Policy Guidelines and Procedures in the Preparation of the FY 2007 Budget Proposals

2005

DBM NATIONAL BUDGET MEMORANDUM NO. 099-05

 

1.0 PURPOSE

1.1 To provide the overall macroeconomic and fiscal policy framework and priority thrusts for FY 2007-2009, within the context of the Medium-Term Philippine Development Plan, 2004-2010; HTcADC

1.2 To prescribe the guidelines and procedures in the preparation of the FY 2007 agency budget; and,

1.3 To set the schedule of budget preparation activities.

2.0 BUDGET FRAMEWORK

2.1 The FY 2007 Budget shall uphold the macroeconomic and fiscal policy framework and priority thrust of the Medium-Term Philippine Development Plan. Moreover, the budget shall focus on the key strategic programs and activities under the 10-Point Legacy Agenda of the Administration to build and strengthen the foundation towards achieving sustainable prosperity for the nation.

2.2 Reforms in public expenditure management shall be vigorously pursued. Such reforms shall be mainstreamed in the planning, programming and budgeting systems as well as in the agency programs, activities and projects (P/A/P).

2.3 The 2007 budget preparation exercise shall seek to achieve the following primary objectives:

2.3.1 Through the Medium-Term Expenditure Framework (MTEF), ensure consistency and responsiveness of the national budget to the President's development agenda within the context of overall fiscal discipline and consolidation.

2.3.2 Shift to performance/results-based national budget consistent with the Organizational Performance Indicator Framework (OPIF). This means that the Major Final Outputs (MFOs) shall be the primary elements/units for determining resource allocation. Such MFO allocations shall be the basis of a regular monitoring and evaluation of agency financial and physical performance.

2.4 Medium-Term Expenditure Framework (MTEF)

2.4.1 The government shall implement the MTEF in 2007. It is a three-year rolling expenditure framework that supports a strategic and policy-based approach to budget formulation and preparation. It adopts a medium term perspective to ascertain future costs of existing policies to determine the leeway to support key sectoral priorities vital for growth and competitiveness.

2.4.2 MTEF is a top-down and bottom-up budgeting approach where budget realities at the macro and sector/agency level inform and discipline a discussion of strategies, policies and resource allocation at the onset of the budget preparation.

2.4.3 MTEF together with the OPIF, aims to achieve the three budgetary outcomes: aggregate fiscal discipline, strategic allocation of limited resources, and operational efficiency at the agency level.

2.4.4 Forward Estimates (FEs) or the estimation of the future costs of existing policies communicates commitment to strategic priorities and improves predictability of funding. When matched with revenues, FE determines budget space for new policies and priorities.

2.4.5 For the 2007 budget preparation, a paper on budget strategy was prepared to assist in integrating policy and strategic sectoral focus into resource allocation. The paper aims to link the progress in meeting development objectives with resource allocation.

2.4.5.1 Under said 2007 budget strategy, the government commits to achieve fiscal balance by the year 2008. To realize this objective, government shall bring down its deficit from 2.1 percent of GDP in 2006 to 0.9 percent in 2007, assisted by an improvement in the revenue effort from 16.2 percent in 2006 to 16.6 percent in 2007.

2.4.5.2 As approved by the President, the priority concerns over the 2007-2009 period are infrastructure build-up and the improvement of the quality of basic education, particularly programs and projects under the Medium-Term Public Investment Plan (MTPIP) as updated by NEDA and the 10-Point Legacy Agenda. This is to maximize the country's prospects for growth, employment generation, poverty reduction and human resource development. Government shall also set aside funds for compensation adjustments for government employees that will be incorporated in the performance management system being put in place in government.

2.5 Organizational Performance Indicator Framework (OPIF)

2.5.1 The OPIF is an approach to expenditure management that directs resources towards results or Major Final Outputs (MFOs) and measures agency performance by key quality and quantity indicators. It is a process that demonstrates the relationships between agency programs and activities and the goods and services that the agency delivers to its external clients to achieve sectoral and societal results under the MTPDP. DETACa

2.5.2 Twenty departments and selected attached agencies shall adopt OPIF in the 2007 budget preparation. These are DAR, DA, DBM, DepEd, DENR, DFA, DILG, DND, DOE, DOF, DOH, DOJ, DOLE, DOST, DOT, DOTC, DPWH, DSWD, DTI and NEDA. These departments have constructed their OPIF logframes and have identified MFOs and Performance Indicators (PIs).

2.5.3 OPIF-ready departments and agencies shall ensure the alignment of their programs, projects and activities with the agreed upon MFOs. Unlinked activities shall constitute savings which departments/agencies shall be authorized to use to enhance core mandates.

2.5.4 In order to strengthen output-based budgeting in 2007 as a means for improving expenditure allocation and promoting efficiency and effectiveness in government operations, agencies shall incorporate implications of the following public sector reforms on their budget proposals:

2.5.4.1 The rationalization program under Executive Order No. 366 shall provide the framework for the submission of the Rationalization Plans (RPs) by the agencies. However, the P/A/P structure of the agency shall be on status quo in order to avoid complications in the preparation of the budget. Any change in the P/A/P structure shall be addressed during budget execution either in the 2006 or 2007 budgets, whichever is appropriate.

2.5.4.2 Agencies are encouraged to undertake cost recovery measures for goods and services delivered to assist in the revenue enhancement effort of the government.

2.5.4.3 Complementation with LGU programs shall be observed. Agencies shall refrain from engaging in programs and projects that are already being undertaken by LGUs or have been devolved to them pursuant to the Local Government Code of 1991.

2.5.4.4 Use of the Government Electronic Procurement System (GEPS) in improving procurement processes pursuant to RA 9184 shall continue to be promoted. Agencies are mandated to register with GEPS, post bids and awards, and use harmonized bidding documents issued by the Government Procurement Policy Board (GPPB).

2.5.4.5 Economy measures under AO 103 shall continue to be implemented. In particular, all departments/agencies shall enforce energy conservation measures as part of the government's Energy Management Program.

3.0 MACROECONOMIC AND FISCAL TARGETS

3.1 For 2006-2009, the economy shall be propelled by the private sector assisted by improved investment prospects in all sectors and by the virtuous circle of prudent fiscal management. Hence, budget preparation shall be based on the following assumptions: aDSIHc

PARTICULARS	2006	2007	2008	2009
GNP Real Growth (%)	5.9-6.5	6.1-7.9	6.1-6.9	6.4-7.4
GDP Real Growth (%)	5.5-6.2	5.8-6.6	5.9-6.7	6.2-7.2
Inflation Rate (%)	7.3-7.9	4.3-5.0	3.0-4.0	3.0-4.0
Foreign Exchange Rate (P/$)	51-53	51-53	51-53	51-53

Source: Development Budget Coordination Committee (DBCC), March 27, 2006.

* 2008-2009 figures are targets

3.2 Growth of 5.8 percent to 6.6 percent in 2007 will be bolstered by an improvement in global conditions and domestic spending.

3.3 Per capita income is expected to increase to P80,326, about 21 percent higher than 2006, while the reduction of poverty incidence is set between 21.6 percent and 22.9 percent, declining from the 2006 level of 24 percent. New job creations are expected in 2007.

3.4 Despite the rising Dubai crude oil prices and the impact of EVAT over the medium-term, oil supply shocks are expected to be dominant in 2006 but declining in 2007. Inflation is therefore anticipated to decline starting 2007 and will return to the old trajectory of between 3 to 4 percent by 2008.

3.5 For purposes of budget programming, the peso-to-dollar exchange rate can be assumed to remain stable at the P51-P53 range. Likewise, interest rates, as indicated by the 91-day Treasury bill rates, are projected to decline. For purposes of estimating agency budgets, agencies shall use an exchange rate of P52:$1.

3.6 Based on the aforesaid macroeconomic assumptions and the fiscal consolidation strategy of the government, the fiscal program for 2007 is as follows:

PARTICULARS	2005	2006	2007
Levels in Billion Pesos
Revenues	795.7	974.1	1,113.9
Disbursements	942.5	1,099.0	1,176.9
(Surplus/(Deficit)	(146.8)	(124.9)	(63.0)
Percent of GDP
Revenues	14.8	16.2	16.6
Disbursements	17.5	18.3	17.6
(Surplus/(Deficit)	(2.7)	(2.1)	(0.9)
Growth Rate
Revenues	13.7	22.4	14.4
Disbursements	6.3	16.6	7.1
(Surplus/(Deficit)	(21.5)	(14.9)	(49.6)

3.7 Consistent with the above aggregate fiscal targets, an obligation budget ceiling amounting to P1,136.6 billion is proposed for 2007. This budget level is higher by P72.3 billion or 6.8 percent than the 2006 programmed level. ETHIDa

3.8 The P1,113.9 billion projected revenues represent a 14.4 percent growth over the expected revenue level in 2006. This is a conservative projection, incorporating only existing legislative measures.

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 (2007-2009) with 2006 National Expenditure Program (NEP) as base year. These costs shall be compared with the FEs developed by DBM and will be the basis for discussion with the agency during the technical budget hearings or during the formulation of the 2008 budget.

4.2 Department Ceilings for 2007

4.2.1 The department ceilings based on the proposed appropriation levels under the 2006 NEP level (net of RLIP and grant proceeds but inclusive of other automatic appropriation) shown in Annex C are hereby issued.

4.2.2 The ceilings are guaranteed. Final 2007 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 Department logframes constructed and agreed upon between DBM and the department concerned shall show relationships and the alignments of P/A/Ps with identified outputs and outcomes at the organizational, sectoral and societal levels. MFOs and PIs shall support the budget proposal of the twenty (20) OPIF-ready departments and agencies (Forms A and B).

4.3.2 The Major Final Outputs (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 (GASS), Support to Operations and Operations cost structure categories in the General Appropriations Act (GAA). cSEDTC

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

4.3.3.4 Savings from completed or terminated projects may be proposed for new policies, especially urgent and unfunded requirements under the 10-Point Legacy Agenda and the MTPDP.

4.3.4 OPIF — based Performance Indicators/Targets

4.3.4.1 Performance Indicators shall be defined as follows:

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, accuracy, completeness, accessibility, compliance with standards or satisfaction of client needs.

4.3.4.2 Indicators/targets shall be identified. There could be one or several indicators as the agency may find necessary to monitor and use. However, for focus and manageability, agencies are advised to limit these to three (3) indicators per MFO.

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 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.

4.4.3.1 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. SDAaTC

4.4.3.2 To further strengthen the participative approach in the formulation of the FY 2007 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 2007 budget proposals of their agency central offices (ACOs) and CHED in the case of SUCs. After the conduct of the RDC consultation meeting with the ROs, a dialogue will be held between the RDCs and the ACOs, to serve as venue to ventilate and get feedback/response of the ACOs. The ACOs through the AROs shall provide feedback information to the RDCs on RDC-endorsed programs/projects integrated in the final agency budget proposals to include regionally defined projects funded from the nationwide lump sum funds.

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 2007 Agency budget proposals are contained in Annex A of this Memorandum.

5.0 SUBMISSION REQUIREMENTS AND TIMETABLE

5.1 The 2007 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 2005 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: acEHCD

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 2004 and FY 2005 Accomplishment Reports.

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

5.7.1 May 19, 2006 — For FY 2005 Actual Obligations and Current Year Program;

5.7.2 June 5, 2006 — For FY 2007 budget proposals.

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. SDHTEC

(SGD.) ROLANDO G. ANDAYA, JR.

Secretary

ATTACHMENT

Form A

 

Form B

 

ANNEX A

FY 2007

 

ANNEX B

Budget Preparation Forms

 

ANNEX C

FY 2007

 

ANNEX D

FY 2007