By Cai Ordinario, June 4 2019; Business Mirror

Image Credit to CNN Philippines

THE Philippine Institute for Development Studies (PIDS) has urged the Department of Budget and Management (DBM) to reconsider its decision to shift to cash-based budgeting, saying it may not be enough to address underspending and the low absorptive capacity in government.

In a discussion paper, titled “A Note on the 2019 President’s Budget,” PIDS Supervising Research Specialist Janet S. Cuenca said the government should first address “long-standing” issues in the budget process before adopting cash-based budgeting.

These long-standing issues include delays in the procurement process; revisions and modification in project designs; billing issues such as late or incomplete submission of billing claims; unresolved right-of-way acquisition; and structural weaknesses in the agencies, among others.

“It is deemed important for DBM to reconsider its move to shift to annual cash-based budget scheme, particularly giving attention to the contextual factors that have been affecting the disbursement performance of government agencies/units across the years,” Cuenca said.

“It will surely take long before these issues are resolved. If these issues are not properly addressed, the adoption of annual cash-based budgeting will be in vain,” she also said.

Under the obligation-based budgeting system, Cuenca said there were noted deviations between the programmed and actual budget. In 2014 and 2015, these deviations reached as high as P300 billion.

However, Cuenca said this deviation dramatically dropped to only P96 billion in 2016 and further down to P85 billion in 2017. Nonetheless, these amounts remain significant and could have been used to provide other public goods and services.

The lower deviations, Cuenca said, may have been due to reforms introduced by the government such as the one-year validity of appropriations and the “early procurement, short of award” policy.

“These strategies should be complemented with measures in addressing the perennial issues that national government agencies and even local government units face,” Cuenca said.

Cash-based budgeting, Cuenca said, is the budget system that proposes cash-based appropriations, which “guarantees and authorizes payments for the items [goods and services] that are included in the budget over a limited period of time, generally corresponding to the fiscal year in consideration.”

In contrast, she explained, obligation-based budgeting proposes obligation-based appropriations, which authorizes government agencies “to enter into contractual commitments and to make payments according to these commitments, without a predetermined time limit.”

The system, Cuenca said, promotes better discipline and accountability in fiscal management and improves the government’s capacity in delivery of basic services.

However, the system could pose major problems to developing and transition countries since it required full accrual accounting, which entails heavy requirements. The system also requires improving cost measurement and assessing and ensuring accuracy of full costs is a challenge, among others.