Acting Finance Secretary Juanita Amatong told reporters over the weekend that preliminary data showed the deficit to be well within the monthly target despite an increase in constructive cash items that the government has not been able to contain.
Amatong said the policy on constructive cash is still evolving, as she noted that tightening the releases for foreign-assisted projects (FAP) would only increase the government’s accounts payable.
"If we tighten the releases to FAPs, we will only shift the hit from one item to another," Amatong explained. "Constructive cash items represent services that have already been rendered. We basically have no choice but to pay for them."
Amatong said the main problem is predictability, and that the Department of Budget Management (DBM) is having difficulty projecting this item in the expenditures due to faulty reporting by the concerned government agencies.
Constructive cash items are expenditures that come out of the budget allocations for foreign-assisted projects, paid directly by foreign donors to suppliers and service providers involved in specific projects.
"These are common in projects that are funded by bilateral donors because most of them are tied loans," Amatong explained. This means the Philippine government has no control over the release of the funds to contractors that are directly hired by the donor countries.
"The donors themselves pay directly to the suppliers and consultants for the projects they are funding," Amatong explained. "By the time these expenditures are reported, the services and the materials or equipment have already been delivered. If we don’t pay for that, it just becomes accounts payable."
The effect on the budget, Amatong said, is to increase expenditures beyond what the DBM accounted for based on the projections made by the agencies. "That‘s why the only thing we can really do is to force agencies not to understate their budgets so that we can at least anticipate what’s coming to us," she said.
In November, Amatong said constructive cash items continued to bloat government spending and cause expenditures to go over the programmed amount for the month.
"Fortunately, our revenue collection was good for the month so it was able to offset the budget impact of the constructive cash items," she said. "Over the medium term, something still has to be done about them, though."
The DBM already issued a circular that would penalize overspending government agencies that go over their budget by over-drawing from their foreign-assisted projects (FAPs).
According to the DBM, it would withhold the release of the allocations to agencies found exceeding their ODA budgets in order to avoid unexpected surges in expenditures.
The circular was prompted by the continued surge in the so-called constructive cash items in the national budget which represented draw-downs from development projects that are funded by official development assistance (ODA).
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.