Business World, 16 January 2013


The budget deficit as of November 2012 was contained to less than half (45.6%) of planned deficit — actual deficit of 127 billion versus full-year program of 279 billion. Fiscal managers are quick to boast that the lower-than-planned deficit is a “success.” Really? I see it as a twisted spin of a negative outcome, failure masquerading as success. How can the lower-than-planned budget deficit be a success when it was characterized by huge revenue shortfall and serious underspending in public infrastructure?

Remember 2011’s underspending in public infrastructure? It’s being replayed in 2012. The Aquino team has yet to get out of its image of a slow-moving and ineffective administration.

The lower-than-planned budget deficit may be considered a success if it was achieved through higher tax collection or higher efficiency in government spending. The harsh reality is that the revenue shortfall, mainly due to the Bureau of Customs, is humongous. The deficit would be about 67 billion, not 127 billion, as of November had the Bureau of Customs collected what it promised to collect last year.

The Bureau of Customs promised to collect 347 billion in 2012. As of November, it was able to collect 264 billion. In order to meet its annual target, the BoC has to collect 83 billion in December, or 3.5 times its actual monthly collection from January to November. But given the weak imports and strong peso, that would be an impossible goal!

The lower-than-planned budget deficit may be considered a success if it was achieved after the most important component of the budget — public infrastructure — had been implemented and completed. Yet, a huge part of the infrastructure projects authorized by Congress remain unimplemented, some yet to be started, as of November 2012.

The adjusted infrastructure and other capital outlays budget in 2012 was 298 billion. As of November 2012, only 186 billion or 62.4% the total has been disbursed. The total included projects authorized in 2011 but were delayed in its implementation.

With the early approval of the 2011 and 2012 budgets, there is no reason why projects would be delayed. Yet, some 112 billion, or roughly 1% of gross domestic product (GDP) have been stalled.


There seems to be no sense of urgency. The Philippines has been underspending in public infrastructure for more than a decade. It has a lot of catching up to do with its ASEAN-5 neighbors. Yet its grossly inadequate budget for public infrastructure has been caught in the bureaucratic labyrinth.

For the Aquino administration to make good its promise to move government-funded projects, it has to spend 112 billion in December alone. But that’s 6.6 times the average monthly spending of 16.9 billion for public infrastructure and other capital outlays from January to November 2012. Another impossible task!

Boasting of fiscal success in the light of huge revenue shortfall and serious underspending in public infrastructure is intellectually dishonest. And it’s a puzzle to me why fiscal managers keep calling such dismal performance a success.

Is it to impress rating agencies and international funding agencies? I hope not. Those guys are smart and they know the true fiscal picture. They recognize what the country needs: a strong, sustainable revenue base. We need fundamental tax reform in order to raise the revenue generating capacity of the government. The recently approved higher sin taxes may help, but the expected incremental revenue is not enough — only 0.3% of GDP, assuming the revenue forecasts are accurate.

Astute analysts see the need to improve government effectiveness. The bureaucracy is just too slow and ineffective. Public spending as percent of GDP is low compared with our ASEAN-5 neighbors. And what little appropriations have been budgeted and authorized by Congress, a big chunk of which remains unimplemented.

The Filipino people see through this illusion of fiscal success. They know that government projects are moving rather slowly. They are losing hope that the more than two dozen public-private partnership (PPP) projects which were promised more than two years ago would ever take off.

Public school children continue to suffer due to crowded, dilapidated, sometimes non-existent, school facilities because the construction of new school buildings and other school facilities has been delayed.

Project delays entail opportunity costs. Projects done now rather than later, generate benefits much sooner. With every project delay, opportunity costs mount up. In brief, sitting on much needed infrastructure projects, in order to show a lower-than-planned deficit, is costly and counterproductive.