1. What is an investment?

An investment is any vehicle into which funds can be placed with the expectation that they will
generate positive income and/or their value is preserved or increased.
2. What is the Investment Process?
The overall investment process is the mechanism for bringing together suppliers (those having
extra funds) with demanders (those needing funds). Normally, suppliers or savers and demanders
or issuers are brought together through a financial institution or a financial market although there
are instances, such as property transactions, where buyers and sellers directly deal with one
another. Financial institutions are organizations through which the savings of individuals,
corporations and governments are channeled into loans or investments. Example of financial
institutions is banks, investment houses, mutual funds, pension funds and insurance companies.
Financial markets provide the legal and tax framework/environment that bring together suppliers
and demanders of funds to make safe and quick financial transactions, often though
intermediaries such as organized securities exchanges.
Suppliers or savers may transfer their funds through financial markets, financial institutions, or
directly to the demanders or issuers. Financial institutions can also participate in the investment
process either as suppliers or demanders of funds.
The financial markets consist of two parts, namely, the money market and the capital market.
The money market deals with short-term investments while the capital market is for long-term
investments. A more thorough discussion about these markets can be found in Part II.
3. Who are the Participants in the investment process?
The three key participants in the investment process are government, business and individuals.
They can either be a demander or supplier of funds.
Government
Both local and national government need large amounts of money. Funds are needed to finance
capital expenditures like long-term infrastructure projects road building, schools and hospitals
through the issuance of different types of long-term debt securities. Also, government needs to
fund operating costs that keep it running. Normally these funds are sourced from taxes and fees
collections. In cases where the operating expenditures exceed government revenues or if
government receipts are not yet available to meet government payments, government resorts to
borrowing funds by issuing short-term debt securities. If government has temporary idle cash, it
sometimes makes short-term investments to earn positive returns. As such, government becomes
suppliers of funds.
Business
Most businesses require big sums of money to support operations in both the long term and
short-term. On the short-term, funds are used to meet operating cost like financing inventory and
accounts receivables. Long-term needs of businesses are concentrated on seeking funds to
develop products, build plants and buy equipment. Financing these needs require businesses to

issue a variety of debt and equity securities. Like government, business firms also supply funds if
they have excess cash. At the same time, they are both net demanders of fund since they demand
more funds than they supply.
Individuals
We are more familiar of the fact that people need money, in the form of loans, to buy property
like cars and houses. Yet individuals supply funds to help meet the needs of both government and
businesses through deposits in savings accounts, purchases of debt or equity securities, buy
insurance or various types of property. As a group, individuals are net suppliers of funds; they
put money into the financial system than they take out.

Government budgeting is the critical exercise of allocating revenues and borrowed

funds to attain the economic and social goals of the country. It also entails the

management of government expenditures in such a way that will create the most
economic impact from the production and delivery of goods and services while
supporting a healthy fiscal position. Government budgeting is important because it
enables the government to plan and manage its financial resources to support the
implementation of various programs and projects that best promote the development of
the country. Through the budget, the government can prioritize and put into action its
plants, programs and policies within the constraints of its financial capability as dictated
by economic conditions.
https://jfvambrosio.wordpress.com/2010/05/17/government-budgeting-experience-inthe-philippines/
http://www.yourarticlelibrary.com/economics/budgeting/6-important-objectives-ofgovernment-budget/30410/ (Your article library. The next generation Library)
http://www.dbm.gov.ph/wp-content/uploads/2012/03/PGB-B2.pdf
THE BUDGETING PROCESS
1. What is government budgeting? Government budgeting is the critical
exercise of allocating revenues and borrowed funds to attain the economic
and social goals of the country. It also entails the management of
government expenditures in such a way that will create the most economic
impact from the production and delivery of goods and services while
supporting a healthy fiscal position.
2. Why is government budgeting important? Government budgeting is
important because it enables the government to plan and manage its
financial resources to support the implementation of various programs and
projects that best promote the development of the country. Through the
budget, the government can prioritize and put into action its plants,
programs and policies within the constraints of its financial capability as
dictated by economic conditions.
3. What are the major processes involved in national government
budgeting? Budgeting for the national government involves four (4) distinct
processes or phases: budget preparation, budget authorization, budget
execution and accountability. While distinctly separate, these processes
overlap in the implementation during a budget year. Budget preparation for
the next budget year proceeds while government agencies are executing the
budget for the current year and at the same time engaged in budget
accountability and review of the past year's budget.
4. How is the annual national budget prepared? The preparation of the
annual budget involves a series of steps that begins with the determination
of the overall economic targets, expenditure levels, revenue projection and

the financing plan by the Development Budget Coordinating Committee

(DBCC). The DBCC is an inter-agency body composed of the DBM Secretary
as Chairman and the Bangko Central Governor, the Secretary of the
Department of Finance, the Director General of the National Economic and
Development Authority and a representative of the Office of the President as
members. The major activities involved in the preparation of the annual
national budget include the following: a. Determination of overall economic
targets, expenditure levels and budget framework by the DBCC; b. Issuance
by the DBM of the Budget Call which defines the budget framework; sets
economic and fiscal targets; prescribe the priority thrusts and budget levels;
and spells out the guidelines and procedures, technical instructions and the
timetable for budget preparation; c. Preparation by various government
agencies of their detailed budget estimates ranking programs, projects and
activities using the capital budgeting approach and submission of the same
to DBM; d. Conduct a budget hearings were agencies are called to justify
their proposed budgets before DBM technical panels; e. Submission of the
proposed expenditure program of department/agencies/special for
confirmation by department/agency heads. f. Presentation of the proposed
budget levels of department/agencies/special purpose funds to the DBCC for
approval. g. Review and approval of the proposed budget by the President
and the Cabinet; h. Submission by the President of proposed budget to
Congress. To meet the Constitutional requirement for the submission of the
President's budget with 30 days from the opening of each regular session of
Congress, the budget preparation phase is guided by a budget calendar.
5. How does the budget become a law? In accordance with the
requirements of the Constitution, the President submits his/her proposed
annual budget in the form of Budget of Expenditure and Sources of Financing
(BESF) supported by details of proposed expenditures in the form of a
National Expenditure Program (NEP) and the President's Budget Message
which summarizes the budget policy thrusts and priorities for the year. In
Congress, the proposed budget goes first to the House of Representatives,
which assigns the task of initial budget review to its Appropriation
Committee. The Appropriation Committee together with the other House
Sub-Committee conduct hearings on the budgets of departments/agencies
and scrutinize their respective programs/projects. Consequently, the
amended budget proposal is presented to the House body as the General
Appropriations Bill. While budget hearings are on-going in the House of
Representatives, the Senate Finance Committee, through its different
subcommittees also starts to conduct its own review and scrutiny of the
proposed budget and proposes amendments to the House Budget Bill to the
Senate body for approval. To thresh out differences and arrive at a common
version of the General Appropriations Bill, the House and the Senate creates

a Bicameral Conference Committee that finalizes the General Appropriations

Bill.
6. What is the General Appropriations Act? The General Appropriations
Act (GAA) is the legislative authorization that contains the new
appropriations in terms of specific amounts for salaries, wages and other
personnel benefits; maintenance and other operating expenses; and capital
outlays authorized to be spent for the implementation of various
programs/projects and activities of all departments, bureaus and offices of
the government for a given year.
7. How is the budget implemented? Budget implementation starts with
the release of funds to the agencies. To accelerate the implementation of
government programs and projects and ensure the judicious use of budgeted
government funds, the government adopted the Simplified Fund Release
System (SFRS) beginning 1995. In contrast to the previous system of
releasing funds based on individual agency requests, the SFRS is a policydriven system which standardized the release of funds across agencies which
are similarly situated in line with specific policy initiatives of the government.
Following the SFRS, the agency budget matrix (ABM) is prepared by the DBM
in consultation with the agencies at the beginning of each budget year, upon
approval of the annual General Appropriations Act. The ABM is a
disaggregation of all the programmed appropriations for each agency into
various expenditure categories. As such, the ABM serves as a blueprint which
provides the basis for determining the timing, composition and magnitude of
the release of the budget. Based on updated resources and economic
development thrusts and consistent with the cash budget program, the
Allotment Release Program (ARP) which prescribes the guidelines in the
prioritization of fund releases is prepared. The ARP serves as basis for the
issuance of either a General Allotment Release Order (GARO) or a Special
Allotment Release Order (SARO), as the case maybe, to authorize agencies
to incur obligations. Subsequently, the DBM releases the Notice of Cash
Allocation (NCA) on a monthly or quarterly basis. The NCA specifies the
maximum amount of withdrawal that an agency can make from a
government bank for the period indicated. The Bureau of the Treasury (BTr),
replenishes daily the government servicing banks with funds equivalent to
the amount of negotiated checks presented to the government servicing
banks by implementing agencies. The release of NCAs by the DBM is based
on: 1) the financial requirements of agencies as indicated in their ABMs, cash
plans and reports such as the Summary List of Checks Issued (SLCI); and 2)
the cash budget program of government and updates on projected
resources. Agencies utilize the released NCAs following the "Common Fund"
concept. Under this concept of fund release, agencies are given a maximum
flexibility in the use of their cash allocations provided that the authorized

allotment for a specific purpose is not exceeded. Project implementation is

thus made faster
. 8. Why are adjustments made on the budget program? Adjustments
are made on the budget even during implementation primarily because of
the following: Enactment of new laws - Within the fiscal year, new
legislations with corresponding identified new revenue sources are passed
which necessitate adjustments in the budget program. Adjustments in
macroeconomic parameters - The macroeconomic targets considered in the
budget are periodically reviewed and updated to reflect the impact of recent
developments in the projected performance of the national economy and on
the set fiscal program for the year. The relevant indicators affecting the
budget aggregates include the following: the Gross National Product (GNP),
inflation rate, interest rate, foreign exchange rate, oil prices, and the level of
imports. Thus, a sensitivity measure on the impact of these parameters on
the budget will determine whether recent macroeconomic developments
have a negative or favorable effect on the budget. Change in resources
availabilities - Budget adjustments are undertaken when additional resources
becomes available such as new grants, proceeds from newly negotiated
loans and grants. Corresponding budget adjustments are also made when
resources generation falls below the targets.
9. What mechanism ensure that funds have been properly allocated
and spent? Cognizant of the fact that no propitious results can be obtained,
even with maximum funding, if agency efficiency is low and funds are
wastefully spent, systems and procedures are set in place to monitor and
evaluate the performance and cost effectiveness of agencies. These
activities are subsumed within the fourth and the last phase of the budget
process-the budget accountability phase. At the agency level, budget
accountability takes the form of management's review of actual performance
or work accomplishment in relation to the work targets of the agency vis-vis the financial resources made available. Also, detailed examinations of
each agency's book of accounts are undertaken by a resident representative
of the Commission on Audit (COA) to ensure that all expenses have been
disbursed in accordance with accounting regulations and the purpose(s) for
which the funds have been authorized.
10. Is the role of the DBM in the budgeting process limited to
national government agencies? No, the role of the DBM in the budgeting
process is not limited to national government agencies. It coordinates all
three levels of government-national government department/agencies,
government-owned and controlled corporations (GOCCs) and local
government units (LGUs) - in the preparation, execution and control of
expenditures of their corresponding components entities. The DBM reviews
the corporate operating budgets of GOCCs and ensures the proper allocation
of cash. The DBM likewise formulates and recommends the budget policy

covering the allowable deficit and the criteria for the determination of the
appropriate subsidy and equity of GOCCs. For LGUs, the DBM reviews the
annual and supplemental budgets of provinces, and highly urbanized cities
and manages the proper allocation and release of the Internal Revenue
Allotment (IRA) of LGUs and their share in the utilization of national wealth.