premium but inclusive of Other Automatic Appropriations specified under the FY 2005 National Expenditure Program). These levels, however, are considered tentative and may be adjusted on the basis of sectoral priorities as determined by the President and the Cabinet. Agencies are likewise enjoined to ensure that the inclusion of priority programs and projects contained in the MTPIP for 2004-2010 are maximized within the ceiling.

6.0 SUBMISSION REQUIREMENTS AND TIMETABLE

6.1 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 2004 actual obligations, agencies are reminded to include the obligations from all funds/sources (e.g., Regular, SPF, Continuing and Automatic Appropriations).

6.2 The 2006 budget presentation include tables consistent with the OPIF framework. Agencies shall accomplish the OPIF forms following the guidelines in Annex A.

6.3 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.

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

6.5 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

6.6 Agency budget proposals shall include the following:

6.6.1 Five (5) complete sets of properly accomplished Budget Preparation (BP) Forms prescribed in Annexes A and C;

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

6.6.3 Five (5) copies each of the agency's FY 2003 and FY 2004 Accomplishment Reports; and,

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

6.7.1 May 10, 2005 — For FY 2004 Actual Obligations and Current Year Program;

6.7.2 May 31, 2005 — For FY 2006 budget proposals.

6.8 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.

7.0 BUDGET PREPARATION CALENDAR

Agencies are enjoined to adhere to the budget preparation calendar as contained in ANNEX E.

(SGD.) EMILIA T. BONCODIN

Secretary

ANNEX A

Guidelines in the Adoption of the Organizational Performance Indicator Framework in the 2006 Budget Preparation

ANNEX B

Specific Guidelines in the Preparation of FY 2006 Agency Budget Proposals and Other Budgetary Items

ANNEX C

Budget Preparation Forms

ANNEX D

FY 2006

ANNEX E

FY 2006

n Note from the Publisher: Copied verbatim from the official copy.