The Philippine government would still be pushing through with the adoption of cash budgeting despite the deletion of proposed provisions on cash budgeting in the bicameral version of the General Appropriations Bill ratified by both houses of Congress last February 8, 2019, Budget and Management Secretary Benjamin Diokno announced today.
“The content and form of the budget is an executive decision,” the budget chief explained.
Secretary Diokno cited the Administrative Code of 1987 as the enabling legislation for such an action. According to Section 36, Chapter 5, Book VI of Executive Order No. 292 or the Administrative Code of 1987, “an operational cash budget shall be implemented to ensure the availability of cash resources for priority development projects and to establish a sound basis for determining the level, type and timing of public borrowings”.
“We included cash budgeting as a General Provision in the proposed budget because we want this to be the usual practice from hereon in,” Secretary Diokno said.
Given the size of the budget and the commitment to close the infrastructure gap, the budget chief emphasized the urgency of implementing the reform “if we want to catch-up with the rest of the world”.
“Some governments are even moving towards accrual-based systems, which is the next step after cash budgeting. We will fall far behind if we do not implement this now,” he said.
Cash budgeting is the most widely-used budgeting system, with 73% of the Organisation for Economic Co-operation and Development countries around the world, as well as the private sector, implementing it.
When asked about the study by the Rene Santiago cited by House Appropriations Committee Chairperson Congressman Rolando Andaya regarding problems experienced by the UK Government with cash budgeting, Secretary Diokno said he has looked into it, and that the “Department of Budget and Management (DBM) is learning from the global experience in cash budgeting”.
“Because we allow multi-year contracting, the Philippine system is actually enjoying the best of both worlds - annual discipline with a multi-year perspective through a procurement framework that allows for multi-year contracting,” Secretary Diokno assured.
Cash budgeting versus Obligation budgeting
Currently, the budgeting system practiced by the Philippine government is obligation budgeting.
Under obligation budgeting, contracts awarded within the Fiscal Year (FY) can be delivered even after the end of the year. Meanwhile, under cash budgeting, contracts of up to 12 months should be fully delivered by the end of the FY. This is the implication of shifting from a budgeting system that budgets for commitments and contracting to a system that budgets for payment of goods and services actually delivered.
Shifting to cash budgeting is expected to quicken the government’s budget utilization. It will also promote discipline since agency heads will only propose projects and programs that are implementation-ready. Moreover, since it shows disbursements rather than obligations or commitments, a cash budget would reflect more accurately the annual outputs and outcomes of the government.
A cash budget is a more transparent way of budgeting since the annual budget will more clearly show how much financial resources the government is spending for goods and services annually.
Multi-year projects will not be hurt by cash budgeting
When asked if had any idea as to why the House and Senate proceeded to delete the General Provision on shifting to cash appropriations, Secretary Diokno said that some lawmakers were “possibly misinformed” on cash budgeting, despite efforts from the DBM to educate them.
One prevalent misconception on cash budgeting that has been making the rounds in Congressional hearings until recently is that cash budgeting limits agencies to projects that can only be implemented within the year. As a result, as some legislators fear, multi-year projects would have to be divided into several single-year contracts.
“This is absolutely not true. In fact, the current Procurement Law perfectly allows procuring for multi-year projects,” says Diokno.
“You can still enter into multi-year contracts,” he clarified. “All you need is to secure a Multi-Year Contracting Authority (MYCA) from the DBM”.
Under cash budgeting, multi-year projects may still be awarded as multi-year contracts. However, they will have to be budgeted annually based on what the contractors are expected to deliver by the end of the Fiscal Year (FY). In other words, projects have to be included in the budget for every year of implementation to ensure payment for deliverables by the end of the year.
Should a contractor fail to deliver the goods or services expected by the end of the year, payment for the same will have to be budgeted for in the next FY. This applies to both single-year and multi-year projects.
But while the multi-year project will be in multiple GAAs, there will just be one contract and one procurement.
PR No. 2019-40