I.

Basic Concepts in Budgeting

BASIC CONCEPTS IN BUDGETING

1. What is a fund? 5.

of every regular session, as the basis of the general budget of expenditures and sources of financing incl existing and proposed revenue measures."

What is the expenditure program?

The expenditure program is that portion of the natio The word "fund" in government has taken several meanings or connotations. expenditures and capital outla the current operating It operation authorization is sometimes used to refer an appropriation which is a legislative of the programs, projects and activities of departments and to spend or an allotment which is an authorization by the Department of agencies. Budget and Management (DBM) to obligate, or as actual cash available.

2.

6. What is the financing program? What basis law governs the use of government funds?

The financing program includes the projected revenu The following provision of the Philippines Constitution sets the basic rule for new measures, the planned borrowings to finance b the use of government funds: the payment of debt principal failing due. "Art. VI, Sec. 29. No money shall be paid by the Treasury except in pursuance 7. What is referred to by of an appropriation made by law."

the term "national gov

3.

The National Government budget (also known simpl The aforequoted provision of the Constitution also establishes the need for all the totality of the budgets of various departments o government entities to undergo the budgeting process to secure funds for use to Local Government Units including the NG support in carrying out their mandated functions, programs andOwned and Controlled Corporations (GOCCs). It is w activities. government plans to spend for its programs and pro what it projects to have as funds, either from reven How are government funds appropriated? with which to finance such expenditures.

4.

Funds for the use of government entities are appropriated or authorized On what is the national government budget following a process with the following major8. steps : 1) individual agencies prepare their estimates of expenditures or proposed budgets for the succeeding year and submit these estimates or proposals contained in required The national budget is allocated for the implementat budget forms to the DBM following baseline figures, guidelines and timetable the operation of governmen programs and projects, earlier set; 2) agencies justify details of their proposed salaries of government employees, and payment of budgets before DBM technical review panels; 3) DBM reviews and consolidates proposed budgets of expenditures are classified by expense class, sector all agencies for inclusion in the President's proposed budget for submission to government. Congress; 4) agencies explain the details of their proposed budgets in separate hearings called by the House of Representatives and the Senate for 9. Why does the the inclusion in the General Appropriation Bill; and 5) the President signsgovernment prepare a new bu General Appropriation Bill into law or what is known as the General Appropriations Act (GAA). The preparation of the government's budget every y the provision of the Constitution which requires the budget of expenditure and sources of financing with What is a government budget? opening of every regular session of Congress.

In general, a government budget is the financial plan of a government for a The yearly preparation of the budget is also in conso given period, usually for a fiscal year, which shows what its resources are, and which requires all government spendings to be justi how they will be generated and used over the fiscal period. The budget is the principle ensures that government entities continuou government's key instrument for promoting its socio-economic objectives. the allocation of resources to project/activities for co effectiveness. The government budget also refers to the income, expenditures and sources of borrowings of the National Government (NG) that are used to achieve national What are the sources of appropriations that objectives, strategies and programs. 10.

budget?

Section 22, Article VII of the Constitution states that:

The sources of appropriations of the annual budget appropriations legislated by Congress for every budg "The President shall submit to the Congress within 30 days from the opening

Appropriations Act (GAA); and 2) existing appropriations previously authorized utilization and disbursement General Fund and their by Congress. Under the Constitution, Article VI, Sectionprocess. The one-fund concept is significant in that 29, no money can be withdrawn from the Treasury except in pursuance of anthrough which made authorities may properly allocat appropriation fiscal by law. resources in accordance with the priorities in the ov development.

11.

What are the existing or continuing appropriations?

It likewise provides a mechanism to control drawdow Regularly, the level of funds disbursed are monitore Existing or continuing appropriations are those which have been previously revenues generated. This way, we are able to stick t enacted by Congress and which continue to remain valid as an appropriation disbursement for a given period and avoid incurring authority for the expenditure of public funds. There are two type of existing of possible revenue shortfalls. appropriations :1) continuing and 2) automatic. Continuing appropriations refer to appropriations available to support obligations for a specified purpose or project, such What is a balanced budget? What happens w as multi-year construction 15. projects which require the incurrence of obligationsnot balanced? budget even beyond the year. Examples of continuing appropriations are those from existing laws such as : RA 8150, otherwise known as the Public Works Act of 1995; and Republic In the context of government budgeting, a budget is Act No. 6657 and Republic Act 8532 which set funds specifically for the revenues match expenditures or disbursements. Agrarian Reform Program (ARP). Currently, appropriations for capital outlays and maintenance and other operating expenses are considered as continuing When expenditures exceed revenues, the governme appropriations but only for a period of 2 years. may result in the following situations:

Automatic appropriations, on the other hand, refer to appropriations The government of programmed annually or for some other period prescribed by law, by virtue borrows money either from fore domestic capital outstanding legislation which does now require periodic action by Congress.market which increases the deb debt servicing requirements; Falling under this category are expenditures authorized under Presidential Decree (PD) 1967, RA 4860 and RA 245, as amended, for the servicing of domestic and foreign debts, Commonwealth Act 186 and RA 660, for the retirement and insurance premiums of government employees, PD 1177 and Executive Order 292, for net lending to government corporations, and PD The government borrows money from the Bangk 1234, for various special accounts and funds.

12.

Are all appropriations supported by resources and allocable during the budget year?

The government withdraws funds from its cash b

13.

No, only programmed appropriations are supported by corresponding resources, that is, they already have definite funding sources and are readily implementable. Unprogrammed appropriatons are not yet has been the government's fiscal polic 16. What supported by corresponding resources and are nevertheless included by Congress in the General Appropriations Act. These are called standby appropriations which Historically, national government expenditures have authorize additional agency expenditures for priority programs and projects in revenues resulting in annual budget deficits. Thus, t excess of the original budget only but only when revenue collections exceed had to resort to borrowing to cover said deficits whic the resource targets assumed in the budget or when additional foreign project ballooning of foreign and domestic debts. However, loan proceeds are realized. broke the deficit trend by posting a budget surplus o aggressive privatization and revenue generation pro What is the "one-fund" concept? expenditure program. Since then, the government h maintain the surplus budget policy.

14.

The "one-fund" concept is the policy enunciated through PD 1177 which requires that all income and revenues of the government is surplus budgeting necessary? 17. Why must accrue to the General Fund and thus can be freely allocated to fund programs and projects of government as prioritized. The surplus budget policy is important to encourage less the government borrow from the public, the les Why is the "one-fund" concept important? interest and inflation rates and the more funds are m financial market. Such funds may be used by busine hire workers, buy equipment and open more employ The "one-fund" concept is a fiscal management policy requiring that as much keeping more funds in as possible, all revenues and other receipts of the government must enter the the hands of the private sect

18.

for credit, the government helps make financing available for families who want to own homes, buy cars, or support their children's education. The government also needs to generate a budget surplus to repay the huge debt it 1. What is government budgeting? has accumulated over the years. The reduction of the national budget debt will correspondingly lessen government's requirements for interest and principal payments. This becomes important particularly during periods of rising interest is the critical exercise of allo Government budgeting rates and unstable exchange rates. borrowed funds to attain the economic and socia l g entails the management of government expenditure create the most economic impact from the productio What is the total resource budget concept and its significance? and services while supporting a healthy fiscal positio

Total resource budgeting is a concept adopted by the present budgeting 2. Why is government system which requires the preparation of the national government within thebudgeting important? framework of the total impact of all government entities on the national economy. Under this concept, the National GovernmentGovernment budgeting is important because it enab (NG) budget is considered as only one component of the entire public sector resources.financial resources to support the im and manage its Government-Owned and Controlled Corporations (GOCCs) and Local projects that best promote the develo programs and Government Units (LGUs) are also considered as substantial contributors to the government can prioritize a Through the budget, total public resources. plants, programs and policies within the constraints as dictated by economic conditions. GOCCs and LGUs are therefore required to prepare their budget consistent in form and timing with that of the NG to facilitate comprehensivethe major processes involved in na What are evaluation of 3. the overall budget.

budgeting?

In total resource budgeting, the energies and capabilities of all public entities Budgeting for the national government involves four are harnessed in drawing up the optimal package of goods and services that phases : budget preparation, budget authorization, can be sustained by available resources. execution andaccountability.

19.

What is the consolidated public sector fiscal position? While distinctly separate, these processes overlap in

during a budget year. The consolidated public sector fiscal position (CPSFP) refers to the net deficit or surplus calculated after summing-up the budget balances of preparation for the next budget year procee Budget all government entities, namely the national government, the non-financial government agencies are executing the budget for the current ye corporations (usually includes only the 14 major GOCCs), government financial engaged in budget accountability and review of the institutions, local government units, the social security institutions, the Oil Price Stabilization Fund, the Bangko Sentral ng Pilipinas, and the Central 4. How is the annual national budget prepared? Bank-Board of Liquidators.

20.

The preparation of Through the CPSFP, the government is able to assure itself that all public the annual budget involves a ser with the determination of the overall economic targe resources are mobilized and used in magnitudes that are consistent with revenue projection overall macroeconomic targets and the government's economic priorities. and the financing plan by the De Coordinating Committee (DBCC). The DBCC is an in of the DBM Secretary as Chairman and the Bangko S What is the planning-programming-budgeting system (PPBS)? Secretary of the Department of Finance, the Directo Economic and Development Authority and a represe The planning-programming-budgeting system (PPBS) is a as members. The major activities involved President concept that stresses the importance of establishing a strong linkage between planning andinclude the following: annual national budget budgeting. It emanates from the policy of the government to formulate and implement a national budget that is an instrument of national development, Determination of overall economic targets, expen reflective of national objectives, strategies and framework by plans. the DBCC; Under the PPBS concept, the budget is anchored on the degree byby the DBM of the Budget Call which de Issuance which the accomplishment of economic plans and the attainment offramework; sets economic and fiscal targets; pre target contained in the Medium-Term Philippine Development Plan (MTPDP) and the Medium-Term and budget levels; and spells out the guidelines Public Investment Program (MTPIP) are supported. instructions and the timetable for budget prepara

II. A. The Budgeting Process

THE BUDGETING PROCESS

Preparation by various government agencies of t estimates ranking programs, projects and activit budgeting approach and submission of the same

Conduct a budget hearings were agencies are called adopted the Simplified Fund Release System (SFRS) to justify their proposed budgets before DBM technical panels; Submission of the proposed expenditure program of In contrast to the previous system of releasing fund department/agencies/special for confirmation by department/agency the SFRS is a policy-driven system agency requests, heads. release of funds across agencies which are similarly Presentation of the proposed budget levels of department/agencies/special of the government. specific policy initiatives purpose funds to the DBCC for approval. Review and approval of the proposed budget by the President and the Following the SFRS, the agency budget matrix (ABM Cabinet; in consultation with the agencies at the beginning of Submission by the President of proposed budget to Congress. approval of the annual General Appropriations Act. T disaggregation of all the programmed appropriation To meet the Constitutional requirement for the submission of the President's various expenditure categories. As such, the ABM se budget with 30 days from the opening of each regular session of the basis for determining the timing, comp provides Congress, the budget preparation phase is guided by a budget calendar. release of the budget. the

5.

How does the budget become a law?

Based on updated resources and economic developm with the cash budget program, the Allotment Releas prescribes the submits In accordance with the requirements of the Constitution, the Presidentguidelines in the prioritization of fund his/her proposed annual budget in the form of Budget of Expenditure and Sources of Financing (BESF) supported by details of proposed expenditures in for the issuance of either a The ARP serves as basis the form of a National Expenditure Program (NEP) and the President's or a Special Allotment Release Order Order (GARO) Budget Message which summarizes the budget policy thrusts and priorities for the agencies to incur obligations. maybe, to authorize year.

Subsequently, the DBM releases the Notice of Cash In Congress, the proposed budget goes first to the House of Representatives, monthly or quarterly basis. The NCA specifies the m which assigns the task of initial budget review to its Appropriation Committee. withdrawal that an agency can make from a governm indicated. The Bureau of the Treasury (BTr), repleni servicing banks with The Appropriation Committee together with the other House Sub-Committeefunds equivalent to the amount presented to the their conduct hearings on the budgets of departments/agencies and scrutinizegovernment servicing banks by imp

respective programs/projects. Consequently, the amended budget proposal is presented to the House body as the General Appropriations release of NCAs by the DBM is based on: 1) the The Bill. agencies as indicated in their ABMs, cash plans and Summary List of While budget hearings are on-going in the House of Representatives, theChecks Issued (SLCI); and 2) the c government and updates on projected resources. 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. the released NCAs following the "Co Agencies utilize Under this concept of fund release, agencies are giv the use of their cash allocations provided that the au To thresh out differences and arrive at a common version of the General Appropriations Bill, the House and the Senate creates a specific purpose is not exceeded. Project implement Bicameral Conference Committee that finalizes the General Appropriations Bill.

6.

8. What is the General Appropriations Act?

Why are adjustments made on the budget p

7.

Adjustments are made on the budget even during im because of the following: 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 Enactment of new laws - Within the fiscal year, n other operating expenses; and capital outlays authorized to be spent for the implementation of corresponding identified new revenue sources ar various programs/projects and activities of all departments, bureaus and the budget program. adjustments in offices of the government for a given year. Adjustments in macroeconomic parameters - The considered in the budget are periodically reviewe the impact of recent developments in the project How is the budget implemented? national economy and on the set fiscal program f indicators affecting the budget aggregates includ Budget implementation starts with the release of funds to the agencies. To (GNP), inflation rate, interest ra National Product accelerate the implementation of government programs and projects and the level of imports. Thus, a sensi oil prices, and ensure the judicious use of budgeted government funds, the government

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.