78% of 2011 budget hike to service RP debt

MANILA, Philippines - The bulk, or 77.7 percent, of the increase in the government’s proposed budget for 2011 will go to debt servicing instead of productive activities, the Congressional Policy and Budget Research Department (CPBD) of the House of Representatives said in its latest budget report.

Of the proposed P104.4 billion budget increase in 2011, only P23.5 billion or 22.5 percent will effectively finance services and activities that will have productive and immediate returns while the remaining P80.9 billion or 77.7 percent will be spent on additional interest payments given its existing huge debt amounting to P4.6 trillion as of end-June 2010.

The government’s proposed budget for 2011 is P1.645 trillion, higher by 6.8 percent from the current year’s expenditure level of P1.5460 trillion.

The country’s spending ratio remains low compared with its Asian neighbors, it also said.

CPBD said that as a percentage of gross domestic product (GDP), the proposed budget for 2011 would be slightly lower at 18.2 percent compared to the 2010 budget of 18.5 percent.

“On average, the government’s spending ratio from 2004 to 2007 averaged at 17.6 percent, which is the second lowest in the region next to Cambodia which spent around 14.2 percent of GDP.  Vietnam posted the highest spending ratio (28.2 percent of GDP), followed by Malaysia (26 percent), Indonesia and Thailand (both 19 percent). It is also alarming to note that even Lao PDR (18.2 percent) has already surpassed the country’s spending ratio,” the CPBD said.

Furthermore, the think-tank said that while the proposed budget may seem to have grown, the increase was largely due to growth in personal services expenditures due to higher salaries.

“Of the total P95.8 billion increase in the allocations for departments, P94.67 billion constitutes increase in personal services whereas only P11.6 billion is accounted for by increase in maintenance and other operating expenditures (MOOE),” it said.

In contrast, the CPBD said that capital outlay would experience a significant cut of P10.5 billion from its current allocation.

The CPBD also said that allocation for economic activities will suffer the biggest budget cut next year. “Net of economic subsidy to local government units (LGUs), total budget cut for the sector amounts to P45.25 billion. Of the amount, agriculture, agrarian reform and natural resources will bear most of the losses amounting to P24.1 billion or 53.3 percent of the sector’s total budget cut.

The Aquino administration has said that it would be prudent with spending at it hopes to plug a widening budget gap that is projected to hit P325 billion this year.