Government Expenditure Part 2

ANNEXA
PUBLIC EXPENDITURE MANAGEMENT (PEM)

AND PUBLIC FINANCIAL MANAGEMENT (PFM)
REFORMS
Annex A
PEM and PFM REFORMS
1.0 An effective Public Expenditure Management (PEM) highlights the importance of

outcomes and sees expenditures as a means to produce outputs which are
needed to achieve desired outcomes. Hence, PEM focuses on desired outputs
and outcomes and the right processes, rules and incentives to achieve them.
The right balance between autonomy/flexibility and accountability should be
provided to enable agencies to deliver the outputs and achieve outcomes.
In the Philippine setting, PEM includes the tools of Medium-Term Expenditure

Framework (MTEF), Performance-Informed Budgeting (PIB) and its associated
Organizational Performance Indicator Framework (OPIF), Zero-Based Budgeting
(ZBB), Program or Convergence Budgeting (P/CB), and Bottom-up Budgeting
(BUB). It achieves the following objectives:
• "Spending within means", or aggregate fiscal discipline - resources

should be used in a planned and deliberate medium-term strategy
within the aggregate resource constraints.
• "Spending on the right priorities", or allocative efficiency - spending

should be aligned with socio-economic priorities, as spelled out in the
Philippine Development Plan (PDP).
• "Spending with value-far-money", or operational efficiency - all public

goods and services must be provided at the most reasonable cost and
considers the absorptive capacity of the agency given the thrust to
maximize government's contribution to economic growth.
• Spending for the empowerment of citizens, or participatory budgeting

through citizen's participation in governance, by allowing citizens to
play a key role in identifying, discussing, and prioritizing public
spending projects.
1.1 MTEF - the planning-budgeting framework used by the government to

provide a three-year forward perspective to the decision making process
during budget preparation. The framework facilitates the determination of
the fiscal space (uncommitted funds) available for allocation for needed
new and expended programs taking into account the future cost of
approved and ongoing programs under the forward estimates (FE) process
and the fiscal consolidation targets of the National Government.
1.2 PIB - a budgeting approach that uses performance information to inform

Congress and the public about the outputs and outcomes an
agency/GOCC is committing to deliver in exchange for the approval of its
budget. The performance information is presented alongside the budget in
the NEP and includes: a) the organizational outcomes for which the funds
are required; b) the major final outputs (goods or services) that would be
2
produced or that would be rendered to external clients; and c) the quantity,
quality and timeliness targets for the outputs and/or services.
The PIB focuses more on outputs and outcomes of the agency/GOCC and
places less emphasis on its input needs. It links funding to results, and
provides a framework for more informed resource allocation and
management.
An agency/GOCC outcome-based PIB shall continue to be adopted in the

FY 2017 to provide the agency/GOCC the following benefits:
1.2.1 A clearer statement of the results being aimed for to prioritize its
prog ram s/activities/projects;
1.2.2 The outcome target to guide the conduct of monitoring and

evaluation activities to adjust program strategies during the year to
improve program performance; and
1.2.3 A clearer outcome accountability framework to base the grant of

Performance Based Incentive System (PBIS).
1.3 Zero-Based Budgeting - program evaluation approach through which

major agency programs and projects are assessed/evaluated primarily by
third party entities to:
1.3.1 assess the continuing relevance of these programs and projects;
1.3.2 explore alternatives and better ways to achieve their objectives;
1.3.3 determine whether the resources for a program/project should be

kept at the present level, increased, reduced or discontinued; and
1.3.4 guide departments/agencies/GOCCs in eliminating funding for

activities which are not aligned with priorities or which are
inefficient, ineffective and fraught with leakages.
1.4 Program or Convergence Budgeting - is a budgeting approach to facilitate

and incentivize inter-agency collaboration along the Key Results Areas of
the Social Contract to ensure that priority interagency programs are
planned, budgeted and implemented in a coordinated manner.
1.5 Bottom-up Budgeting - is a budgeting approach which ensures that the

prioritized list of programs and projects required by poor
cities/municipalities are incorporated into the 2017 budget levels of
participating agencies. It promotes the responsiveness of agencies and
ensures convergence of services of departments/agencies/GOCCs to the
needs of the poorest LGUs and communities. It also strengthens the
capacity of the LGUs to identify, plan, budget and execute urgent anti-
poverty programs with the assistance of CSOs.
1.6 Broaden the participation of the RDCs, CSOs and other stakeholders in
the budget preparation process and promote wider monitoring of the
government's key public services.
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1.7 Pursuit of Public-Private Partnership (PPP) or BOT projects with the
private sector financing/constructing and/or operating projects which
traditionally would be within the ambit of the public sector and minimizing
the risks associated with these projects by building the environment for
solicited bids and the capacity to identify and monitor contingent liabilities.
To better ensure successful projects and the market case for these
projects, budgets shall be provided for project development,
implementation, monitoring and technical assistance to implementing
agencies.
1.8 Continued promotion of open data to increase public access and

awareness on budget data and other program information to facilitate
appreciation and analysis, and to promote transparency and
accountability in public services. Accordingly, the posting of bids and
awards on the PhilGeps, and the publication of the Transparency Seal
and ARTA Citizen Charter will continue to be Good Governance
Conditions under the PBB to institutionalize these transparency
conditions.
2.0 Medium-Term Information Technology Harmonization Initiative (MITHI) - a

coherent process, jointly undertaken by OBM, OOST - Information and
Communications Technology Office (lCTO), and NEOA, for the planning,
budgeting, implementation, monitoring and evaluation of proposed government-
wide information and communication technology programs and projects. The
agencies'/GOCCs' Information Systems Strategic Plans (lSSP) shall be subject
to evaluation by the MITHI steering committee in accordance with OBM-OOST-
NEOA JMC 2012-01 and 2014-01.
3.0 Climate Change Expenditure (CCE) tagging - expenditures related to climate

change adaptation and mitigation shall be identified and tagged consistent with
the National Framework Strategy on Climate Change (NFSCC), the National
Climate Change Action Plan (NCCAP) and in accordance with the Unified
Accounts Code Structure (UACS). The CCE are expenditures that will mitigate
and/or adapt to climate change risks (e.g. casualties, damage to properties,
disruption of economic activities, etc.) by increasing resiliency from more intense
meteorological and meteorologically hazardous triggered events (e.g. rain-
induced landslide, extreme flooding, flashfloods, etc.). Joint Memorandum
Circular No. 2015-01 dated July 23, 2015 shall be adopted to guide the
departments/agencies and GOCCs in identifying and tagging government
expenditures for climate change in the budget process.
4.0 Other PFM Policies
As a means for further improving transparency, efficiency and effectiveness in

government operations, agencies/GOCCs shall also incorporate the budgetary
implications of the following public sector reforms on their proposals:
4.1 Cost recovery measures to assist in the revenue enhancement efforts and
improve service delivery, pursuant to Administrative Order No. 31 dated
October 1, 2012.
4
4.2 Implementation of the National Guidelines on Internal Control Systems
pursuant to DBM CL No. 2008-08 dated October 23, 2008, the Philippine
Government Internal Audit Manual, issued thru CL No. 2011-05 dated
May 19, 2011, and the creation and strengthening of an Internal Audit
Service/Unit and a Management Division/Unit in Agencies concerned as
provided under CL No. 2008-5 dated April 14, 2008.
4.3 Pursuit of ISO 9001 :2015 certification of the Agency's Quality

Management System, as well as the implementation of other initiatives
under the Government Quality Management Program, as mandated under
EO No. 605 dated February 23, 2007.
4.4 Total Resource Budgeting
4.4.1. GOCCs shall fully reflect in the budget proposal all sources of
funds such as corporate income, borrowings, other corporate
funds, trust funds, special account in the general fund and
budgetary support from the national government.
4.4.2 All funding requirements of the GOCCs, including contingent

liabilities arising from BOT projects and similar sizeable liabilities
due from previous years' suppliers' contracts and other multi-year
obligations or multi-year projects, must be identified in the budget
submissions.
4.4.3 GOCCs should also consider in their investment decisions all

available resources within a specific area or locality, to the extent
feasible. Hence, programs to be undertaken shall be consistent
with the development plan of said area such that the resources
from all stakeholders, namely: NGAs, GOCCs/GFls, LGUs and
private initiatives will complement each other.
4.4.4 In the allocation of their budget, GOCCs shall undertake

consultation with their major stakeholders to ensure that their
concerns and priorities are addressed in their budget proposals.
4.5 Financial Independence of GOCCs
4.5.1 Measures to enhance corporate revenue generation and improve

operational efficiency, including privatization of certain GOCC
operations and assets, should be undertaken. GOCCs are
encouraged to supplement available resources through other
means, such as external financing, PPPs (BOT schemes and
variant arrangements), sale/lease of assets, etc., before requesting
budgetary support from the national government.
4.6 Gender and Development (GAD)
4.6.1 A GAD Plan and Budget shall be formulated pursuant to and in

accordance with Republic Act 9710 or the Magna Carta of Women
and the PCW-NEDA-DBM Joint Circular 2012-01: Guidelines on
the Preparation of Annual Gender and Development (GAD) Plans
5
and Budgets Accomplishment Reports (AR) to implement the
Magna Carta of Women.
4.6.2 The GAD Plans and Budgets shall respond to the gender
gaps/issues faced by the GOCC's clients and constituencies and
their women and men employees. GOCCs shall allocate at least
five percent (5%) of the total budget proposal for activities
supporting GAD plans and programs.
4.6.3 GOCCs shall accomplish BP Form 711 for the GAD Plan and
Budget for 2016 and GAD Accomplishment Report for 2014,
respectively. The GAD Budget shall be part of the GOCC's PS,
MOOE and CO requirements. It is understood that the GAD
budget does not constitute an additional budget over a GOCC's
total budget.

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ANNEXA

PUBLIC EXPENDITURE MANAGEMENT (PEM)

1.0 An effective Public Expenditure Management (PEM) highlights the importance of

In the Philippine setting, PEM includes the tools of Medium-Term Expenditure

• "Spending within means", or aggregate fiscal discipline - resources

• "Spending on the right priorities", or allocative efficiency - spending

• "Spending with value-far-money", or operational efficiency - all public

• Spending for the empowerment of citizens, or participatory budgeting

1.1 MTEF - the planning-budgeting framework used by the government to

1.2 PIB - a budgeting approach that uses performance information to inform

An agency/GOCC outcome-based PIB shall continue to be adopted in the

1.2.2 The outcome target to guide the conduct of monitoring and

1.2.3 A clearer outcome accountability framework to base the grant of

1.3 Zero-Based Budgeting - program evaluation approach through which

1.3.1 assess the continuing relevance of these programs and projects;

1.3.2 explore alternatives and better ways to achieve their objectives;

1.3.3 determine whether the resources for a program/project should be

1.3.4 guide departments/agencies/GOCCs in eliminating funding for

1.4 Program or Convergence Budgeting - is a budgeting approach to facilitate

1.5 Bottom-up Budgeting - is a budgeting approach which ensures that the

1.8 Continued promotion of open data to increase public access and

2.0 Medium-Term Information Technology Harmonization Initiative (MITHI) - a

3.0 Climate Change Expenditure (CCE) tagging - expenditures related to climate

4.0 Other PFM Policies

As a means for further improving transparency, efficiency and effectiveness in

4.3 Pursuit of ISO 9001 :2015 certification of the Agency's Quality

4.4 Total Resource Budgeting

4.4.2 All funding requirements of the GOCCs, including contingent

4.4.3 GOCCs should also consider in their investment decisions all

4.4.4 In the allocation of their budget, GOCCs shall undertake

4.5 Financial Independence of GOCCs

4.5.1 Measures to enhance corporate revenue generation and improve

4.6 Gender and Development (GAD)

4.6.1 A GAD Plan and Budget shall be formulated pursuant to and in

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