FORUM ON BUDGET REFORM BILL (BRB)

SECRETARY DIOKNO

Co-workers in Government, good morning and welcome to the forum on the Budget Reform Bill.
As public servants, it is our commitment to improve the lives of all Filipinos – to deliver public service
in the fastest way possible, in the best way that we can.

This government aims to reduce poverty and targets to gain a level of economic growth that is felt by
all, especially the poor. We want to achieve these goals not later, but in the soonest time. The Budget
Reform Bill will have a huge role in improving the way we do our work as a government.

We have come a long way. The past 20 years is a story of our continuous struggle to establish a
strong public financial management. What have previously been mere concepts and intentions have
now become reforms that are being implemented, reforms that help us perform better as agencies.

The Budget Reform Bill is a major legislative measure that seeks to institutionalize the budget reforms
we have so far established such as the Treasury Single Account (TSA) and the Unified Account Code
Structure (UACS).

The Budget Reform Bill will revolutionize our method for preparing, implementing, and accounting our
budget. Its present form embodies the result of a series of consultations with the public financial
management agencies: the Commission on Audit (COA), the Department of Finance (DOF), the
Bureau of Treasury (BTr), and the National Economic Development Authority (NEDA).

As we all know, one of our major setbacks in the past has been underspending.

(1)         Underspending happens when actual expenditure is less than programmed expenditure. In
2014, the DBM recorded 13.3% underspending rate. The following year, 2015, it was 12.8%. In 2016,
it fell sharply to 3.6%. Now, for the first half of 2017, the underspending rate is only 0.4%. The
problem of underspending in the past was due to structural weaknesses within National Agencies and
GOCCs, particularly in these aspects: (a) poor planning, (b) procurement difficulties, and (c)
bottlenecks in project implementation, such as securing clearance permits, coordination problems,
and right-of-way problems.

(2)    Another flaw in the current financial reporting system is that it is fragmented. BTr, COA, DBM,
and even NEDA each has its own system, which inevitably results to poor planning and flawed
management decision making.

It is thus crystal clear that our government needs major changes in our budgeting system. We need to
modify itto improve the budget process, as well as to enforce discipline in the implementation of the
budget by the spending agencies. This bill will help us achieve those goals.

We are called to develop a culture of governance that will ensure prompt delivery of services.

Now, in order to address these needs, we propose the following proposals which we will discuss in
detail in this forum:
(1)    The shift from multi-year to one year obligations supported by one year cash appropriation;
(2)    The shift from multi-year to one year appropriations;
(3)    The shift from multi-year contracts tied to continuing appropriations, to multi-year contracts tied
to annual cash appropriations; and
(4)    The development and establishment of the Integrated Financial Management System (IFMIS),
which is now being developed as the Budget and Treasury Management System (BTMS)
Our government needs to have an integrated system that will simplify the government’s budget
reporting system, as we ensure that we will have a “single source of truth”, in real time, on the
utilization of the budget. This will also ensure proper reporting and eventually, auditing. Once fully
implemented, the Integrated FMIS will assist us in making evidence-based decisions.

We are happy to report that these reforms we are pushing for are fast gaining the support of our
legislators. On May 9, Congressmen Karlo and Jericho Nograles filed the Budget Reform Bill in the
House of Representatives and is now up for committee deliberations. Likewise, on May 11, the same
bill was filed in the Senate by Senator Loren Legarda and we had the first committee hearing last
August 7, this year.

I am also pleased to report to you that this bill has been endorsed by the Legislative-Executive
Development Advisory Council or LEDAC Executive Committee as one of the 13 bills certified by
President Duterte as a priority measure. Included also in the list of priority bills are the Rightsizing Bill
and the National ID system, both of which are initiated by the DBM.

Today’s presentations and discussions will provide an overview of the Budget Reform Bill, the
rationale behind it, its implication to the budget process, as well as its transition timeline.

All of these changes that we want to implement are expected to increase the utilization of the budget,
and ultimately, result to improved delivery of public services.

I hope that you will embrace the paradigm shift that is embodied in the Bill. This will bring about a big
change to our current system, change that will allow us to better serve the public.

I encourage you to actively participate in the open forum. Your comments and recommendations are
important to us, especially on how we can improve the bill, and how we can smoothen the transition.

We need your full support and cooperation to make this monumental reform become a success.

The changes initiated by the bill will impact not just the way we prepare, implement, and report the
budget, but will, more importantly, allow us to achieve soon our goal of a better, prosperous, peaceful,
safer, healthier, and a more beautiful Philippines.

Join us in this game-changing journey.

Thank you and have a good day!

BUDGET REFORM ACT TO MODERNIZE PUBLIC BUDGETING IN THE PHILIPPINES

With the Budget Reform Act being tagged as one of the priority bills up for early approval in the
Senate, the national government is well-positioned to shift to an annual cash-based budgeting system
starting Fiscal Year (FY) 2019. The said measure will mandate the more disciplined use of the
National Budget while also enhancing transparency and accountability in in the budget process.
 
“We are optimistic that the Budget Reform Bill will be passed into law before President Rodrigo
Duterte delivers his State of the Nation Address (SONA) in July,” said Budget and Management
Secretary Benjamin E. Diokno. “This reform initiative will secure the gains in public budgeting over the
past two years as we have strived to instill efficiency and integrity in the budget process,” he added.
 
The landmark Budget Reform legislation is intended to support the government’s expansionary
fiscal policy where investments on public infrastructure will rise from 5.4% of Gross Domestic Product
(GDP) in 2017 up to 7.3% in 2022 with the Build Build Build Program. Likewise, spending for human
capital development, such as education, healthcare, and social protection, will rise from 8.5% of GDP
in 2017 to 9.2% in 2022.
 
In the bigger picture, more efficient government spending will fuel the country’s economic
growth, which is targeted to reach 7% to 8% in the medium-term. This rate of economic expansion is
projected to spur development across regions and reduce the poverty rate from 21.6% in 2015 to at
least 14% in 2022.
 
In an annual cash-based budget, contracts intended to be implemented for the fiscal year
should be fully delivered by the end of the year. This is in contrast to the multi-year obligation-based
budgeting system where it is enough for the government to enter into a contract or “obligate funds”
without requiring the actual delivery of goods and services within the year.
 
In terms of payment horizon, the annual cash-based system will also allow for a three-month
Extended Payment Period (EPP) after the fiscal year provided that the goods and services have
already been inspected, verified, and delivered by December 31 of the said fiscal year. Again, this is
an improvement from the old system where payment may be done well beyond the end of the fiscal
year.  
 
“The shift to an annual cash-based system is a logical progression in our budget reform
agenda,” said Secretary Diokno. “We started from limiting the validity of appropriations from two years
to just one year starting the 2017 National Budget,” he added. “The next step is to transition to a
cash-based framework because we believe that obligations are mere intents and not actual
expenditures,” the Budget Chief elaborated.
 
The Budget Reform Act has already been approved in the Lower House by a vote of 158 in
favor, 8 against, and 1 abstention. It has also been sponsored in the Senate and deliberations are
scheduled once the Upper Chamber resumes its regular session.