The Department of Budget and Management (DBM) has issued a circular imposing penalties on government agencies that go over their budget by over-drawing from their foreign-assisted projects (FAPs).
The DBM said it will withhold the release of allocations to agencies found exceeding their ODA budgets.
The circular was prompted by the continued surge in so-called constructive cash items in the national budget which represent drawdowns from development projects that are funded by ODAs.
Drawdowns from some ODA-funded projects are not actually in cash but they are treated as cash expenditures in the budget. Since the first quarter of the year, these items have been surging out of control because government agencies were not required to report the releases by ODA sources.
To plug this hole, Budget Secretary Emilia Boncodin said the DBM will withhold further budget releases to agencies that go over their ODA-related budget allocations.
"If they keep going over their FAP budget, we will stop issuing their notice of cash allocations," Boncodin said. "That means they can’t get any more of their allocations. They will just have to sacrifice some other projects."
According to Boncodin, ODA donors have been warned that the government would be tightening on ODA releases to be able to stay within the deficit target for the year.
"In a way, we have had to negotiate with them and tell them of our limitations but I think they understand our constraints," Boncodin said. "They know that we are having problems with budget cover."
According to Boncodin, the World Bank is particularly supportive since it was the first multilateral agency that recognized early on the need to rationalize ODA releases. "They’ve been equally active in helping us convince other ODA donors that we need to do this,"she said.
In October, the deficit was 5.2 percent better than the P22.33 billion programmed for the month but there was an unexpected P3-billion increase in constructive cash disbursements by government agencies.
Constructive cash items have been the thorn in the side of the DBM which has been having a hard time compelling government agencies to report their availment of ODA funds for foreign-assisted projects.
In October, constructive cash items continued to account for a significant amount of government spending, reaching P4 billion compared to the programmed amount of only P231 million.
According to Finance Secretary Jose Isidro Camacho, the threat of having their releases withheld should force government agencies to stay within their respective constructive cash budgets or else, refrain from understating their budgets in order to avoid unexpected surges in constructive cash items.
"The problem here is that ODA releases are intended to be automatic," Camacho admitted. "But that creates this problem because it adds an element of unpredictability to constructive cash disbursements."
According to Camacho, government agencies should simply state the right amount they expect to draw from ODA-funded projects so that the DBM could anticipate constructive cash items in the budget.
"Otherwise, we should make it painful for them to keep drawing from ODA projects without clearance from the DBM," he said. "It has been my suggestion to penalize agencies that repeatedly violate the simple requirement of clearing their drawdowns with the DBM."