A.

Macro-Fiscal Context

In recent years, the Philippines has achieved rapid economic growth and currently faces favorable
macroeconomic prospects. According to the International Monetary Fund (IMF), the 6.1% economic
growth rate registered by the Philippines in 2014 was one of the fastest in the region.1 Remittances
from overseas, which are around 10–12% of GDP, and accommodative monetary and financial
conditions have offset the negative effects of volatile capital flows, an adverse external environment,
slowing activity in the region and severe natural disasters. Momentum is expected to be sustained, with
the growth rate likely to increase to 6.7% in 2015. The Philippines has advanced 28 places since 2009 (to
59th position) in the World Economic Forum’s Global Competitiveness Rankings, yet challenges remain.

Progress on the Millennium Development Goals (MDGs) is mixed in the Philippines. The government has
made strong progress in many areas, but is likely to fall short in meeting key MDG targets in poverty
reduction, specific aspects of education and gender equality, maternal health, and malnutrition among
children.2 Poverty incidence, although declining to 25% in mid-2013 from 28% in 2012, remains high. A
significantly large share of the population remains vulnerable to sliding back into poverty, threatened by
natural disasters and other exogenous shocks. Government bureaucracy and red tape are recurring
impediments for efficient service delivery, and rigid labor regulations constraint employment creation.
Unemployment and underemployment rates remain elevated although they have improved slightly over
recent years.

3Fiscal sustainability has always been a concern for the government over the past decade. The low level
of public expenditure on economic, social services and poverty reduction programs is partially a
consequence of the government’s traditionally tight fiscal position. The government’s fiscal
consolidation program has, however, trimmed down debt service as percentage of GDP from 5.3 %
registered in 2005 to 2.8 % in 2013.4 Stepping up efforts to increase revenue collections had resulted in
higher receipts during the period 2010–2013, but efforts need to be sustained and further intensified.
Reduction of debt service and greater revenue will provide larger fiscal space to accommodate increased
spending for basic goods and services.

Fiscal outlook for the period 2015–2017 remains optimistic. The government expects the budget deficit
to be approximately 2% annually for the period 2015–2017. Spending is expected to grow 19.9% and
revenue collection is expected to rise by 17.8 %. The government expects to improve revenue collection
and expenditure efficiency to balance the targeted fiscal program over the next three (3) years. Specific
assumptions and objectives include; increased spending on priority programs, strong private sector
consumption and investment, continued streamlining of business processes to promote
competitiveness, and measures to eliminate administrative bottlenecks. These measures will also boost
economic growth. Maintaining sound economic stewardship will continue to be important as the
national election approaches in 2016. With a budget deficit program of 2% annually for 2015–2017,
maintaining the expenditure focus on spending priorities while preserving fiscal prudence on a
sustainable basis will be a fiscal challenge going forward. Government spending on education in the
Philippines averaged 2.5% of GDP during 2002–2007 compared with 4.1% for the East Asia region. In
public health the Philippines spent 1.3% of GDP in 2006 compared with 2% for the East Asia region.
Source: World Bank. This debt service ratio includes both domestic borrowings, which account for a
substantial portion of its interest payments, and foreign debts which account for about 30–35 % of total
debt service. (Government of the Philippines. Department of Budget and Management. 2014 Mid-year
Report.)

B. Public Financial Management (PFM) and constraints

Improved public financial management (PFM) is central to the Philippines’ achieving its development
goals. This requires, amongst other things, a transparent and credible PFM system to manage public
resources for informed decision-making and effective provision of public goods and services. The 2007
PEFA Assessment and the 2011 Public Expenditure Review underlined the uneven development of
various sub-systems of PFM. Among the key efforts currently underway, PFM priorities include the
strengthening the evaluation of key government programs, and enhancing transparency and
accountability of the budget process. Plans for the rolling out the Government Integrated Financial
Management Information System (GIFMIS) are currently on hold.

Institutional Framework for Public Financial Management is fragmented. Several agencies are involved
in the implementation and oversight of PFM systems and in some cases have overlapping mandates.
The National Economic and Development Authority (NEDA) is responsible for planning and public
investment programming, Department of Budget management (DBM is entrusted with budgeting and
procurement matters, and cash and debt management is the responsibility of the Department of
Finance (DOF) with DBM also being the approving agency for cash programs. Accounting and auditing is
vested with the Commission of Audit (COA). Agencies require strong systems of checks and balances.
Technical coordination on macro fiscal policies is ensured through the Development Budget
Coordinating Committee (DBCC) which includes the Department of Budget and Management (DBM),
National Economic and Development Authority, Department of Finance (DOF), Bangko Sentral ng
Pilipinas (BSP) and the Office of the President (OP). However, some constitutional and autonomous
bodies like the COA and the Civil Service Commission (CSC) function independently on matters relating
to policies under their jurisdiction. This requires multiple levels of accountability.

Political economy behind budget formulation in Philippines. Political engagement in the budget process
occurs through a review and approval process that involves both chambers of Congress, the Executive
and the President.9 Although the “pork barrel” has been removed in the 2014–2015 budgets, additional
efforts are required to eliminate the existence of lump sum amounts for discretionary spending that
may provide similar opportunities for misuse of public funds. Under the Constitution, the President can
also exercise a high degree of discretion to re-allocate portions of the budget across the executive
branch during execution. In addition, the practice of re-enacted budgets has in the past undermined
budget credibility as well as the ability of the bureaucracy to execute the budget as intended. It can also
entail important management costs for agencies on top of an already complex appropriation structure.
These issues weaken the planning and budget process and contribute to allocative distortions in public
expenditure.

Fiscal consolidation program. The Aquino administration has focused the fiscal consolidation efforts
since 2010 on raising the revenue to GDP ratio and prioritizing expenditure toward key areas for
inclusive growth, including education, health, safety net, and infrastructure. The tax to GDP ratio has
improved from 12.1% in 2010 to some 14.7% in 2014 (although still below the level of the mid1990s at
17%). Progress on tax revenue collection are due to a number of measures, including several anti-tax
evasion and anti-corruption programs, improvements in business processes, and the passing, in 2012 of
the “Sin Tax Law”, which increased the excise tax rates on tobacco and alcohol products.

Public expenditure management is characterized by a generally low efficiency of spending. A

combination of expenditure restraints, privatization and slow budget execution has lowered the GoP’s
level of expenditure from 17% of GDP in 2010 to 16.3% in 2013. Together the revenue performance and
expenditure management in recent years have lowered the fiscal deficit from 3.6% in 2010 to 1.4% in
2013.

With DBM maintaining budgetary accounting, and personnel policies are dealt with by the Civil Service
Commission (CSC) with DBM deciding on staffing and compensation policies. Executive branch is
responsible for preparing and executing the national budget while the legislative branch is vested with
the power of legislating the budget. Executive Order 292 or the Administrative Code of 1987 sets out
some detailed rules, as well as the respective roles of the different agencies responsible for carrying out
PFM requirements. Annual budget circulars provide guidance on carrying out budget rules. Accounting
rules and procedures are provided in the Government Accounting and Auditing Manual (GAAM) and are
prescribed in a Government Accounting System (NGAS) while government procurement is governed by
RA 9184. Audit rules, as well as internal control systems are codified by PD 1445 or the “Government
Auditing Code of the Philippines. The promulgation of rules and regulations in the organization and
strengthening of internal control systems and procedures are governed by AO 119, s. 1989 with the
DBM mandated to implement the order. In the last decade the Philippines operated under several re-
enacted budgets covering the years 2001, 2004 and 2006. Also under the 1987 Constitution the
previous year annual budget is automatically considered re-enacted if Congress fails to pass an
appropriations law until a new annual budget is passed. Late passage (as late as March of the budget
year) of annual budgets in 2002, 2007, 2008, 2009 and 2010 resulted in re-enacted budgets effective up
the first quarter for these years, on the average. The Philippine Constitution provides for the re-
enactment of previous year’s General Appropriations Act (GAA) for the start of the fiscal year until the
new appropriations law is passed.

Sector composition of sectoral spending is improving. The Public Expenditure Review identified the
composition and distribution of public expenditure in Philippines as a systemic constraint to inclusive
growth. In a number of sectors, Philippines displayed also low efficiency of public spending, that is,
comparably low performance outcomes achieved per unit of public spending per annum. The Review
attributed lower efficiency in public spending largely to the disparities in the distribution of public
expenditures across income groups and across regions. The Aquino administration, anchored on
improved revenue performance, has since made important efforts to increase budgetary allocations to
key services such as health and education. Enrolment in PhilHealth has reached approximately 90% of
the population, up from 62% in 2010. In education, budget allocation for basic education continues to
grow as part of an overall reform agenda that includes curriculum and management reforms. Allocations
to the Department of Health more than doubled between 2010 and 2014 and a similar trend is observed
in Education which received the largest budgetary increases in the national budget in 2014 and 2015.
The data does not incorporate local government units’ expenditure in both areas. Bringing up public
expenditures on health, to regional levels, will require an additional 0.7 to 0.8% of GDP to cover
additional hospital bed capacity and other health services like immunization. Agriculture, which has a
high potential for growth and poverty alleviation, has struggled with a 1% GDP share of expenditures.
Transport spending has increased from 1.6 to 1.8 % of GDP between 2010 and 2013, but this increase
needs to be sustained to attract new investments and drive growth, especially through PPP projects.

Capital outlays have improved substantially since 2012, and reached 3.5% of GDP in 2014. The country is
well on its way to meeting the government target of 5% of public investment to GDP by 2016. Of this,
some 1.1 percentage points are expected to come from private sector contributions, aided by the
comprehensive package of reforms under the PPP program. The wage bill, as a share of GDP, continues
to be at comparable regional levels, or around 5% of GDP. As a share of government outlays is however
large comparatively, representing some 31% of total public expenditure.

Budget execution is a particular concern, together with underspending and slower disbursement.
Specific concerns include; insufficient internal capacities, delays in procurement and project
implementation, weak coordination and poor information systems in spending agencies. Disbursement
levels at the aggregate have deteriorated from 17.7% in 2009 to 16.3% in 2013, despite increases in
budgets for basic services realized through the larger fiscal space generated from reduction of debt
service and greater tax collection efforts. Comparative analysis of disbursements14 against obligations
incurred highlight recurring and serious under-spending from 2008 to 2013, and this trend is reported to
have continued through 2014.

Strengthening PFM at the subnational level is a governance priority. Transfers of funds to local
government units (LGUs) constitute 15–18 % of total public spending.
According to the Public Expenditure Review for Agriculture on Strengthening Public Finance for more
Inclusive Growth, World Bank reported in 2007 that Poor performance of the sector is also attributed to
weak policy environment. Dominance of low value commodities in production as well as bias over rice
self-sufficiency policy which is characterized by high production costs and government subsidies have
contributed to low productivity in the sector. The low level of investment in the sector is further
exacerbated by institutional and policy distortion. Findings from the World Bank Expenditure Review
showed that fragmentation and weak implementation of Public-Private Partnership initiatives contribute
to underperformance in the sector. Disbursements refer to total checks encashment and debited against
the National Treasury account. Internal Revenue Allotment (IRA) is a system of decentralization grants to
LGUs that provides more power and resources and responsibility for the provision of basic services and
facilities. Transferred basic services include the Internal Revenue Allotment (IRA), under law (RA 7160),
has been the mainstay of LGU budgets and represented 15–18% of government spending over the
period 2004–2014, and an average 2.8% of GDP. In addition, LGUs get a share of tobacco excise taxes,
franchise, economic zones, mining taxes, royalties and forestry and fishery charges. Despite wide
powers and authority to generate resources under the LGU Code, the high dependency on IRA continues
to persist, and it represented 64% of local revenues on average in 2014. Out of own revenue sources
(36% of the total local revenues), local governments collect some 71% from taxes (real property tax,
business tax mostly) and 29% from fees and charges. Low levels of revenue collection in the LGUs is
partly due flaws in the Local Government Code of 1991, which limit the potential for revenue collection,
but it is also due to weak revenue administration, and lack of accurate, computerized taxpayer
registration databases, including an absence of accurate cadastral information for property taxes. The
Internal controls in many LGUs are weak due to frequent staff turnover and insufficient PFM capacity.
Financial reporting is often for compliance. In Philippines, well formulated reform initiatives to a diverse
group of independent political units are difficult but are essential for effectively managing available
resources and reducing reliance on the IRA.
C. PFM achievements

Over the past decade, the government has adopted a “whole of system” approach to PFM reforms. A
medium-term expenditure framework and procurement reforms have been completed. In 2011, to
further strengthen reforms, the government formulated the Philippine Public Financial Management
Reform Roadmap (PPFMRR) 2011 to 2016 to address PFM dysfunctions and issues identified in the 2010
PEFA. The PFM Reform Roadmap (consisting of an ambitious 5-year action plan) seeks to establish a
more credible PFM system supported by an integrated financial management information system to
enhance greater accountability and transparency in public expenditure management. Reforms aim to
provide reliable and accurate information to support operational budgeting, cash programming,
management of liabilities, timely financial reporting, and effective enforcement and financial controls.
The reforms hold the potential to improve oversight by Congress and Civil Society Organizations (CSOs).

PEFA Assessment.

On the basis of the 2014 update of the 2010 PEFA assessment, the average scores for three of the six
dimensions (comprehensiveness and transparency; policy-based budgeting; and accounting, recording
and reporting) of the PEFA assessment
agricultural extension and on-site research, community-based forestry, field health, hospital and tertiary
services, public works funded out of local funds, school building, social welfare, tourism,
telecommunication and housing for provinces and cities. There are eighty one (81) Provinces, one
thousand four hundred ninety (1,490) municipalities, one hundred forty-four (144) cities and forty two
thousand twenty-eight (42,028) barangays that, each, receives checks from the national government for
their respective IRA allocation computed based on a prescribed formula . The Local Government Code
of 1991. Philippines. Many initial reforms- (i) relatively comprehensive budget documentation; (ii) a
framework for strategic prioritization of the budget through the introduction of a Paper on Budget
Strategy and a performance budgeting framework; (iii) tight controls of cash releases which has allowed
the government in times of crises to effectively control expenditure and thus the budget aggregates; (iv)
high quality procurement law that approximates international best practice; (v) reasonably transparent
and predictable allocation of transfers to Local Government Units (LGUs); (vi) systems improvement in
various departments that has led to strengthening some aspects of financial management; and (vii)
comprehensive coverage of external audits by the supreme audit institution, the Commission on Audit
(COA) - have worked well and achieved their objectives. 1Government of the Philippines. Government
Integrated Financial Management Information System (GIFMIS) Committee.

Philippine Public Financial Management Reform Roadmap: Towards Improved Accountability and
Transparency 2011 to 2015.

Areas where no progress was observed since 2010 included budget credibility, predictability and control
in budget execution, and external scrutiny and audit (in particular legislative scrutiny of external audit
reports).

The PFM Reform Roadmap is a comprehensive reform agenda, overseen by a PFM Committee consisting
of a four-level governance set-up and membership of four oversight agencies [DBM, DOF, Bureau of
Treasury (BTr) and Commission of Audit (COA)] with implementation support provided by
DFAT/Australian Aid. The roadmap focuses at six specific projects:

Budget reporting and performance management. A harmonized budget classification and unified
account code structure (UACS) has been formulated by DBM and CoA. It was rolled out for the 2014
budget preparation process, and is being adopted for accounting and reporting during 2015. When fully
implemented UACS will integrate budgeting and accounting classifications, and enable more timely
financial reporting and monitoring. DBM has also introduced performance-informed budgeting to
improve the link between resources and results, and various revised budget presentation formats have
been prepared. Additional reforms in this area include:

• Medium-Term Expenditure Framework. This framework was launched in 2007 and provides a
results-based approach to expenditure planning that provides a longer term perspective to budget
formulation and strengthens linkage of planning and budgeting processes for attainment of
organizational and national development goals. Every year during the annual budget preparation period,
DBM requires all agencies of the national government to submit a 3-year Forward Estimates (Fes) that
incorporate key program and expenditure priorities starting with the budget year and two years
forward. The Fes is updated every year to consider past performance and new expenditure
requirements.19 However, the utility of MTEF as an effective planning and results-based management
tool has not gone beyond compliance. The capacity to plan and develop investment projects is weak.

• Organizational Performance Indicator Framework (OPIF). An attendant requirement is the

submission of the Operations Performance Indicator Framework (OPIF) – a results-based budgeting
approach that links the budget with organizational goals and objectives and measures agency
performance through an output-outcome indicator system over the same 3 years. OPIF identifies major
final outputs (MFOs) based on mandated agency functions and links them with organizational and
higher societal and national development goals. The process of integrating OPIF with the budget has
taken a number of years. Since 2007, DBM has produced a consolidated Book of Outputs for all the
government departments. However, OPIF has remains an isolated performance reporting tool and its
potential for enhancing budget decisions has not been fully explored. The framework still offers scope
for technical refinements but OPIF has yet to be cascaded and entrenched in internal business
processes.

• Performance-Informed Budgeting (PIB). In 2014, DBM adopted a performance informed

budgeting (PIB) approach to provide more responsive, transparent and accountable public expenditure
management (National Budget Memorandum No. 117). The budget for the year 2014 was further
enhanced by important performance information for every government program, including the purpose
of the funds, outputs to be delivered, outcomes to be achieved and cost of the programs, activities and
projects. For the first time, government departments and agencies have specified their vision and
mission, as well as the target outputs that they will produce from the resources sought, and the
expected performance standards in service delivery.

• Paper on Budget Strategy. A yearly budget document is prepared by the DBM covering macro-
economic policies, priorities and strategies as laid down by the DBCC in the context of budget
formulation. So far, this document has remained an internal document and has not been made part of
the set of budget documents officially submitted to Congress.
• Online submission of budget proposals. Online submission of budget proposals was adopted in
2013 during the preparation of the 2014 national budget. The system allows agency central offices to
encode their budget data directly into the system and submit their consolidated budget proposals to
DBM in real time, replacing the paper and worksheet files that were used for manual submission.
Technical glitches delayed the full use of the system for the 2015 budget.

• Professionalization of PFM workforce. The above PFM measures have enhanced the policy
dynamics of budget making, and are moving the government towards a results-based budget. The
challenge that the government now faces is how to fully institutionalize these reforms. A PFM
competency model has been developed to provide a common language on PFM capacity building across
government.

• Accounting and auditing reforms. In Philippines, both audit and accounting functions are vested
upon a supreme audit institution; the COA. There is a general recognition to move away from this
practice, but the constitutional provision requiring COA to “keep the general accounts of the
government” is seen as a major impediment. With this mandate, COA has continued to set accounting
standards and rules and in 2002 rolled out a new government accounting system (NGAS) that aimed to
simplify government accounting, in conformity with international standards, and to generate periodic
and relevant financial statements. With the implementation of the NGAS, a modified accrual basis of
accounting was introduced. All government agencies are required to prepare a Balance Sheet, Income
and Expenditure Statement and a Cash Flow Statement. Central Offices of government departments
consolidate the financial statements. COA is developing a Philippine Public Sector Standards of Auditing
(PPSSA) and Public Sector Accounting Standards (IPSAS). Twenty–five PPSAS have been harmonized with
IPSAS, and the International Financial Reporting Standards (IFRS) have been adopted for implementation
in 2014 through COA Resolution 2014-003. The chart of accounts of the National Government has been
revised to provide new accounts for the adoption of PPSSA through COA circular no. 2013-002. The new
chart of accounts is being incorporated in the new government accounting manual. For instance, one of
the Bureau of Fire Protection’s targets was to respond within five to seven minutes to

87% of the more than 5,000 distress calls the Bureau expected to receive in the year. The National Police
promised a minimum of 629,258 crime investigations and a 25% increase in the number of foot and
mobile patrols. The Department of Education aimed to deliver a pass rate of 84% in the National
Achievement Test that was to be taken by 12.56 million secondary school students; and the Department
of Social Welfare committed to serve meals to more than 2.5 million schoolchildren. This approach
enhances the use of OPIF information and key indicators to evaluate selected and key programs of the
government and integrate results to budget formulation process. The competency model can guide
agencies on recruiting and training competent PFM personnel. The Model has a competency-based
training program in budgeting, procurement, cash management, accounting and auditing. The
competency model design was completed in November 2013 with the active participation of CSC, COA,
DBM, DOF, BTR, BIR, DEPED, DENR, DPWH, AFP and the Procurement Board.

Auditing (PPSSA) have been adopted through the issuance of COA resolution 2013-007. Training tools
have been produced and the new accounting and auditing reforms are being rolled out in national
government agencies.
In the Philippines, poor budget execution results from (i) inadequate capacity of the spending agencies
(e.g. weak capacities in policy coordination, project management and procurement delays); (ii)
cumbersome budget execution procedures and internal reporting requirements; and (iii) introduction of
adhoc changes in policies or rules at the oversight level.22 In addition, the long process and tight
management of cash releases has been consistently cited as a key constraint.23 Alternatively, agencies
that have weak disbursement management and reporting systems fail to comply with cash status
reporting needed to determine how much cash DBM should replenish. In recent years, however, budget
execution policies and procedures have been changing. Agencies have been given more flexibility in
managing their resources. Comprehensive release of allotment at the beginning of the year, made
quicker with the use of the GAA as release instrument and removal of the ABM and Release of Special
Allotment Release Order (SARO in 2014),24 provides ample time for the agencies to plan and execute
their activities during the year. However, oversight agencies such as the DBM continue to exercise
greater fiscal controls by withholding the remaining 25% of allotment and by adopting a quarterly
lapsing of NCAs.

Financial Reporting. The consolidated financial statements of the national government are reflected in
the Annual Financial Report prepared by COA usually within six months after the end of the year. These
statements are based on numerous reports submitted by the agencies to both DBM and COA.25 At this
stage, the audit of the books of agencies may not have been completed; hence the accuracy of data may
be compromised. Further, multiple reporting requirements coupled with the absence of an automated
and integrated information system in most agencies makes the preparation of monthly financial
statements a difficult task. Agencies with regional offices and staff bureaus produce consolidated
financial statements on a manual basis. The suspension of the electronic-New Government Accounting
System (E-NGAS) in 2009, which was intended to generate more accurate and timely financial
statements, has not yet been lifted. Meanwhile, numerous special reports produced on a regular basis
for different oversight agencies create duplicity and additional administrative cost for government
agencies.

Internal control and audit. Efforts to strengthen internal control and internal audit started in 2012.
About 80% or 66 out of 77 government departments have internal audit and internal control units and
have been trained on the Philippine Government Internal Audit Manual (PGIAM). In 2013 DBM
enhanced the capacities of internal audit units of 29 departments, agencies and GOCCs by providing
training on the Philippine Government Internal Audit Manual (PGIAM) and the National Guidelines on
Internal Control System (NGICS) covering a total of

The DBM Mid-Year Report in 2014 attributed underspending to bottlenecks in agency internal processes
such as unrealistic cash programs, poor coordination between planning and budget and operations
groups, procurement issues and processing of claims for payment and other administrative issues.
International Monetary Fund. 2008. Improving Budget Execution and Cash Management. In 2014
another innovation implemented by DBM is the use of the General Appropriations Act (GAA) as release
document (GAARD) effectively removing the Special Allotment Release Order (SARO) and Agency Budget
Matrix (ABM). The GAARD replaces the SARO, which is an authority for agencies to commit funds. 25
Numerous reports are required to be submitted to both DBM and COA. COA requires: Monthly trial
balances, Consolidated Balance Sheet Year end Consolidated Statement of Income and Expenditure Year
End and Consolidated Statement of Cash Flows Year End. DBM requires a least nine sets of reports - Full
Year Physical and Financial Plan, Full Year Monthly Cash Program, Full Year Estimate of Monthly Income,
List of Not Yet Due and Demandable Obligations, Quarterly Physical Report of Operations, Quarterly
Financial Report of Operation, Quarterly Report of Income, Monthly Statement of Allotments,
Obligations and Balances and Monthly Report of Disbursements.

490 participants.26 Establishment of Internal Audit Services (IAS) in all government agencies and its
performance is constrained by lack of adequate resources and relevant technical skills.
Institutionalization of the role of internal control as a management tool is yet to be achieved.

22. Government Integrated Financial Management Information System (GIFMIS) –

i. Track I: A National Payroll System (NPS) and Comprehensive Human Resource Information System
(CHRIS) is being developed and will cover all 1.3 million government, government-owned and/or -
controlled corporations (GOCC) and LGU staff. The system developments are so far well behind
schedule. ii. Track II: A comprehensive conceptual design and specification was developed in 2012–2013
for an integrated IT system for fiscal planning, budget preparation, budget execution and financial
reporting. However, instead of a government-wide system, the Government of the Philippines now
plans to implement a new system only for DBM and BTr, but allowing line departments to interface with
this system.

23. Capacity building. The participation of civil society organizations in the national budget process has
been developed and formalized based on Budget Partnership Agreements (BPAs) with a large number of
departments, agencies and GOCCs. Also, CoA has piloted citizen participatory audit activities through
CSOs in four spending departments.

24. Management of contingent liabilities. A list of contingent liabilities has been prepared to facilitate
central monitoring and management of guaranteed loans.

25. In general, the PFM reform initiatives that have been implemented so far, especially UACS and TSA,
provide a positive trajectory of change. Some activities (e.g. PPSAS and PPSSA) are intermediate rather
than material, and so the results will thus be seen only after successful implementation. Furthermore,
the delays and reduced scope of GIFMIS Track II – which had the potential of fundamentally changing
and improving the framework for and processes of financial management in the government – have for
the time being reduced the potential benefits of the PFM reform plans. Several areas of the
government’s PFM (in particular accounting, recording and reporting) are thus likely to continue to have
shortcomings due to the lack of automation. An updated PFM Reform Roadmap is currently being
prepared by the PFM Committee.

26. As noted earlier, the GoP has pursued broad governance reform initiatives through the GGAC Cluster
Plan 2012–2016, but it also covers some PFM-specific items, including initiatives from the PFM Reform
Roadmap. The GoP is furthermore pursuing a number of stand-alone initiatives such as, for example,
rolling out internal audit, developing performance-informed budgeting, grassroots participatory
budgeting (previously termed bottom-up budgeting), parliamentary expenditure oversight through the
Joint Congressional Oversight Committee on Public Expenditures, GAA-as-release-document, and open
data (http://data.gov.ph/) so as to improve openness and transparency.
27. The GoP is currently in the process of developing a PFM framework law. It aims at institutionalizing
the various budget cycle reforms introduced in recent years, harmonizing and standardizing the current
mix of laws and regulations, and addressing the budget weaknesses identified by the Supreme Court in
its 2014 ruling on the DAP. The law will also institutionalize the position of Chief Financial Officers in
government entities. The aim is for the law to be passed by the Congress in 2015.

26 The National Guidelines on Internal Control Systems (NGICS) was

issued on October 23, 2008.

10

28. LGU PFM Reform Roadmap. A PFM Reform roadmap for the local government units (LGU PFM
Reform Roadmap) has been developed under an EU-funded project, and provides the platform for
instituting PFM reforms at the LGU level. The road map is complemented by an implementation
strategy that details the activities and timeframe to carry out the roadmap with a focus on
strengthening support to the LGUs for revenue generation and expenditure management. A PFM
Assessment Tool (PFMAT) was launched in February 2015 which established sets of indicators to
determine the state of PFM that will provide the baseline for a customized reform strategy in each LGU.
The PFMAT is self- administered and has been piloted in several provinces, cities and municipalities.
Further, the implementation of the BottomUp-Budgeting initiative (BUB) of the Department of Budget
and Management continues to progress. In 2015, 1590 LGUs participated in the initiative, with a total
budget of P20.9 billion. In addition, the roll-out of the eSRE modules on revenue forecasting to regional
offices and related trainings continue to improve the availability and quality of information for financial
management.

D. Public procurement

29. Background. Procurement reforms were adopted in 2003 through the enactment of RA 9184,
otherwise known as the procurement reform act (Act), that seek to modernize, standardize and regulate
all procurement activities of the government. The Act will serve to ensure efficiency, transparency,
competitiveness and accountability of the government procurement processes. The Act created the
Government Procurement Policy Board, a policy and monitoring body with the mandate of dealing with
all procurement related matters and provides for standard bidding documents, together with
procurement manuals. A new harmonized procurement regulation to implement the Act took effect in
July 2009, and requires all government procurement to be published in the Philippine Government
Electronic Procurement System (PhilGEPs). This system is a web based bulletin of all solicitations for
expression of interest, quotations and bids. The PhilGEPs is currently being improved to ensure that it is
linked with the GIFMIS for tracking of budget and expenditures. In 2013 the government piloted the
cashless purchase card system at the DBM and Department of Defense. The system allows the use of
cashless purchase cards, similar to credit cards, for commonly used items funded by petty cash. The
system ensures automatic recording of the transaction thereby ensuring transparency and integrity of
the transactions.

30. Assessment. Despite these reforms, reform of the public procurement process is a work in
progress.27 While the Government Procurement Reform Act appears to have fully met the baselines for
a good procurement legal and regulatory framework, and a number of improvements have already been
instituted, important challenges remain:
i. Legislative and regulatory framework for procurement: The framework overall meets international
standards, but there are significant shortcomings in some areas (e.g. procedures for international
competitive bidding (ICB), nationality requirements restricting participation of wholly-owned foreign
entities, the approved budget for the

27 The Philippines has been selected as a candidate for the World Bank
pilot program for use of country systems in procurement. To move to pilot country status, mitigation
measures must be implemented to address the outstanding issues. The remaining issues relate to (i) lack
of an independent complaint review body; (ii) lack of transparency of the bid evaluation process; (iii) use
of the approved budget for the contract as a bid ceiling which may distort the application of free market
rules; (iv) conflict of interest in COA’s function as observer; (v) restrictions on the ownership of Filipino
firms in joint ventures; (vi) existence of eligibility requirements that do not reflect the technical and
financial capacity of bidders; and (vii) lack of systematic matching of skills against requirements of
competitive recruitment for procurement practitioners.

11

contract (ABC) approach, and the lack of an independent complaint review body). Implementing rules
and documentation are generally good, except that the GoP has replaced pre-qualification with an
eligibility check and post-qualification process, which restricts competition and contributes to few
bidders. ii. Institutional framework and management capacity: The procurement system is
wellintegrated into the public sector governance system, but there is no link to the PFM system. The
Government Procurement Policy Board (GPPB) regulates procurement, but also contracts, which is a
possible conflict of interest. There are shortcomings regarding institutional development capacity,
including collecting and monitoring procurement statistics and using quality control standards to
evaluate staff performance and address capacity development issues. iii. Procurement operations and
market practices: Operations and practices are relatively efficient, but the competency of officials is low,
training of and information to officials and private sector participants not fully consistent with demand,
and norms for safekeeping records and documents not fully in place. The functionality of the public
procurement market is reasonably good, but some PPP-related issues are yet to be clarified, and
shortcomings in the ability of private firms to access the market, including systemic constraints (e.g.,
regarding registration and securing licenses and permits). Provisions for contract administration and
dispute resolution are good, but monitoring of dispute resolution lacks procedures. iv. Integrity and
transparency of the public procurement system: Control and audit systems are somewhat weak, and
there is a lack of timely provision of compliance information to enable management action. There is no
independent complaints review body. Procurement information is fully available, but a communication
plan is needed to increase awareness of legislation. Ethics and anti-corruption measures are generally in
place, but there are shortcomings as regards evidence on enforcement of rulings and penalties, support
to create a procurement market characterized by integrity and ethical behavior, and the existence of a
mechanism for reporting fraudulent, corrupt, or unethical behavior.

31. Procurement reforms. The 2012 CPAR Action Plan includes 64 actions/measures to be implemented
between 2012 and 2016. Follow-up on the implementation of actions/measures is undertaken regularly
by the GPPB-TSO, but on an ad hoc basis, i.e. there is no formal progress reporting and the current
implementation status is therefore not quite clear. Specific proposals to develop and enhance the
functioning of the PhilGEPS are furthermore included under the GGAC Cabinet Cluster Action Plan 2013–
2016 (e.g., software modernization initiative to provide a full e-government procurement solution and
ensure linkage with a GIFMIS for tracking budget and expenditure) as well as the OGP (e.g., additional
functionalities to upload bid documents, undertake electronic payment, and upload annual
procurement plans). The GoP considers applying for observer status to the WTO Plurilateral Agreement
on Government Procurement (GPA), which would require amending legislation and regulations that
currently favor Philippine-controlled companies and locally produced materials and supplies. The same
applies to the Trans-Pacific Partnership (TPP) Agreement, which incorporates procurement
commitments and favors ‘open market-oriented approaches’.

E. Vulnerability to Corruption

32. There is currently no overall anti-corruption strategy and related action plan for addressing
corruption challenges and implementing prioritized measures to counter these, including to coordinate
efforts in different sectors and institutions as well as to involve external stakeholders. It is understood
that DBM for some time has been in the process of preparing an

12

anti-corruption strategy. The PDP 2011–2016 included a six-point plan to curb corruption, but a
“comprehensive and integrated anti-corruption framework and program”, mentioned as an essential
part of the GoP’s commitment to fight corruption, has not yet been prepared. The 2014 PDP Midterm
Update mentions a two-pronged approach focusing on strengthening internal control systems related to
generation and allocation of government funds, and strict enforcement of penalties in corruption cases.
The updated GGAC Cluster Plan Action Plan 2013–2016 includes improved anti-corruption measures as
one of four priority outcomes. The focus is on exacting greater accountability of public servants, while
another outcome covers support for the passage of priority legislations, including on anti-corruption.

F. ADB and other development partners 33. Development partners (DPs) have provided strong support
to government’s PFM agenda. In particular, DPs have supported the government’s core programs such
as the roll-out of OPIF and internal audit and controls, procurement reforms, as well as analytical
products. The Philippine Development Forum (PDF) and the sub-committees under it provide a strong
platform for sustaining strong links between the Government and the development Partners through
policy and technical dialogues.

34. PFM is highly relevant to ADB operations in the Philippines. Sound PFM is of crucial importance to
improving service delivery and achieving allocative efficiency. ADB recognizes that part of the solution to
rendering pro-poor growth, and to increase public spending on education, health, transport and other
services, while at the same time improving the efficiency and accountability of public funds, is to
improve governance. In addition, ADB continues to oversee progress in reforming the country’s system
for PFM, procurement, and corruption and in designing and implementing risk mitigation plans. ADB has
promoted policy dialogue and reforms through its leadership of the Philippine Development Forum
working group on governance and anticorruption. In addition, a series of technical assistance projects
have been provided either as stand-alone projects or linked to program loans such as the Development
Policy Support Program, the Governance in Justice Sector Reform Program, and the Local Government
Finance and Budget Reform Program.28 ADB has supported the mitigation of corruption risks in a road
project,29 has mainstreamed OPIF in the rural development and natural resources sectors,30 and has
supported improvements in local governance in the areas of procurement reform, debt management,
reform of GOCCs.31

G. Lessons Learned 35. There are a range of lessons from the past regarding how to best support
progress on PFM reforms in the Philippines. First, an over-arching agenda or strategy on strengthening
PFM such as the Philippines PFM Reform Roadmap will ensure political buy-in, and improve interagency
coordination and address risks from institutional silos. Political economy for strengthening PFM requires
a shared understanding and commitment of key problems around a

28 ADB. 2009. Technical Assistance to the Republic of the Philippines

for Strengthening the Philippine Government Electronic Procurement System. Manila. Footnote 9. ADB
2008. Technical Assistance to the Republic of the Philippines for Improving Public Expenditure
Management. Manila. ADB 2008. Technical Assistance to the Republic of the Philippines for Governance
in Justice Sector Reform Program. Manila. ADB 2009. Technical Assistance to the Republic of the
Philippines for Support to Local Government Financing. Manila. 29 ADB. 2009. Technical Assistance to
the Republic of the Philippines for Strengthening Transparency and Accountability in the Road
Subsector. Manila. 30 ADB. 2008. Technical Assistance to the Republic of the Philippines for
Harmonization and Development Effectiveness. Manila. 31 Philippines’ Government Owned and
Controlled Corporations which receive budgetary support in the form of equity or subsidy from the
national government

13

comprehensive reform agenda. Second, budget must be underpinned by resource adequacy to ensure
effective budget implementation. It must not be underfinanced. Third, procedures and systems for
obligation and cash management should be well understood, transparent, and decentralized with a
rigorous system of internal control, reporting and monitoring to accelerate budget implementation.
Fourth, proper sequencing of reforms is vital, with emphasis on improvement and implementation of
existing systems is a prerequisite, given that PFM reform is a long and slow process. This will avoid
“reform fatigue”, as often the benefits from implementation take a long time to be fully realized. Fifth, a
shared understanding and commitment of key problems and mitigation measures is required to sustain
an effective political economy for improving PFM, as well as a shared understanding and commitment of
key problems around a comprehensive reform agenda. Finally, flexibility and prioritization of activities
are essential prerequisites to manage the implementation process so that reforms will not overburden
the bureaucracy’s absorptive capacity or alienate key actors within the system. As reform ‘champions’
alter over time, flexibility allows a program to adapt as the government’s reform agenda, and sustain
reforms.

H. Conclusion

36. It is a fair assessment to conclude that the trajectory in PFM reforms is a work-inprogress, with
different stages of implementation. Progress continues but the benefits from implementation have yet
to be fully realized. From a development perspective, it would mean longer term commitments and
sensitivity to the pace of change to support the government in sustaining the reform agenda. The scope
and costs of PFM reforms and issues the government is required to deal with are far beyond its technical
capacity, and that of any one single development partner. Hence, the strong cooperation between the
government and development partners should continue. The results-based approach to budgetary
assistance is a unifying strategy for the government to attain reform objectives within and towards the
attainment of its long term development goals.

This study assesses the existing planning and programming systems for capital projects at the national
and agency levels, examines the experiences of other countries in planning and programming capital
projects, and presents recommendations to improve planning and programming systems in the country.
In assessing the effectiveness of the planning and programming systems, the study employs a
combination of document review of public investment planning, and programming process, a
comparative analysis of international experiences, and key informant interviews (see Appendix C for the
list of officials interviewed) with the staff and officials of four oversight agencies: Department of Budget
and Management (DBM), National Economic and Development Authority (NEDA), Department of
Finance (DOF), and PPP Center, and officials of three implementing agencies responsible for the national
government’s infrastructure program: Department of Public Works and Highways (DPWH), Department
of Transportation (DOTr), and Department of Agriculture (DA).

Continued investment in infrastructure is needed to support rapid and sustained economic growth and
to equalize development opportunities. However, planning and coordination are important aspects in
infrastructure development as required investments are large, involve many players, span over many
years, and are immersed in a political process in trying to address public needs. The early approach to
public investment management was to concentrate it on the country’s development plan. But this
approach has the tendency to become disconnected from fiscal constraints that leads to a situation that
the required funding in the development plan is not matched by the approved budget. To address the
need to synchronize infrastructure planning, programming, budgeting, monitoring, and evaluation, three
public expenditure management systems have been instituted:

(1) performance-informed budgeting (PIB),

(2) public investment program (PIP), and

(3) three-year rolling infrastructure program (TRIP).

Performance-informed budgeting (PIB) is an improvement of output-based budgeting by presenting

both financial and physical targets in the General Appropriations Act (GAA). This approach shows where
the funds will be allocated and the expected results from each allocation. The Public Investment Plan
(PIP) is a six-year programming document accompanying the Philippine Development Plan (PDP)
together with the Results Matrix (RM). The PIP contains the priority programs and projects to be
implemented by the national government (NG), government-owned and controlled corporations
(GOCCs), government financial institutions (GFIs), and other national government offices and
instrumentalities that contribute to the societal goals and outcomes in the PDP and RM, within the
medium-term. TRIP is intended to ensure that the agencies’ annual budget ceilings are optimized and
utilized in the funding of priority infrastructure programs, activities, and projects (PAPs) which are
likewise responsive to the outcomes and outputs under Philippine Development Plan (PDP), and are
readily implementable. The policy framework governing capital projects involves the implementing
agencies or line agencies preparing the project proposals and submitting them to the oversight agencies
for approval and inclusion in the annual National Expenditure Program that the President submits to
Congress. Three key NEDA Board committees play a significant role in the planning and programming of
infrastructure projects in the country: Development Budget Coordination Committee (DBCC),
Investment Coordination Committee (ICC), and Development Committee on Infrastructure (INFRACOM).
The participation of the Department of Finance (DOF) in the formulation and vetting process of capital
projects is to examine and evaluate the resource implications of such projects because badly conceived,
designed, or executed projects end up increasing the country’s debts to the detriment of new projects in
the future. The role of the Public-Private Partnership (PPP) Center in the process is to assist

implementing agencies, which submit their inputs to the PIP in identifying the potential PPP projects.
Once a potential PPP project is identified among the PIP projects, the PPP Center helps the
implementing agencies in conducting feasibility studies, through the procurement of a transaction
adviser (TA) who will do the feasibility studies, and assists the implementing agencies get the approval
of the ICC.

Implementing Agencies’ Participation in the Planning, Programming and Budgeting

Process

• Department of Public Works and Highways (DPWH)

In the development of infrastructure projects (e.g. roads, bridges, flood control facilities, and water
supply), DPWH follows a four-phase cycle process: (a) project identification, (b) project preparation, (c)
project implementation, and (d) project operation and evaluation.

• Department of Agriculture (DA)

The Planning and Monitoring Staff (PMS) is tasked to formulate the medium-term plan and public
investment program. They also monitor and evaluate the implemented annual plan, medium-term plans
and programs. On the other hand, the Project Development Staff (PDS) is tasked to process and evaluate
project proposals for ODA financing and other funding sources. Likewise, they are in charge of
processing projects to be submitted to the ICC for approval.

• Department of Transportation (DOTr)

Project preparation process at DOTr slightly varies from one sector (e.g. rail and tollroads) to another
(e.g. maritime). But basically the proposals must be aligned with the goals of PDP. Sometimes project
ideas emanate from top leadership of DOTr who identify projects that address certain transportation
needs. Continued investment in infrastructure is needed to support rapid and sustained economic
growth and to equalize development opportunities. However, planning and coordination are important
aspects in infrastructure development as required investments are large, involve many players, span
over many years, and are immersed in a political process in trying to address public needs. The
traditional approach to public investment management practiced in developing countries was to
concentrate it on the country’s development plan produced by a separate planning ministry. But this
approach has the tendency to become disconnected from fiscal constraints that leads to a situation that
the required funding in the development plan is not matched by the approved budget. To address the
need to synchronize infrastructure planning, programming, budgeting, monitoring, and evaluation, three
public expenditure management (PEM) systems have been instituted: (1) performance-informed
budgeting (PIB), (2) public investment program (PIP), and (3) three-year rolling infrastructure program
(TRIP).

A. Performance-Informed Budgeting (PIB)

The Department of Budget and Management (DBM) has departed from incremental budgeting approach
to adopt the zero-based budgeting (ZBB) approach. The former is based on the agency’s historical
budget and adjusted for non-recurring and terminated projects as well as for changes in inflation rate
and exchange rate. The latter is based on the agency’s need and performance, as well as its relevance to
national priorities and strategic plan. Another approach to link planning and budgeting is the adoption of
the two-tier budgeting approach (2TBA) in 2015, which is aimed to ensure that a budget is designed to
allocate taxpayers’ money only to carefully planned projects that deliver tangible results for public
welfare. Under Tier 1 of this approach, DBM assesses agencies based on their operating needs, the cost
of running existing programs and projects, and their ability to use up their budget and deliver on their
targets. Under Tier 2, DBM assesses agencies’ proposals for new projects or expand existing ones. Under
Tier 1, agencies will get only the budget that they need and can dispose within the stated period, and
under Tier 2, agencies have to convince DBM that their projects are implementable, have direct and
measurable impact on the public, and are in line with the government’s agenda for inclusive growth. For
FY 2018, the Development Budget Coordination Committee (DBCC) has earmarked 83% of obligation
budget ceiling to Tier 1 and 17% to Tier 2 based on forward estimates. See DBM, 2016a, 2017b, 2017c.
Forward estimate (FE) refers to future costs of the on-going policies (translated into programs and
projects) of the government over the three-year period. Once the FE is identified, then DBM issues a
ceiling to the agency for their Tier 1. The DBCC approves the fiscal position for a particular year (e.g. FY
2018) and this approved fiscal position will translate to an obligation budget ceiling (e.g. PhP 3,840.0
billion for FY 2018).1 Performance-informed budgeting (PIB) is an improvement of output-based
budgeting by presenting both financial and physical targets in the General Appropriations Act (GAA).
This approach shows where the funds will be allocated and the expected results from each allocation. In
2000, DBM introduced the Organizational Performance Indicator Framework (OPIF) to improve the way
the budget is allocated, reported, and spent towards greater accountability and transparency in the
delivery of public services. OPIF attempts to shift an agency’s accountability from activities (inputs) to
major final outputs, and it strengthens the alignment of department/agency major final outputs with the
sectoral/spatial outcomes identified in the Philippine Development Plan (DBM, 2011).

B. Public Investment Program (PIP)

The Public Investment Plan (PIP) is a six-year programming document accompanying the Philippine
Development Plan (PDP) together with the Results Matrix (RM). The PIP contains the priority programs,
activities, and projects (PAPs) to be implemented by the national government (NG), government-owned
and controlled corporations (GOCCs), government financial institutions (GFIs), and other national
government offices and instrumentalities that contribute to the societal goals and outcomes in the PDP
and RM, within the medium-term. The PIP also incorporates proposed NG-implemented programs and
projects in the Regional Development Investment Program (RDIP).

The planning and programming process also links the spatial coherence of the sectoral inputs of national
agencies with the RDIP. Agencies are required to submit their PAPs for inclusion in the PIP through the
PIP Online System (PIPOL). The latter is a web based project database system that manages data entry
and updates on programs and projects, including the generation of reports (NEDA, 2014, 2017a). The
purpose of the PIP is to serve as an instrument to tighten the linkages between planning, programming,
budgeting, monitoring and evaluation; to be the basis for public sector resource allocation and for lining
up public sector PAPs for processing at the Investment Coordination Committee (ICC) and the NEDA
Board; and to be the basis in monitoring public investment performance vis-à-vis the goals and targets
set under the PDP/RM. This process was demonstrated in the Revalidated Public Investment Program:
2011-2016 which discussed the status of major priority PAPs implemented from 2011 to 2012, identified
the priority PAPs for the remaining Plan period (2013-2016), and highlighted the strategic core
investment programs and projects (CIPs) that address critical indicators of the Results Matrices (RM).
The revalidation process involved consultation with representatives from Regional Development Council
(RDC), civil society organizations, private sector, and various government agencies, including regional
offices, attached agencies, and bureaus (NEDA, 2014). PIP is composed of Tier 1 and Tier 2 PAPs that are
aligned with the PDP and RM, and which satisfy the responsiveness, readiness, and other criteria. The
PAPs could be implemented via GAA, official development assistance (ODA), and public-private

partnership (PPP).

C. Three-Year Rolling Infrastructure Program (TRIP)

The three-year rolling infrastructure program (TRIP) was reinstituted by the NEDA Board Committee on
Infrastructure (INFRACOM) in October 27, 2014 in order to build the pipeline of strategic and other
projects needed to promote inclusive growth and to synchronize the infrastructure planning,
programming, budgeting and execution processes

both at the oversight and implementing agency level. TRIP is intended to ensure that the agencies’
annual budget ceilings are optimized and utilized in the funding of priority infrastructure programs,
activities, and projects (PAPs) which are likewise responsive to the outcomes and outputs under
Philippine Development Plan (PDP), and are readily implementable. The lack of project readiness at
entry is one of the causes of delay in the approval process. In addition, approved project
implementation plans are never carried out in full terms of annual work schedules and budgets, leading
to implementation delays, underspending, expenditure realignment, or cost overruns (DBM-NEDA,
2016). Agencies submit to NEDA their respective TRIPs. In consultation with respective agencies, NEDA
reviews agencies’ TRIP submissions and produces a consolidated TRIP which has to be presented to
INFRACOM for approval before submitting it to DBM. DBM then determines agency budget ceilings
based on spending levels approved by the DBCC. The TRIP reporting process follows the two-tier
budgeting approach of DBM. A new or expanded program or project submitted for budget allocation in
the TRIP shall describe the objective, problem/issue being addressed, the resulting increase in
operational efficiency with the adoption of technology improvements, the risk mitigation strategy,
monitoring and evaluation plan, and expected outcomes/outputs. Likewise, approval by the Investment
Coordination Committee (ICC) for large projects (e.g. costing PhP 1 billion and above) and by appropriate
bodies (e.g. head of agency, regional development council, etc.) for small projects (e.g. costing less than
PhP 1 billion) remains in effect. IT projects shall also undergo an appraisal process by the Medium-Term
Information and Communications Technology Harmonization Initiative (MITHI). Figure 3 shows the TRIP
process flow and timelines. TRIP is a subset of the PIP and covers all nationally-funded infrastructure
projects irrespective of cost and financing source (GAA, PPP, or ODA), based on the synchronized
planning, programming and budgeting process of the government. Agencies are required to indicate the
different stages3 of the projects listed under the TRIP to ensure that well developed and readily
implementable projects queue up for the budget. TRIP is a

programming and monitoring mechanism to ensure that the government target spending

on public infrastructure (e.g. 5% - 7% of GDP) shall be met. Inclusion in the TRIP is a requirement for
issuance of multi-year obligational authority (MYOA) by the DBM. MYOA is a document issued by DBM
for projects (locally funded or foreign assisted) implemented by agencies in order to authorize the
agencies to enter into multi-year contracts for the full project cost. The obligation to be incurred in any
given year shall not exceed the allotment released for the project during the given year. Agencies must
submit to DBM for succeeding budget year the requirement of the project covered with MYOA (DBM,
2015).

D. Coordination Committees

The policy framework governing capital projects involves the implementing agencies or line agencies
preparing the project proposals and submitting them to the oversight agencies for approval and
inclusion in the annual National Expenditure Program that the President submits to Congress. Three key
NEDA Board committees play a significant role in the planning and programming of infrastructure
projects in the country:

1. Development Budget Coordination Committee (DBCC). DBCC is composed of the Director-General of

the National Economic and Development Authority, the Executive Secretary and the Secretaries of
Finance and of Budget and Management. The Committee approves the macroeconomic assumptions
and economic policy directions for the preparation of the annual national government budget and for
the requirements of the PDP. The Committee recommends to the President the approval of the level of
the annual government expenditure program. It also recommends to the President the amount set to be
allocated for capital outlay under each development activity for the various capital or infrastructure
projects.

2. Investment Coordination Committee (ICC). The ICC is composed of the Director General of the
National Economic and Development Authority, the Executive Secretary, the Secretaries of Finance,
Agriculture, Trade and Industry and of Budget and Management and the Governor of the Central Bank.
The Committee evaluates the fiscal, monetary and balance of payments implications of major national
projects (now those costing Php 1 billion or more), and recommends to the President the timetable of
the implementation of these projects on a regular basis.

3. Committee on Infrastructure (INFRACOM). The INFRACOM is composed of the Director-General of the

National Economic and Development Authority, the Executive Secretary, and the Secretaries of Public
Works and Highways, Transportation and Communications, Finance, and Budget and Management. The
Committee advises the President and the NEDA Board on matters concerning infrastructure
development including highways, airports, seaports and shore protection; railways; power generation,
transmission and distribution; telecommunications; irrigation, flood control and drainage water supply;
national buildings for government offices; hospitals, sanitation and related buildings; state college and
universities, elementary and secondary school buildings; and other public works. INFRACOM’s approval
of TRIP is required before it is submitted to the DBM.

In sum, the PDP-RM-PIP/TRIP/CIP Framework creates a planning and budgeting system that starts by
highlighting the societal goals of the country over a 6-year period; describes the results (outputs,
outcomes and impacts) to be achieved by sector and responsible agencies; lists the priority programs,
activities, and projects to be implemented over the 6-year period; synchronizes the link between
planning and budgeting by creating a pipeline of strategic infrastructure projects over a 3-year span; and
identifies the big ticket programs, activities, and projects from the public investment program to serve
as pipeline for the ICC and the NEDA Board.

The participation of the Department of Finance (DOF) in the formulation and vetting process of capital
projects is to examine and evaluate the resource implications of such projects because badly conceived,
designed, or executed projects end up increasing the country’s debts to the detriment of new projects in
the future. As the country’s fiscal stability depends on the proper choice and implementation of such
projects, it is best that these projects pass the standards set by the DOF before agreeing to implement
these projects. The DOF Secretary is the chair of the ICC. Moreover, within the DBCC framework, the
Treasurer of the Philippines chairs the Cash Programming and Monitoring

Committee (CPMC), and the Bureau of the Treasury (BTr) acts as the secretariat of the PMC. DOF
Undersecretary is the chair of Sub-Committee on GOCCs and its secretariat is

DOF’s Corporate Affairs Group, and DOF Undersecretary is the chair on Technical Working Group on
Program Loans whose secretariat is NEDA’s Public Investment Staff (PIS). DOF performs its capital-
project vetting role through its participation in the above

TWGs, subcommittees, and cabinet-level committees.

E. The Role of the PPP Center

The role of the Public-Private Partnership (PPP) Center in the process is to assist implementing agencies,
which submit their inputs to the PIP in identifying the potential PPP projects. Once a potential PPP
project is identified among the PIP projects, the PPP Center helps the implementing agencies in
conducting feasibility studies, through the procurement of a transaction adviser (TA) who will do the
feasibility studies, and assists the implementing agencies get the approval of the Project Development
and Monitoring Facility (PDMF) Committee.6 In the ICC approval process, the PPP Center acts as the
Secretariat of the ICC for PPP projects, and convenes the technical working group (TWG)

composed of the PPP Center, DOF, NEDA, and DENR. In the TWG, the PPP Center does the bankability
and value-for-money analysis; DOF looks at the financial and risk allocation aspects; NEDA examines the
alignment to the PDP; and DENR assesses the PPP project’s environmental impact. In other words, the
TWG does a wholistic evaluation of projects. From the PPP Center, the PPP project appraisal process
goes to the ICC Cabinet

Committee, and if it passes this hurdle, it goes up to the NEDA Board Committee for final
approval. The implementing agencies can seek the help of the PPP Center in the bidding process.

Department of Public Works and Highways (DPWH)

In the development of infrastructure projects (e.g. roads, bridges, flood control facilities, and water
supply), DPWH follows a four-phase cycle process: (a) project identification, (b) project preparation, (c)
project implementation, and (d) project operation and evaluation.

a. Project Identification Projects are submitted by DPWH Regional/District Offices, local government
units (LGUs), and other stakeholders. To be included in the PIP and Annual Infrastructure Program (AIP),
the following are required to be complied for them to be considered in the pipeline of locally funded
projects: (1) its relevance with the mandate and priorities of DPWH, (2) its consistency with master plans
such as high standard highway plan, tourism plan, and flood control plan; (3) they have to satisfy
prioritization criteria such as tourism road infrastructure project prioritization criteria, flood control
criteria, and project impact analysis; and (4) they have to produce approved program of work, design
plans and specifications, detailed unit price analysis, among others.

b. Project Preparation

The projects are subject to feasibility studies to determine whether the project can and should be
carried out, and if so, how and when. Various agencies are involved in the review and evaluation of
project parameters such as its cost estimates. If the project passes the vetting process in the first two
phases, it goes up to the oversight agencies for inclusion in the PIP; detailed engineering of a project is
undertaken in preparation for actual implementation under the medium term infrastructure program.
Projects proposed for inclusion in the annual infrastructure program are those that rank high in priority
and those that are technically ready for actual implementation during the year (e.g. those with
substantially completed detailed engineering). After DBM issues a Budget Call, DPWH’s Programming
Division issues programming guidelines based on DPWH strategic infrastructure policies and programs.
In the formulation of the proposed budget for on-going and new FAPs, the following are to be
considered: project timelines, NEDA Board approval, loan effectivity/expiry, pre-construction activities,
and implementation schedule. A coordination meeting among concerned offices is held to finalize the
list of ODA projects and the corresponding allocation to be included in the AIP.

c. Project Implementation

Immediately after the NEDA Board approves the annual infrastructure program, the DBM issues the
Advice of Allotment (AA) for the projects under a comprehensive program. Right-of-Way (ROW)
acquisition, bidding and contracting, and construction.

d. Project Operation and Maintenance

National roads and bridges, major flood control structures, and related facilities of national importance
remain under the responsibility of DPWH during the operational phase. Regional and District Offices
generally undertake the maintenance of the facilities. Impact evaluation or post-project appraisal is
undertaken to assess the project’s actual performance. At DPWH, the planning and programming
functions are the responsibility of
the Planning Service Bureau, particularly its Development Planning Division, Programming Division, and
Project Preparation Division. DPWH’s Medium-Term Public Investment Program: 2017-2022 has a total
capital outlay of PhP 3.13 trillion for the period to cover general management and supervision, support
to operations, and operations. The latter accounts for the bulk of capital outlay because it provides
outlay for asset preservation, construction and maintenance of bridges along national roads,
construction and maintenance of flood mitigation structures and drainage systems; construction and
improvement of access roads leading to airports, seaports, and declared tourism destinations and
ecozones; PPP strategic support fund, national building program, and funding counterpart for FAPs in
roads, bridges, and flood control. In performing these functions, DPWH clearly shows that it possesses
project analysis capability. This is validated by its ability to regularly produce its medium term plans.
DPWH also assumes the right-of-way task for DOTr. However, the ramp-up spending on infrastructure in
the Build, Build, Build program will require DPWH to hire additional engineers for it to cope up with the
large number of projects and activities.

• Department of Agriculture (DA)

The Planning and Monitoring Staff (PMS) is tasked to formulate the medium-term plan and public
investment program. They also monitor and evaluate the implemented annual plan, medium-term plans
and programs. On the other hand, the Project Development Staff (PDS) is tasked to process and evaluate
project proposals for ODA financing and other funding sources. Likewise, they are in charge of
processing projects to be submitted to the ICC for approval. Project proposals come from various
proponents who are usually local and regional-level stakeholders, and projects are based on
stakeholders’ respective needs. To be considered by DA, project proposals must first satisfy the initial
hurdle that they should be aligned with DA’s medium-term plan. Once a project is approved, it is
endorsed to Field Operations Service (FOS), specifically to Special Projects Coordination and Monitoring
Division (SPCMAD) which monitors project implementation, and assists the proponents in costing the
projects. The PDS mirrors the ICC project evaluation process within DA, to anticipate or minimize
problems encountered in the planning, programming and budgeting process. DA project analysts reveal
that they find NEDA, Reference Manual on Project Development and Evaluation (2005); NEDA, Advanced
Manual on Project Evaluation (2006); NEDA, Value Analysis Handbook (2009), and DBM, OPIF Reference
Guide (2011) as useful references. DA prefers a shortened ICC process. For instance, DA’s irrigation
project proposal completes its feasibility study in 2018 but it goes through ICC processes only in 2019,
and to be included in the NEP in 2020. Project proposals have varying levels of readiness. In terms of
agency level prioritization,

• Department of Transportation (DOTr)

Project preparation process at DOTr slightly varies from one sector (e.g. rail and tollroads) to another
(e.g. maritime). But basically the proposals must be aligned with the goals of PDP. Sometimes project
ideas emanate from top leadership of DOTr who identify projects that address certain transportation
needs. In DOTr’s process, project analysis requires the following inputs: description of product,
beneficiaries, proposed annual budget, demand analysis, target population, market growth rate, supply
chain, traffic flow, and site visit. Project analysts at DOTr consider their PIP and TRIP online submission
to NEDA as equivalent to DOTr’s Medium-Term Investment Program: 2017-2022. They likewise reveal
that they are not using NEDA’s (2005, 2006, 2009) project evaluation and value analysis manuals as
references. They find the manuals to be too technical and less user friendly. In addition, DOTr officials
complain that NEDA intervenes in areas where an implementing agency has technical competence. For
example, it cites NEDA’s and DOTr’s contrasting stand on the choice between standard or narrow gauge
for railway track; and NEDA’s revision on DOTr’s proposal with respect to a tollway’s number of lanes.
DOTr’s multi-modal transport mandate makes it more critical to set up an intermodal project planning
and policy framework. At present, DOTr has no Undersecretary for Planning. At the time this study
started, DOTr has no Undersecretaries for Planning; Aviation and Airports; Rail and Tollroads; and Legal
and Procurement, respectively. There is no record or paper trail to show that DOTr has an existing
Medium Term Public Investment Plan. Among the three implementing agencies, DOTr is the most
inaccessible, the most secretive, and the most media-focused in terms of “perception management.”
The constant MRT-LRT train breakdowns consume the time of DOTr officials in charge of rails to address
public concerns through the media. Recently, there has been a succession of media releases on the
groundbreaking of LRT-1 Cavite Extension Project, LRT-2 Masinag and Emerald Stations Project, and the
scheduled groundbreaking of LRT-MRT Common Station Project, Manila-Clark Railway Project, Tagum-
Davao-Digos segment of Mindanao Railway Project, as well as press coverage on the soon-to-be
released 5-year driver’s licenses, and the launch of the three-year Public Utility Vehicle (PUV)
Modernization Program. In addition, there have been press releases that ODA funding is sought for the
Mega Manila Subway Project, EDSA Bus Rapid Transit Project, and the Manila-Bicol segment of the
North-South Railway Project.

At present, DOTr has no in-house project analysis competence; it simply relies on external consultants
and on the services provided by the transaction advisers (TA) assigned to facilitate the processing and
approval of DOTr’s PPP projects. At present, DOTr’s ROW function is assumed by the DPWH. DOTr needs
to address its organizational weaknesses by producing an organizational and staffing plan and submitting
it to DBM for funding. In the meantime, DOTr can seek assistance from DPWH in its project preparation
and appraisal functions in order to fast-track the evaluation of its projects.

G. Evaluation of the Existing Framework

The policy framework governing capital projects in the Philippine setting includes implementing agencies
or line agencies preparing the project proposals and submitting them to the oversight agencies for
approval and inclusion in the National Expenditure Program that the President submits to Congress. The
DBCC decides on the annual program

of expenditures, while the ICC approves all major government projects (now costing PhP2.5 billion or
more), including those with foreign assistance. The smaller capital 36 projects (locally funded costing
less than PhP 2.5 billion) are reviewed by DBM through the technical budget hearings. The PIP contains
the priority programs and projects to be implemented within the medium-term. PIP incorporates the
programs and projects in the RDIP which contains those programs and projects endorsed by the
Regional Development Councils (RDCs). TRIP and CIP are subsets of the PIP. TRIP is intended to ensure
that the annual budget ceilings of agencies are optimized and utilized in the funding of priority
infrastructure PAPs. INFRACOM screens the infrastructure programs of the agencies before these go
through the ICC process. CIP contains the big ticket PAPs of the PIP that serve as pipelines for the ICC
and the NEDA Board.

Project identification starts with the line agencies. The role of the LGUs and RDCs in the project
identification stage varies from agency to agency. Although line agencies should coordinate with LGUs
and RDCs in planning and prioritizing their infrastructure projects, there is actually a lack of effective
coordination and consultation to ensure that local and regional infrastructure projects are included or
are consistent with national priorities. Line agencies simply obtain inputs from their regional offices
before submitting their TRIP and PIP inputs to NEDA. World Bank (2005) observes that ICC evaluates
only large projects for financial viability, social desirability, and budgetary implications. GOCCs and LGUs,
however, are left on their own to make investment decisions on projects that do not require major
capital expenditure by the government. Previous attempts to harmonize sectoral plans with geographic
strategies failed “because the coordinating agencies that were set up to encourage integration at the
local level had little control over budget and resources, and no political influence over the agencies with
direct control of resources …the majority of RDCs are weak and ineffective when it comes to
infrastructure planning and coordination. RDCs have practically no budget allocation and very little
influence on the national budget” (World Bank, 2005, page 40). LGUs are constrained in their capacity to
plan, prepare, and

implement infrastructure projects because they cannot retain and attract relevant expertise to prepare
projects, do feasibility studies, make detailed designs, and supervise construction. Manasan (2007)
observes that decentralization has had little influence on Philippine development. Since devolution,
nearly all local government expenditures have been funded by central government transfers. Corpuz
(2016) sees the need to align infrastructure plans and implementation responsibilities between LGUs
and national agencies. He likewise stresses that LGUs do not have much incentive to support
metropolitan-regional plans because these are viewed as impositions on local autonomy; these plans
are essentially toothless because of the absence of metropolitan or regional governments.

The fragmented cabinet system creates a coordination problem that is evident in the planning and
programming system of capital projects. This coordination problem is partly being addressed by the
recent reforms initiated by DBM. World Bank (2007) has likewise advocated for a realignment of the
agricultural budget allocation away from commodity-specific support and towards public goods
provision and market development support. It urged the government to invest in essential public goods
such as rural roads, wholesale markets, market information, research and development, and food safety
and quality. World Bank (2009) has concluded that the credibility of the national planning processes
(regarding transport infrastructure) can be improved: the capacity to assess investment projects from
the line agencies is limited. It specifically cites the need to improve the quality of project proposals and
that proper cost-benefit and technical analysis of projects are not undertaken on a routine basis.
Furthermore, it stresses that the varying quality of the planning documents reduces their usefulness for
prioritization and guidance in the budget preparation process, and few feasibility studies are carried out,
even for high profile projects. This World Bank analysis is consistent with the analysis of this report as
contained in the next section. World Bank (2009) also stated that “the quality of investment project
proposal preparation in the planning process are duplicated in the annual budget process”

All of the above weaknesses limit the usefulness of the planning process documents for the budget
process. Lastly, unrealistic burden is placed on DBM’s budget examiners because the quality of
proposals and lack of guidelines, criteria, and requirements necessitate DBM to verify the technical and
economic aspects of projects already evaluated by the ICC. The same staff makes an assessment of
projects below PhP2.5 billion which are not evaluated by NEDA. It concluded that improved project
preparation in line agencies will improve the planning and budgeting processes. The problem with the
current PIP applies to the previous Comprehensive and Integrated Infrastructure Program (CIIP) which
according to World Bank (2011a) has a long list of infrastructure projects many of which are yet to be
implemented. An objective prioritization process is needed to select a shorter list of projects within
budget ceilings and supportive of the current government’s agenda. It suggests to use studies that
prioritize projects based on technical and socio-economic analysis. At present, some agencies’ PIPs are
simply long wish lists with no clear prioritization and sequencing. The existing PIP prioritization criteria
are too cumbersome. Once a project passes the “Effectiveness” test, it should be subjected to a full-
blown project appraisal. Then if the project satisfies the CBA or CEA hurdle rate, and passes the
“Readiness” test, it should proceed to be queued in the budget preparation and execution process
where the “Sustainability” test is implemented. However, the ERS criteria are not used consistently in
some large projects. World Bank (2005) analyzed that “in the absence of a more systematic and
empirical basis for prioritization, the ICC process… can become a superficial exercise where an agency
can easily justify the inclusion (or exclusion) of projects in its list of priorities” (page 36).

The Build, Build, Build program has to heed the World Bank (2011b) advice that the particularly low
efficiency rate of public transport spending and the high levels of corruption must be addressed first
before stepping up public expenditures on the sector. In addition, World Bank (2007) suggests that “the
best way of increasing the impact of public expenditure and pro-poor agricultural growth in the
Philippines is to improve the composition of expenditures rather than increasing its level” (page x).
World Bank (2011b)

likewise attributed the low efficiency in public spending to disparities in the distribution

of public expenditures across income groups and across geographic regions. Previous assessments also
support this report’s analysis. For instance, World Bank recommends that all new projects should be
subjected to the regular planning, evaluation, budgeting and monitoring system to enhance their
transparency. It likewise validates the conclusion made by the DBM-DOF-NEDA Joint Circular 2017-1
that a recent review of budget execution found that “the key bottlenecks were the late enactment of
the budget, procurement overlaps (particularly the initiation or the bidding process) and the weaknesses
in the planning capacity of government agencies and spending units” ADB (2012) has likewise found
that limited implementation capacity contributes to the poor quality of the road system. Although
budgetary reforms eliminated the late budget enactment practice, other

institutional weaknesses remain such as poor planning and project preparation, procurement difficulties,
and bottlenecks in program or project implementation. However, these are simply symptoms of the core
problem which is the lack of capacity in the agencies due to lack of continuous training for officials at all
levels of government, and in all regions. This can be enhanced by producing sector-specific manuals
containing methodologies and guidelines for preparing and appraising projects as well as establishing a
publicly available integrated databank of projects to facilitate analysis and decision making. Although
DBM’s Procurement Service is credited for generating savings for agencies that use it to purchase
common-use supplies such as paper and computers, its practice of undertaking the bidding and
procurement functions on behalf of the implementing agencies for a fixed fee as a percent of total
approved budget is not promoting the institutional capacity of the implementing agencies. In fact, it can
be perceived as a conflict-of-interest situation because DBM is the same agency that assesses the
absorptive capacity of agencies before determining their budget ceilings. In some instances, when the
implementing agencies changed their mind after signing a memorandum of agreement with DBM-PS,
the latter refused to return the procurement responsibility and the project budget to the concerned
agency. Although DPWH received a substantial increase in its budget in 2007, it only managed to
disburse 66% of available funds due to difficulties in financial management and procurement
procedures, according to ADB (2012)8. It likewise observed that “technical capacity in planning,
intermodal integration, project appraisal, and monitoring is also insufficient in sector agencies” (page 7).
The technical and financial capacity of LGUs for the development and management of the local road
network is also found to be inadequate. Strengthening the department and agency processes for project
identification, appraisal, prioritization, and selection. The findings of the previous studies are consistent
with the assessment of this report which finds a weak project preparation appraisal and prioritization
contribution of the existing planning and programming system before the budget preparation and
execution stages. Project identification, processing, feasibility, appraisal, and implementation lie with
the implementing agencies. Large projects go through NEDA-ICC for approval while small projects are
approved by heads of agencies and go through the DBM technical budget hearings. In the project cycle,
planning and programming start with project identification and end with the post evaluation stage.
Budgeting comes after project approval stage when decisions are made as to which projects are to be
included in the National Expenditure Program, given the agencies’ budget ceiling. DPWH disbursement
rate improved from 78% in 2014 to 97% in 2015, that of DA improved from 75% in 2014 to 86% in 2015.
But that of DOTr declined from 80% in 2014 to 79% in 2015 (DBM, 2016a).

The weakness of the existing planning and programming system is that it is fragmented. It does not
provide a coherent framework for identifying, coordinating, evaluating, and implementing public
infrastructure projects. Instead it relies on multi-layered interagency bodies (DBCC, ICC, and INFRACOM)
to set macroeconomic targets and to screen infrastructure projects. The weakness of the interagency
framework is that the frequency of its meeting depends on the availability of its members to attend.
However, the members of these committees are chosen based on their positions in government and not
based on their ability to analyze and appraise projects. Cabinet level and sub-cabinet level committees
rely on the inputs of the technical working groups supported by their respective secretariats which
makes this system too bureaucratic and less efficient. This analysis is reinforced by World Bank (2011b)
which observes that the low efficiency rates of public transport spending “is likely due to fragmentation,
politicization, and poor governance and accountability. Actual decision making on infrastructure
expenditure is highly fragmented and implementation is poor”. It recommends an overhaul of the public
investment management system to make project selection more technical and less political.
Transforming the existing system into a more coherent system through the following reforms:

a) to focus on NEDA the responsibility to process and evaluate all infrastructure projects based on
projects identified by the implementing agencies. NEDA can make a conditional approval (requiring
reformulation), an unconditional approval, and outright rejection.

For instance, the DBCC is a Cabinet level committee chaired by the DBM Secretary. Under the DBCC is
the Executive Technical Board (ETB) which is chaired by a DBM Undersecretary and which receives
technical support from DBM that serves as the ETB Secretariat. The DBCC Secretariat is chaired by the
Director of DBM’s Fiscal Planning and Reforms Bureau. Furthermore, there are four technical working
groups or subcommittees chaired by the Treasurer, NEDA ADG, and by two DOF undersecretaries,
respectively. The four technical working groups are supported by their own respective secretariats.

b) With a positive NEDA approval, the agency can request a budget appropriation from the DBM taking
into account sectoral/agency budget ceilings set by the DBM.
c) The process continues to ex-post assessment phase where major projects are evaluated in the context
of the performance budgeting framework currently adopted by the DBM. To improve the effectiveness
of the socioeconomic evaluation of projects, the following institutional safeguards are proposed. NEDA
has to standardize project presentation format, establish explicit application and evaluation processes
for infrastructure projects, provide general as well as sector-specific methodological guidelines for a
cost-benefit analysis of projects and programs, and institute a system that separates the institution that
evaluates projects from the proponents of the projects. These safeguards require government to fund
NEDA to develop sector-specific project development manuals, to undertake continuous training of
government officials at all levels and in all regions, and to establish a publicly available integrated
databank of infrastructure projects to facilitate efficient, coordinated, and evidence-based policy
making. The ultimate goal of the training program is to establish an appraisal culture within the public
sector whereby most officials embrace the importance of evaluating projects before they stand a chance
of being funded. Recall that the World Bank (2009) has assessed that NEDA’s task is daunting because
few resources are dedicated to the appraisal of project proposals with varying format and quality and
that insufficient project data preclude a consistent screening of project feasibility, ranking, and scoring
of preparedness. Because of these constraints, NEDA simply checks whether the projects are generally
consistent with the President’s 0+10 Point Socioeconomic Agenda, PDP 2017-2022, and the vision of
AmBisyon Natin 2040, and whether the required information is complied with (e.g. the implementing
agency, project cost, financing cost, etc.). This system is vulnerable to being questioned or influenced by
key stakeholders. Nevertheless, the processing time for ICC takes a long time because of NEDA’s
daunting tasks given its limited resources. In 2003-2004, NEDA’s review of 138 contracts indicated that
on average, award of civil works took 9.5 months, consulting services 9.3 months, and goods 7.9 months
from submission of bids to issuance of notice to proceed. The proposed system still requires line
agencies to gather all the required information and data relating to the project, and verify that NEDA
requirements are fulfilled before submitting the project funding application to NEDA online in NEDA
prescribed format. NEDA should assign a project investment analyst who determines, within 5 working
days, if the project contains complete information and qualifies to be part of the pool of projects to be
evaluated. Within 10 working days after admission to NEDA’s project pool, NEDA releases the results of
the socio-economic analysis which may be one of the following: (a) unconditional approval, (b)
conditional approval, and (c) outright rejection. In the case of conditional approval, the implementing
agency can present a revised version of the project to NEDA which has 10 working days to issue its
evaluation results of the revised project proposal (Gómez-Lobo, 2012).

In performing its appraisal function, NEDA checks if the suggested methodology based on sector-specific
project manual is applied correctly and appropriately. Procedures and methodologies can be
standardized and the historical information of many projects across sectors can be stored in a
centralized databank. It is recommended that NEDA delegate the rigorous appraisal of project to an
external organization (e.g. research institute or academic institution) or obtain advisory services from an
external academic institution, and the evaluation of large projects (e.g. 75 big ticket items) must have an
independent expert opinion. Another feature of the proposed system is to require large infrastructure
projects

to pass through multistage evaluations. For instance, the 75 high-impact infrastructure flagship projects
approved by the NEDA Board on June 27, 2017 should be evaluated at
several stages of the project cycle before start-up. These various filters or stages are: (a) identification
stage – identification and appraisal of alternative solutions to a certain problem or need are required
before pre-feasibility studies can be allowed, (b) prefeasibility stage: conduct of simple estimates of
costs and benefits of alternatives based on secondary data or from experience of related projects. The
objective is to make a preliminary judgment as to the technical and economic merits of undertaking the
proposed project. Alternatives are evaluated in more detail and are ranked according to socio-economic
profitability, (c) feasibility stage – the most feasible or promising alternative identified at the pre-
feasibility stage is subjected to a more accurate and detailed project analysis. An unconditional-approval
evaluation at this stage, allows the project proponent to apply for funding at DBM. Small projects do not
have to undergo all stages of the project cycle. NEDA determines the stages a given project must
complete and are described in specific methodological manuals for each sector. The project investment
analyst is not the same person that makes the final evaluation decision on the project. With the
assistance of an external advisory expert, NEDA may establish an internal review committee for projects
that are difficult to evaluate methodologically. Although NEDA produces several general project
methodology manuals (e.g. Reference Manual on Project Development and Evaluation, 2005; Advanced
Manual on Project Evaluation, 2006; and Value Analysis Handbook, 2009), it has to develop and

produce sector-specific manuals (e.g. roads, rails, airports, dams, etc.) which provide specific guidelines
on what shadow prices and social discount rates to use, which method

of appraisal should be used (cost-benefit analysis, CBA, or cost-effectiveness analysis, CEA), which
specific criteria to use for estimating costs in the respective sectors, which indicators to use to evaluate
projects (NPV, IRR, or the different types of CEA indicators),

and in the case of CBA, some guidelines as to how demand and benefit estimates should be projected in
the future. The projects applying for DBM funding in a particular infrastructure category must be
presented according to NEDA’s standardized project presentation format and must be appraised
according to the instructions provided in the NEDA manual in that particular category.

H. Strengths and Weaknesses

In the past seven years, DBM in partnership with NEDA, DOF, and the Commission on Audit (COA),
embarked on a journey in budget and management reforms, despite facing developing-country
constraints such as poor quality of public institutions and fragmented cabinet system that create
problems of policy coordination and efficient planning. DBM embraces the adoption of two-tier
budgeting, forward estimates, and zero-based budgeting in its efforts to link planning and budgeting.
Likewise, it adopts performance informed budgeting (PIB) in order to link budgeting and results. First
DBM experimented with the application of Organizational Performance Indicator Framework (OPIF) that
measures results and accounts for performance by identifying the major final outputs (MFOs) that an
agency delivers to its external clients. Recently, DBM shifts from OPIF and embraces the Program
Expenditure Classification (PREXC) system which restructures an agency’s budget by classifying all
recurrent activities as well as projects under appropriate programs or key strategies. PREXC facilitates
the monitoring and evaluation of programs with the performance indicators attached to each program
(DBM, 2016).
On the other hand, NEDA, with the assistance of NEDA Board committees, such as DBCC, ICC, and
INFRACOM, embarks on the Plan-Program-Budget or the PDP-RMPIP/TRIP/CIP framework. The results
matrix (RM) is an instrument designed to provide results orientation to the Philippine Development Plan
(PDP). Public Investment Program (PIP) lists the priority programs, activities, and projects (PAPs) to be
implemented by the national government and its attached agencies and instrumentalities that
contribute to the societal goals and outcomes in the PDP and aligned with the outputs, outcomes and

impacts in the RM. The three-year rolling infrastructure program (TRIP) is a key feature of

the budgetary reform to tighten the link between planning and budgeting of all

infrastructure PAPs of the government, and the core investment programs and projects (CIPs) contain
the big ticket PAPs of PIP that serve as pipeline for the ICC and the NEDA Board (NEDA, 2017).

The existing system has several strengths. Budgeting needs to be closely tied to policy making and
planning, and the TRIP framework is an attempt to achieve this. The adoption of multi-year obligation
authority (MYOA) puts more clarity about the criteria for funding multi-year projects. The DBM’s use of
the OPIF-PREXC framework is in line with the increasing emphasis on performance measurement,
stressing on outputs relative to inputs in budgeting procedures. The Plan-Program-Budget framework is
consistent with the goals of public investment management: (a) aggregate fiscal discipline, (b) allocative
efficiency, and (c) technical efficiency. First, the Plan-Program-Budget framework ensures that the
PIP/TRIP/CIP projects are consistent with PDP’s goal of macroeconomic stability and inclusiveness.
Second, the selection and funding of individual projects are consistent with the PDP’s policy priorities for
the sector (as stated in the PIP/TRIP/CIP guidelines prepared by NEDA); and third, policy guidelines are
aimed to ensure that projects are implemented so that they deliver the expected outputs and outcomes
in a cost-efficient manner. In a bureaucracy where policy coordination is problematic, the DBM-NEDA
active cooperation in the implementation of TRIP is one of the strengths of the existing system. In
addition, the reform orientation at DBM creates an internal mechanism to further improve the existing
system such as proposing a Budget Reform Law that will modernize the budgetary system, improve the
budget process, and strengthen the oversight power of Congress. The existing system (e.g. budget
priorities framework, two-tier budgeting, performance budgeting) satisfies the main requirements for
fiscal transparency. The reform achievement so far is not to be belittled because it usually takes years to
reform budgetary institutions as they are closely related to the development of political and economic.
And finally, the existing system can be tweaked to smoothen the link between fiscal rules that guide
macroeconomic management of the economy with budgeting rules and project appraisal procedures
that create the right incentives at the microeconomic level. On the other hand, the existing system has
some weaknesses. Multi-year nature of capital projects necessitates that budget resources and costs
need to be planned and managed over multiple years, but specialized skills which are crucially needed to
evaluate projects and manage their implementation are lacking.

In 1977, President Marcos issued Presidential Decree No. 1177 institutionalizing long-term and zero-
base budgeting in order to develop a budget reflective of the national development goal. Long-term
budgeting is defined as “present and future-year outlays of current government commitments and
programs in support of treaty obligations, integrated regional development activities, multiyear projects,
loan covenants, and receipts under present tax laws” (Budget Commission, 1977, and zero-base
budgeting is defined as “a management and budgeting process which requires each manager
responsible for a major activity, cost center, or function to justify his entire budget request in detail by
identifying each activity, whether ongoing or new, in terms of levels of performance and funding,
evaluated and ranked in the order of importance by systematic analysis. The term ‘zero-base’ refers to
yearly analysis, evaluation and justification of each activity, project or program, starting from a zero
performance and funding level. ZBB does not accept the prior year’s budget as a starting point for
analysis” (Budget Commission, 1979, p. 1). The ZBB method was first introduced in 1977 during the
preparation of the calendar year (CY) 1978 budget. But DBM claims that ZBB was implemented in 2010
upon the instruction of President Aquino to challenge the status quo of incremental and leakage-prone
spending.

This time, it describes that “Through ZBB, every expenditure and program/activity/project (P/AP) should
be justified before it is funded, which is how we should be spending taxpayers’ hard-earned money. ZBB
does not include by default the budgetary items in the prior or current year’s budget” (DBM, 2016a, p.
6). It seems that the 1977 Budget Commission and 2016 DBM definitions of ZBB are similar. However,
recently, DBM clarifies its definition of ZBB that it “is not really about budgeting starting from scratch.
This notion would seem to negate or contradict the Two Tier System…we adopted the term ZBB
approach in 2010 to mean the evaluation of selected major programs in the budget to analyze whether
they still delivering on promised outcomes to determine whether they should be scrapped, maintained
at the same level, or be given additional funding” (DBM Comments-Study on Capital Projects, July 17,
2017). In the 1970s, U.S. and OECD countries opted for zero-based budgeting, but the practice was
dropped later because it did not work very well in practice. They found out that efficient annual
budgeting is not possible without a well considered baseline as a starting point (Spackman, 2002). It
remains to be seen if ZBB has value added towards improving the public financial management system.
The budget reform proposal of DBM submitted to Congress proposes to shift from a 2-year validity to a
1-year appropriation period, as well as the shift from budgeting obligations to budgeting for cash. An
IMF study argues for the relevance of the accrual approach to public investment: The accrual approach
takes a more comprehensive view of assets, allowing government to report systematically on the use of
resources from the moment of asset creation through the life of the asset. Recording information on the
age of the asset, its useful life, and its utilization rate gives some indication of how much should be
spent on maintaining the stock of capital, and enables more effective planning and better use of
resources for maintenance (Fainboim, Last, and Tandberg, 2013, p. 318). The DBM budget reform
proposal is the opposite of the thrust of promoting longer budgeting horizon. In fact, the UK system
introduced “end-of-year flexibility” which allows departments and agencies to carry forward unspent
funds from one year to the next to avoid the acceleration of spending towards the end of the budgeting
year. However, DBM has succeeded in putting in place reforms. It is suggested that DBM resurrect the
practices of its predecessors, the Budget Commission and the Ministry of the Budget, which produce
informative budget documents and journals (e.g. Occasional Budget Papers, Staff Papers, Budget
Administration Handbook, Zero-Base Budgeting Handbook, and Philippine Budget Management).
Currently, most of DBM’s memorandum circulars are disseminated in electronic forms. DBM may want
to also produce a printed form using the publication format of its predecessors. For example, DBM’s
recent publications, The Kwento sa Bawat Kwenta (2016) and People’s Budget (2017), are similar to
marketing brochures rather than informative publications to be stored in Philippine libraries for public
access. Take the case of Jaime Laya’s Budgeting Innovation in the New Society (Budget Commission,
1977) which explains in detail the milestones in budget development, funding allocation, budget
preparation, compensation reform, budget legislation, management improvements, budget execution,
and budget accountability. Manuel Alba’s Know Your Budget (Ministry of the Budget, 1979) gives the
same informative content. Similar publications can be produced by DBM (in monograph format) to
explain its recent budgetary reforms, including an explanation why OPIF is abandoned in favor of PREXC.
The procedures for approving capital projects are explicitly stated in the ICC Manual. It states that the
requisite documents needed for ICC review are: feasibility study/project proposal, accomplished ICC
project evaluation forms, two CD/e-copies of economic and financial analysis in traceable formula
format, among others. On the other hand, the Japan ODA funded Mega Manila Subway Project was one
of the thirteen projects that were up for approval by President Duterte during the NEDA Board meeting
on June 27, 2017. The Japan International Cooperation Agency (JICA) senior representative in the
Philippines revealed that “the project was still in the final process of the feasibility study with the project
cost and final plan yet to be examined closely.” Without a feasibility study, a top ICC official was quoted
that “the project and its planned ODA financing were of high priority.” The NEDA Board deferred
approval on June 27, 2017 on the Mega Manila Subway project as the feasibility study is still being
completed (De Vera, 2017; Kabiling, 2017). However, ICC rules classify project proposals by level of
readiness namely, Level 1: approved by NEDA Board and ICC, but not-ongoing (project is ready to
implement), Level 2: feasibility study completed and ready for ICC processing for the current year, Level
3: feasibility study is already prepared and to be completed within the year, and to be processed by the
ICC next year, and Level 4: concept paper and feasibility study are on the conceptual stage (e.g. the
feasibility study is completed in 2018, ICC processing will be in 2019, and inclusion in NEP for 2020).
Thus, the level of prioritization category for the Mega Manila Subway Project is in Level 3. The point is
that the ICC review and appraisal process is not as rules-based as those implemented in Chile, Norway,
UK and Ireland.13 The project reaches higher ICC level with incomplete documentation due to other less
transparent factors (see Table 10). Instead of following rigid project appraisal process, the ICC process
follows the model practiced in most developing countries in which “development remains a priority
agenda and securing funding is the critical issue for public investment” (Fainboim, Last, and Tandberg,
2013, page 321). Top officials of the implementing agency make a political decision based on their view
of what contributes to economic development, rather than based on objective project analysis. Its
planning and programming systems mandate that all public investment projects (including defense)
comply with quality standards and norms for project analysis. According to NEDA, projects included in
the “Master Plan” or “flagship projects” are included in the Build, Build, Build program, even if not all of
them have feasibility studies or cost-benefit analyses. Publicly accessible is not consistent with
information contained in government documents suggesting lack of transparency. NEDA-ICC maintains
no publicly accessible databank of completed projects to provide input to policy research and to gain
insights on lessons learned from past project management experience