ASSESSMENT OF NATIONAL GOVERNMENT DISBURSEMENTS PERFORMANCE AS OF SEPTEMBER 2011 Total spending of the national government in the first three

quarters amounted to P1.070 trillion, equivalent to 83.9 percent of the programmed disbursements for the period. For the first time this year, a 1.5 percent expansion was recorded during the third quarter (Q3), easing the year-on-year contractions registered during the first and second quarters of 12.7 percent and 10.1 percent, respectively. Relative to program, underspending was also lower at 15.0 percent in Q3 than the average in the first two quarters at 16.7 percent. This performance reflects the catch-up plans of departments/agencies taking effect. It will be noted also that new fund release policies were issued in September aiming to streamline processes, optimize the use of available resources, and fast-track fund utilization such as the shift from monthly to quarterly lapsing of NCAs, and the automatic release of NCA based on Monthly Cash Program submitted by agencies. Table 1 below shows the improvement in the spending capacity of the government in terms of utilization of NCAs in Q3, which stood at 96.9 percent, better than the 91.4 percent utilization rate as of June and the 96.7 percent last year. While both NCA and non-NCA disbursements in Q3 remain lower than program by 15.4 percent and 14.0 percent, respectively, due largely to lower spending demand by departments/agencies and favorable interest rate environment, disbursements through the use of NCAs rose by P12.8 billion or 5.1 percent from the comparable period last year. Still indicative of the accelerated utilization of funds during the third quarter, the average monthly NCA disbursements in Q3 of about P87.2 billion is higher than the average P81.5 billion per month in the first semester.
Table 1 Comparison of NCA and Non-NCA Disbursements, Program vs. Actual, 2010-2011 in billion pesos, unless otherwise indicated Q1-Q2 2011 Particulars NCA % of Eff. NCA Non-NCA Total Actual 489.1 91.4 209.8 698.9 2010 Actual 248.9 96.7 116.8 365.7 Prog. 309.2 127.4 436.6 Q3 2011 2010 vs. 2011 2010 Deviation Inc./(Dec.) Actual Amount % Amount % Actual 261.7 (47.5) (15.4) 12.8 5.1 811.9 96.9 97.6 109.5 (17.9) (14.0) (7.3) (6.2) 342.6 371.2 (65.4) (15.0) 5.5 1.5 1,154.5 As of September 2011 2010 vs. 2011 Deviation Inc./(Dec.) Actual Amount % Amount % 750.8 (153.7) (17.0) (61.1) (7.5) 93.2 319.3 (51.4) (13.9) (23.3) (6.8) 1,070.1 (205.1) (16.1) (84.4) (7.3)

Prog. 904.5 370.7 1,275.2

Source of basic data: Bureau of the Treasury (BTr)

Memo Items: Effective NCAs Issued net of Trust Liabilities, gross of Working Fund: As of September 3rd Quarter 2010 832.0 2010 257.4 2011 805.4 2011 270.1 Allotment Releases As of September 2010 1,248.2 representing 81% of the 2010 obligation program of P1,540.6 billion As of September 2011 1,395.1 representing 85% of the 2011 obligation program of P1,645.0 billion
Source: Budget Technical Service (BTS)

As of September, DBM has already released allotments equivalent to 85.0 percent of the P1.645 trillion expenditure program for the year, 11.8 percent more than the issuances in the same period last year. Notable SAROs issued in September include the following: 1. DND capability requirements in securing and protecting the Malampaya Natural Gas-to-Power Project (P4.9 B); 2. DPWH various infrastructure projects (P2.8 B); 3. DILG pay and allowances of newly-filled positions for uniformed personnel (P2.1 B); 4. payment of customs, duties and taxes (P1.8 B); 5. terminal leave and retirement gratuity benefits (P1.6 B); 6. DOH Health Facilities Enhancement Program (P1.2 B); and 7. NEA Sitio Electrification Project (P0.8 B).

Year-on-Year Performance for the 3rd Quarter Tempering the first semester slowdown of 11.4 percent, growth in Q3 spending of 1.5 percent or P5.5 billion was the result of expansion of both current expenditures brought about by the faster utilization of funds for regular operating requirements and the larger subsidy, and equity contributions to government corporations. Below are the major expense classes for which significant year-on-year growth was seen during the third quarter: Spending for Personal Services (PS) grew by P10.7 billion or 10.0 percent due to the 3rd tranche implementation of the Salary Standardization Law III in June 2011, and the releases in the pay and allowances of PNP uniformed personnel to address deficiencies based on reconciled manpower rosters.
Table 2: Disbursements by Expense Class, 2010 vs. 2011 in billion pesos, unless otherwise indicated Particulars Current Oper. Exp. PS MOOE Subsidy Allotment to LGUs IP TEF Capital Outlays Infra & Other CO Equity Cap. Transfers to LGUs CARP-LO Net Lending TOTAL 3rd Quarter 2010 2011 306.5 320.8 106.7 117.4 42.5 48.5 2.2 4.9 53.2 57.4 97.8 87.9 4.1 4.7 57.1 47.5 43.2 32.9 0.1 0.2 13.8 14.5 2.1 2.8 365.7 371.2 Increase/Decrease Amount % 14.3 4.7 10.7 10.0 6.0 14.1 2.7 124.1 4.2 8.0 (9.9) (10.1) 0.5 13.2 (9.5) (16.7) (10.3) (23.9) 0.1 161.1 0.7 4.9 #DIV/0! 0.8 37.1 5.5 1.5

Maintenance and other operating expenditures (MOOE) likewise rose by P6.0 billion or 14.1 percent (vis--vis negative 34.0 percent in Q1 and positive 14.1 percent in Q2) mainly on account of the increasing provision for the social protection programs of the DSWD such as Pantawid Pamilyang Pilipino Program and pension program for indigent older persons. Subsidies to GOCCs increased by P2.7 billion or more than 100 percent, given the additional release of P1.6 billion in August for the NPC-Small Power Utilities Group (NPCSPUG) to prevent further blackouts in these areas, and the release of P814.4 million in September for the Sitio Electrification Project of NEA to light-up sitios through on-grid electrification. Transfers to LGUs expanded by P4.9 billion or 7.3 percent due to the mandated shares of LGUs provided in the Local Government Code. Offsetting the growth in the above items were the following: Reduction in interest payments (IP) as average interest rates (benchmarked at 364-day Tbill rate) and foreign exchange rates were lower this year than the comparable figures in 2010. Capital Outlays (CO) also remained substantially below than last year by P10.3 billion or 23.9 percent in Q3, still on account of lower payments of accounts payable specifically by DPWH and delayed implementation of some capital projects such as the DOHs Health Facilities Enhancement Program and DepEds Basic Educational Facilities Fund (releases for which only commenced in May). It is however important to note that the capital spending in the third quarter of P32.9 billion is significantly higher (on the average 24 percent higher) than the comparable P24.5 billion of Q1 and the P28.8 billion of Q2. A slight uptick can also be seen in the trend of NCA issuances to DPWH to cover prior and

current accounts payable due to various contractors/service providers amounting to P20.3 billion in Q3, twice as much as the average issuances for the first two quarters. Performance vs. Programmed Levels for the 3rd Quarter Even with the early release of allotment authorizations, efforts by departments/agencies to catch-up on program/project implementation and facilitative policies to improve fund absorption, disbursements by the departments/agencies do not appear to be speeding up as expected. National government spending still fell short of programmed spending by 16.1 percent during Q3, a minimal improvement from the 16.7 percent underspending recorded during the first half of the year. As we have highlighted in the first semester assessment report, a contributing factor to this underspending has been the slow obligation performance of some departments/agencies. . In part this has been due to the review of project cost structures as in the case of DPWH, the many requests for realignment of funds, also in the case of DPWH, and the delay in identifying activities to be prioritized and funded from lump-sum appropriations in the case of many of the departments, especially the large ones. However, in the absence of updated Statement of Allotments, Obligations and Balances (SAOB) as of September 30 for most of the departments/agencies, information on how the obligation performance in Q3 fared with the previous quarters cannot be ascertained yet. But an indication that the spending demand of departments/agencies has indeed improved is the NCA disbursements which is below program by a lower 15.4 percent in Q3, after reaching an average of 17.8 percent in the first semester. Still, disbursements in all expense items still recorded a below program performance in Q3. This can be explained by the following:
Table 3: Disbursements by Expense Class, Program vs. Actual in billion pesos, unless otherwise indicated Particulars Current Oper. Exp. PS MOOE Subsidy Allotment to LGUs IP TEF Capital Outlays Infra & Other CO Equity Cap. Transfers to LGUs CARP-LO Net Lending TOTAL 3rd Quarter Program Actual 353.6 320.8 130.2 117.4 52.8 48.5 7.6 4.9 57.4 57.4 97.0 87.9 8.5 4.7 76.5 47.5 55.5 32.9 0.4 0.2 16.6 14.5 4.0 6.5 2.8 436.6 371.2 Deviation Amount % (32.7) (9.3) (12.8) (9.8) (4.4) (8.2) (2.6) (34.9) (9.1) (9.4) (3.8) (44.9) (29.0) (37.9) (22.6) (40.8) (0.2) (55.0) (2.1) (12.8) (4.0) (3.7) (56.4) (65.4) (15.0)

Underspending in PS in the amount of P12.8 billion or 9.8 percent is largely attributed to lower-thanexpected claims for retirement gratuity and terminal leave benefits and for disbursements from the Miscellaneous Personnel Benefits Fund and other compensation items, for instance, lump-sum for the creation of new positions.

Maintenance expenditures stood lower than program in Q3 by P4.4 billion or 8.2 percent, a recovery from the P25.6 billion or 23.9 percent shortfall in the first semester. Still lower than programmed, MOOE disbursements lagged behind due to funds already released to departments/agencies but remain unobligated, as well as allocations still unreleased awaiting special budget requests and documentation requirements. Examples of these are the following: Unobligated 1. DSWDs Pantawid Pamilyang Pilipino Program (4Ps) Of the P29.2 billion allotment released, P15.0 billion or 51.4 percent has been obligated as of September 30 covering only the registered beneficiaries who strictly comply with the conditionalities of the program.

2. DAs Banner Programs for Rice, Corn, High-Value Crops, Livestock and Fisheries Of the P7.3 billion allotment released, only P1.7 billion or 23.6 percent has been obligated as of July 31. 3. DOHs Expanded Immunization Program - Of the P2.5 billion allotment released, only P0.7 billion or 28.0 percent has been obligated as of June 30. Unreleased 4. DepEds lumpsum for the purchase of textbooks/instructional materials (P1.8 billion) request for which was returned to DepEd due to insufficient supporting documents. 5. DARs P1.1 billion balance for the requirements for the Comprehensive Agrarian Reform Program (CARP) remain unreleased due to incomplete requirements. 6. DFAs P1.6 billion balance for the purchase of blank e-passport booklets is still in process. 7. Balance of P6.7 billion for road maintenance projects charged from the Motor Vehicle Users Charge (MVUC) no request and list of maintenance projects have been submitted to DBM for release of funds. Capital spending substantially fell short of the P55.5 billion target for the period by as much as 40.8 percent. Similar with MOOE, this is however, a welcome improvement given the larger 56.1 percent shortfall recorded in the first semester. Also like in MOOE, underspending persisted due to the combined effects of slow obligation and project implementation as well as unreleased balances of critical programs/projects. For instance, the P12.5 billion PPP Strategic Support Fund allocated for three (3) agencies DPWH, DOTC and DA remain almost untouched, specifically, the P5.0 billion DOTC allocation for the purpose is still unreleased as the listing of projects are yet to be finalized upon completion of ongoing reconfiguration studies. Other CO allocations for release are the DOH Health Facilities Enhancement Program (balance of P5.9 billion), AFP Modernization Program (P5.0 billion), and DA Farm-to-Market Roads (balance of P1.1 billion) Some P9.1 billion of savings was incurred on Interest Payments as average domestic interest rates for the period were 3.4 percentage points lower than the assumed 364-day T-bill rate of 5.5 percent. Operational subsidies to GOCCs were below target for the period due to the reprogramming of releases for the resettlement, relocation and housing projects of the NHA and the current years allocation for the premium subsidy for indigent families under the National Health Insurance Program of the PHIC. Capital transfers to LGUs were also below program by P2.1 billion or 12.8 percent largely on account of the special shares of LGUs in the Tobacco Excise Tax, which remains unreleased pending the receipt of complete documentation requirements and necessary authorizations by the DBM. Grant of tax subsidies was P3.8 billion lower than program mainly on account of lowerthan-expected importation requirements by NGAs and GOCCs, particularly NFA given the favorable harvest recorded in the first half, especially in the palay and corn sub-sectors. The programmed allocation of P4.0 billion for the payment of landowners compensation under CARP was reprogrammed for release in the fourth quarter. Some P3.7 billion underspending also registered in net lending to GOCCs as NG advances are now expected to be demanded towards the latter part of the year.

Year-on-Year Performance for the January to September Performance National government Table 4: Disbursements by Expense Class, 2010 vs. 2011 disbursements for the ninein billion pesos, unless otherwise indicated month period is P84.4 billion January-September Increase/Decrease or 7.3 percent less than the Particulars 2010 2011 Amount % Current Oper. Exp. 918.5 916.6 (1.9) (0.2) comparable spending of PS 336.5 353.5 17.0 5.0 P1.155 trillion in 2010. MOOE 135.7 130.0 (5.7) (4.2) However, disbursement Subsidy 9.7 19.1 9.4 97.6 performance in the recent Allotment to LGUs 162.9 172.2 9.2 5.7 IP 244.5 222.4 (22.1) (9.0) months resulted to gradual TEF 29.2 19.5 (9.7) (33.3) narrowing of the year-onCapital Outlays 229.5 138.3 (91.2) (39.7) year slowdown which peaked Infra & Other CO 183.8 86.1 (97.7) (53.1) in the first quarter at 12.7 Equity 0.9 0.3 (0.6) (66.1) Cap. Transfers to LGUs 44.7 51.8 7.1 15.9 percent, and is now down to CARP-LO #DIV/0! 7.3 percent as of September, Net Lending 6.5 15.2 8.7 132.8 signaling the month by TOTAL 1,154.5 1,070.1 (84.4) (7.3) month improvement in the fund absorption of departments/agencies. Particularly, this trend has been most evident in PS due primarily on mandatory salary adjustments and in transfers to GOCCs in the form of subsidies for corporations rendering service delivery to the poor such as PHIC and NPC-SPUG. Although contraction still lingered under MOOE and CO, the negative year-on-year gap has nevertheless been reduced, suggesting slight acceleration of disbursements under these accounts over the previous months.

Outlook for the Rest of the Year

Table 5: Status of 2011 Allotment Releases in billion pesos, unless otherwise indicated Balance Program Releases* Amount % 1,645.0 1,395.1 249.9 15.2

Particulars Original Program

* Inclusive of releases charged against RA 9970 - Continuing Appropriations, Automatic Appropriations and the Unprogrammed Fund
Source of basic data: BTS

Of the P1.645 trillion obligation program, only P249.9 billion or 15.2 percent remain to be released for the rest of the year. This would mostly cover earmarked and nondiscretionary items such as PS (P70.5 billion under Department budgets and Special Purpose Funds) and IP (P134.6 billion).

However, to raise the disbursement level for the rest of the year and generate additional economic activity given the lower-thanprojected economic growth during the first semester, the government has launched a P72 billion Disbursement Acceleration Program (DAP), comprising of projects selected based on their multiplier impact on the economy, their beneficial effect on the poor, and their quick translation into disbursements. As approved by the President, the DAP will be implemented immediately with the issuances of allotments from the 2010 continuing and the 2011 unreleased appropriations, and the corresponding cash authorizations. The plan is expected to boost disbursements in the fourth quarter and to jumpstart the implementation of the 2012 expenditure program. This will provide the cushion or additional domestic economic activity needed to avoid the further slowdown of the economy in view of the fiscal and economic problems plaguing the US and Europe, and the resulting decline of the countrys export prospects.