Republic of the Philippines

Development Budget Coordination Committee

Malacañang, Manila

Year-End Report on the 2012 National Budget

27 December 2013

Fiscal Year 2012 was an exceptional year for the Philippine economy in various
fronts: expectation-breaking domestic growth of 6.8 percent; another 10-place jump in
the Global Competitiveness Index rankings; the enactment of necessary socioeconomic
measures—Sin Tax Reform and Reproductive Health; among other unprecedented wins.

The National Budget was among the key policy tools that made these economic
gains possible. The resurgence of disbursements, especially on infrastructure, has
bolstered Gross Domestic Product (GDP) growth. The continued strength of revenue
collections has also expanded resources deployed for priority development interventions.
Government has also kept within its deficit and debt targets, contributing to sustained
macroeconomic stability.

These results are discussed in this 2012 Year-End Report, which is produced for
the first time by the Development Budget Coordination Committee (DBCC) in line with its
commitment to achieve greater fiscal transparency. Through this report, the DBCC—the
inter-agency body mandated to determine, coordinate and review government fiscal and
budget policy—presents how the government spent within its means, on the right
priorities and with measurable results for the overall development of the country and the
empowerment of citizens.

This Year-End Report for Fiscal Year 2012 discusses the following:

· An overview of the policy objectives of the 2012 National Budget;

· The macroeconomic and fiscal outturn in 2012, with analyses on the

performance of revenues, disbursements and financing against targets and
previous performance;

· More detailed discussions on Government’s expenditure performance

(contractual obligations incurred), including highlights on major programs and
projects, and;

· Discussion on the public financial and expenditure reforms which supported

these gains and which seek to ensure further economic growth and fiscal
strength in the coming years.

The 2012 National Budget—dubbed the “Results-Focused Budget”—put to action

the Aquino Social Contract of the Filipino People. It was shaped by important budget
reforms introduced by the Administration to focus public funds not just to bridge gaps,
but also to give people a better chance to achieve prosperity for themselves. The
economy’s achievements in 2012 serve as a strong take-off point for the coming years,
towards achieving Inclusive Development that benefits all.
 2012 YEAR-END REPORT

I. The 2012 National Government Budget

“This Budget—the first that this administration is fully crafting—embodies

our commitment to lift the poor from poverty through honest and
effective governance… This Budget is a Results-Focused Budget.”

- President Benigno S. Aquino III

President’s Budget Message for FY 2012

On 26 July 2011, President Aquino submitted to Congress the proposed

P1.816-trillion National Expenditure Program (NEP) for fiscal year 2012: a Results-
Focused Budget. It was a Budget that sustained reforms introduced at the start of
the Administration to ensure that each peso spent by the government counts in its
pursuit of poverty reduction and inclusive growth. In designing this Budget, the
Aquino Administration sought to focus national resources in fulfilling his Social
Contract with the Filipino People and its five key results areas (KRAs) identified by
Executive Order (E.O.) No. 43 s. 2011, to wit:

1. Transparent, accountable and participatory governance;

2. Poverty reduction and empowerment of the poor and vulnerable;

3. Rapid, inclusive and sustained economic growth;

4. Just and lasting peace and the rule of law; and

5. Integrity of the environment and climate change adaptation and mitigation.

The 2012 Budget, as submitted to Congress and eventually approved into the
General Appropriations Act (GAA), was developed following these key principles:

Daylight in Governance

The 2012 Budget marked the introduction of new mechanisms for fiscal
transparency and citizen’s participation: the Transparency Seal requirement for all
agencies to post their budget information in their respective websites; the use of
information and communications technologies, such as the disclosure portal for
Priority Development Assistance Fund (PDAF) releases; and the Agency-Civil Society
Budget Partnerships, which was piloted in the crafting of the budgets of nine
departments and government corporations.

Shunning the “Business-as-Usual” Mindset in Combating Poverty

The 2012 Budget also sought to deepen the bias for the poor and
marginalized sector in public spending. For one, the share of the Social Services
sector increased to 32.4 percent of the total budget, from 28.8 percent in 2003.
Provisions for social protection, basic education, public health and housing, among
others, did not only increase markedly: the government also laid out policies to
foster cross-agency collaboration in order to ensure the synergized delivery of
programs and projects for poverty reduction. The government also expanded the
use of the National Household Targeting System for Poverty Reduction (NHTS-PR) to
ensure the precise targeting of anti-poverty interventions; as well as public-private
partnerships (PPPs) to solve lingering gaps in education and healthcare services.
 2012 YEAR-END REPORT

Consolidating our Strengths for Economic Growth

The 2012 Budget was designed to address critical constraints to growth. The
year was marked by huge successes in government’s revenue-enhancing reforms,
most particularly, the passage of the Sin Tax Reform law. Moreover, the 2012
Budget enabled higher government spending for Economic Services—increasing to
26.8 percent of the total Budget in 2012, from 20.6 percent in 2003—especially in
infrastructure, support for agriculture, and tourism development. With the increased
revenue collection and prudent expenditure and borrowing management, the
government was able to stay within its fiscal consolidation objective of maintaining
the fiscal deficit at 2.3 percent of GDP, while achieving an expectation-breaking GDP
growth of 6.8 percent for the year.

Enhanced Context for Development

The 2012 Budget helped the government ensure an environment that is

conducive for development: a climate of peace and security; and of preparedness to
climate change. Through this Budget, the government not only pursued the
negotiated settlement of conflicts (which led to the signing of the landmark
Framework Agreement on the Bangsamoro) but also synergized poverty reduction
interventions in conflict-affected areas. This Budget not only increased provisions for
climate change adaptation and mitigation efforts but also supported innovations to
support environmental integrity, like the use of coco coir and other sustainable
materials for infrastructure projects.

The 2012 Budget was shaped by the Aquino Administration’s deep

commitment to its Social Contract with the Filipino People: a commitment to deliver
the direct, immediate and substantial benefits of good governance to the Filipino
People. “We have introduced reforms in public expenditure management to ensure
that public funds and resources benefit only the people, not the pockets of a few,”
President Aquino said in his 2012 Budget Message.
 2012 YEAR-END REPORT

II. The National Government Macroeconomic and Fiscal Performance

a. Macroeconomic Environment

In 2012, the Philippine economy grew by 6.8 percent, higher than the
DBCC-approved growth projection of 5.0-6.0 percent that was reflected in the
2013 Budget of Expenditures and Sources of Financing (BESF), and the
emerging estimate of 6.0 percent that was approved by the DBCC in November
2012.

The real GDP growth in 2012 is an accelerated performance compared to

the recorded 3.6 percent growth in 2011. The country also posted the highest
real GDP growth among leading ASEAN economies during the period, higher
than Thailand (6.4 percent), Malaysia (5.6 percent), Singapore (1.3 percent),
Indonesia (6.2 percent), and Vietnam (5.2 percent), and next to that of the
People’s Republic of China (7.8 percent).

Table 1. Real GDP Growth, 2011-2012

2011 2012
Particulars Actual 1/ 2013 BESF Emerging 1/
Actual
Assumption 2/ Estimates 3/
Real GDP Growth Rate (%) 3.6 5.0-6.0 6.0 6.8

Sources:
1/ National Statistical Coordination Board as of August 2013
2/ BESF 2013
3/ DBCC-approved as of November 28, 2012

For the supply side, this respectable economic performance was due to
the strong growth of the Industry and Services sectors, particularly trade and
repair of motor vehicles; manufacturing; real estate, renting and business
activities (which includes BPOs); other services (which captures tourism); and
construction.

· Agriculture, hunting, fishery and forestry (AHFF). For 2012, palay

production recorded the fastest growth (8 percent) and it remained as the
biggest contributor to the sector’s growth. Crop production was supported
by more favorable weather conditions compared to previous year, as well
as government programs and projects such as the Department of
Agriculture’s (DA) Five Croppings in Two Years (5 in 2), the Early Wet
Planting and the Quick Turn Around (QTA) Programs. The construction of
Farm to Market Roads (FMRs) through the Mindanao Rural Development
Project (MRDP) in CARAGA also encouraged farmers to plant palay. Other
programs on crops contributed as well such as the High Value Crops
Development Program (HVCDP) and the support facilities for sugarcane
and coconut. Livestock and poultry grew moderately as the production of
pork, chicken and duck offset the contraction of carabao and goat
production. The fisheries subsector contracted for the first half of the
year, posted zero growth in the third quarter, and recovered with a
positive growth in the fourth quarter. The contraction in fishery production
was caused by lesser fishing trips, unstable fuel prices, and lesser
appearance of some species.
 2012 YEAR-END REPORT

· Industry. Manufacturing and construction are the main drivers of the

industry sector in 2012 with growth rates of 5.4 percent and 15.7 percent,
respectively. The manufacturing subsector, the largest component of the
GDP, was primarily driven by increases in food manufacturing, furniture
and fixtures, and wearing apparel. Meanwhile, the construction subsector
was fueled by public construction in the first half and by both public and
private construction in the second half. In 2012, measures were
implemented to speed up the implementation of government
infrastructure projects such as those implemented by the Department of
Public Works and Highways (DPWH): the clustering of projects to facilitate
bidding, the greater devolution of procurement authorities to District
Engineers as well as the expedited processing of right-of-way (ROW)
acquisition. The Disbursement Acceleration Program released some P58.7
billion of additional funds into the economy using savings and other funds
freed by the President. These were used to augment tourism road
infrastructure, school infrastructure, rehabilitation and extension of light
rail transit systems, and sitio electrification, among others. Electricity, gas,
and water subsector also recorded positive growth rates in 2012. This was
in support of the rapidly expanding economy as the highest growth in
demand for electricity was recorded by the commercial and industrial
sectors. Meanwhile, the mining and quarrying subsector posted positive
growth rates starting in the second and fourth quarters of 2012. The
positive performance of the subsector was due to the strong growth of
chromium, nickel, other metallic mining, stone quarrying, clay and
sandpits and other non-metallic mining, which was pulled down by the
substantial contraction in gold mining caused by the continued suspension
of operations of several mining firms and the decline in gold purchases of
the Bangko Sentral ng Pilipinas (BSP).

· Services. Strong growth was recorded in all services subsectors. The low
and stable inflation, favourable interest rates, expanding population, the
rise of the middle class and better employment opportunities contributed
to the overall growth. The growth in the services sector was mainly
contributed by trade and repair of motor vehicles, which expanded by 7.5
percent due to retail and wholesale trade. This was followed by real
estate, renting, and business activities, which posted the same year-on-
year growth as trade but with a higher level of productivity, fuelled by the
demand for residential and office spaces brought on by the BPO industry
and by the remarkable performance of the BPO industry itself which
further expanded in terms of revenues by 18 percent1 in 2012. Meanwhile,
with the continued efforts of the Department of Tourism (DOT) in
promoting inbound tourism, other services subsector expanded due to the
developments of tourist spots and related industries in the country.
Tourist arrivals reached 4.3 million in 2012, with the most number of
visitors coming from South Korea, USA, and Japan. These are evidenced
in the strong growth of recreational, cultural, and sporting activities,
health and social work, and hotels and restaurants subsectors. Meanwhile,
the other services subsectors that help buoyed the sector’s growth are
transportation, communication, and storage subsector, which grew by 8.1
percent due to larger commuter volume and expansions in major
telecommunications companies to accommodate higher technology
1
World Bank's Poverty Reduction and Economic Management Unit, East Asia and Pacific Region, "Philippine Economic
Update: Accelerating Reforms to Meet the Jobs Challenge," May 2013
 2012 YEAR-END REPORT

demands, and the financial market, which gained due to its stability
amidst the uncertainties in the external environment. Meanwhile, public
administration and defense grew by 6.1 percent due to salary adjustments
in accordance with the Salary Standardization Law (SSL) III, increase in
allocation for social protection and empowerment programs for the poor,
such as the Pantawid Pamilyang Pilipino Program (4Ps), implementation of
banner projects of the Department of Agriculture (DA), Department of
Health (DOH), as well as routine maintenance projects of the DPWH.

On the expenditure side, the main contributors to the 2012 growth were
net exports, food and non-alcoholic beverage consumption; government final
consumption; and public construction.

· Household final consumption expenditure. Household consumption

continued to post a robust growth in 2012 of 6.6 percent driven by
spending on food and non-alcoholic beverage, miscellaneous goods and
services, housing and utilities, and communications. This performance was
supported by the moderate movement in consumer prices, which
decelerated to 3.2 percent in 2012 from 4.6 percent in 2011 and higher
income of households, coming from the implementation of the SSL III and
the continued increase in overseas Filipinos (OF) remittances, which grew
by 6.3 percent in 2012. This emulates the improved consumer confidence
in the country as shown in the Consumer Expectations Survey of the BSP.

· Government final consumption expenditure (GFCE). GFCE for 2012 grew

by 12.2 percent from 2.1 percent in 2011. This remarkable growth was
largely due to the robust expansions in maintenance and other operating
expenditures (MOOE) all throughout the year, driven by increases in
disbursements for government social protection programs such as the 4Ps
and banner programs in agriculture, education and family health. The
increase in government consumption is also attributed to the
implementation of the last tranche of SSL III.

· Capital formation. In terms of capital formation, the country did not

perform well in 2012 as it posted a 3.2 percent contraction from the 2.0
percent expansion in 2011. This was mainly due to the high inventory
draw downs (333.8 percent), although this could be partly attributed to
the continuous improvement in the manufacturing sector, driven by the
rebound in exports and the increasing demand from households. In terms
of fixed capital formation, the Philippine economy posted a double-digit
growth. This is better than expectations due to strong investments in
construction (15.1 percent), durable equipment (8.0 percent), and
intellectual property rights (18.0 percent). Public construction expanded
by 29.8 percent in 2012 from a 39.5 percent contraction a year ago due to
improved absorptive capacities of key government agencies and the
government’s initiative to fast track the implementation of various
infrastructure projects all over the country, such as irrigation projects and
roads in support of inclusive growth. Meanwhile, private construction also
posted a two-digit growth of 11.5 percent from 4.5 percent in 2011,
buoyed by higher demand for residential properties and office spaces due
to the expansion of businesses, higher OF remittances, and low interest
rates.
 2012 YEAR-END REPORT

· Exports. Total exports in 2012 was better than expected due to the strong
10.3 percent rebound in merchandise exports, which offset the
deceleration in growth in exports of services. The encouraging outturn in
exports of goods reflects the improving global economic climate as
industrial production and business expectation indicators predominantly
point upward. The following are the export growth drivers: (1) electronic
components: control instrumentation, telecommunication, semiconductors,
office equipment, and medical/industrial instrumentation; (2) principal
agricultural/fishery products: bananas, including plantains, fresh or dried,
tuna, coconut oil, and copra oil cake or meal; and (3) other products:
metal components, basketworks, and ignition wiring sets. Meanwhile,
exports of services increased by 3.6 percent, a deceleration from the 16.9
percent expansion in 2011 due to the slowdown in miscellaneous,
transportation, and government services, which offset the strong rebound
in export of travel and insurance services. Miscellaneous services, which
has the largest share in exports of services, grew only by 0.7 percent from
19.5 percent a year ago due to contraction in other businesses (-5.9
percent), computer and information (-18.7 percent), and financial (-11.2
percent).

· Imports. The growth of total imports in 2012 was below expectation due
to the slightly lower growth of import of goods. Notwithstanding, the 3.0
percent increase in merchandise imports is already faster compared to the
0.6 percent growth in 2011. Growth of merchandise imports was mainly
propelled by the electronics subsector (10.7 percent) as global demand for
the said commodity recovered. Meanwhile, imports of raw materials and
intermediate goods have registered positive increases due to the ramp–up
of industries as business optimism dominates within the near-term. These
imports include transport equipment (54.0 percent), mineral fuels (28.5
percent), paper products (8.2 percent), cereals (3.8 percent), textile yarns
(2.5 percent), and feedstuff (7.9 percent). On the other hand, imports of
services went up due to the growth of travel (13.1 percent), miscellaneous
(32.2 percent), and transportation services (11.9 percent).

The country’s economic performance in 2012 was supported by sound

macroeconomic fundamentals, particularly healthy fiscal and external balances,
low and stable inflation, and favorable interest rates as well as the continued
strong inflow of remittances from migrant Filipino workers, net portfolio
investments, and foreign direct investments (FDI), which contributed to
domestic demand through consumption and investment channels, although risks
associated with exchange rate volatility increased.

Average headline inflation stood at 3.2 percent in 2012, lower than the
4.6 percent average in 2011 and well-within the forecast and inflation target
range for 2012 of 4.0 percent ± 1.0 percentage point. Manageable inflation and
well-anchored inflation expectations provided flexibility for the BSP to reduce
policy rates by a cumulative 100 basis points during the year. Lower policy
interest rates contributed to lower bank lending rates that, in turn, helped
encourage domestic investment and consumption, and allowed the economy to
build greater resilience against the global headwinds.

Following the reduction in the BSP’s key policy rates, domestic market
interest rates declined in 2012. The 364-day Treasury bill rate registered an
 2012 YEAR-END REPORT

average of 2.0 percent, below the 3.0 – 5.0 percent assumed for the budget for
2012. Low interest rates on government debt papers were mainly due to the
ample liquidity in the financial system which fueled strong demand for Treasury
instruments. Foreign interest rates were also low in 2012 as central banks of
advanced economies adopted accommodative monetary policies to encourage
domestic spending and support economic growth. The average 180-day London
Interbank Offered Rate (LIBOR) settled at 0.7 percent in 2012, within the
government assumption for the year of 0.5 – 1.5 percent.

The peso remained broadly stable during the year, moving in tandem with
the majority of Asian currencies. The peso registered an average of
P42.23/US$1.00 in 2012, falling within the government assumption of P42–
45.00 per US dollar and stronger by 2.5 percent compared to the
P43.31/US$1.00 average in 2011. The steady movement of the peso against the
US dollar was reflected in the low volatility of the peso which stood at
P0.82/US$1.00. The country’s strong external position, characterized by
sustained surplus in the overall balance of payments (BOP) position, supported
the peso’s strength in 2012. The strength of the peso was also anchored on the
country’s sound macroeconomic fundamentals including a benign inflation
environment, comfortable fiscal space, and stronger-than-expected growth.

Dubai crude oil prices rose slightly in 2012 to reach an average of

US$109.24 per barrel in 2012 from the 2011 average price of US$106.20 per
barrel. This was within the range of the government oil price assumption for the
year of US$90–110.00 per barrel. Supply disruptions caused oil prices to
increase during the review period as geopolitical tensions in the Middle East and
North Africa (MENA) region persisted in 2012. These upside pressures were,
however, weighed down by the softness of the global economy.

Table 2. Selected Macroeconomic Indicators

DBCC Assumptions for 2012

Particulars Revised Actual 2012
Per 2012 BESF
Per 2013 BESF
Inflation 3.0 - 5.0 3.0 - 5.0 3.2
364-day T-bill rate 1/ 3.0 - 5.0 2.5 - 4.5 2.0
Exchange Rate (PhP/USD, period 42.00 - 45.00 42.00 - 45.00 42.23
average)
LIBOR (6 months) 0.5 - 1.5 0.4 - 1.4 0.7
Dubai crude oil price (USD/barrel) 90.00 - 110.00 90.00 - 110.00 109.24
Merchandise exports growth 2/ 12.0 10.0 8.5
Merchandise imports growth 2/ 18.0 12.0 5.1
1/ Based on primary market rates
2/ Based on the Balance of Payments Manual 5 (BPM5) concept

The sluggish performance of the global economy dampened the demand

for the country’s products and led to the lower-than-expected growth of the
country’s exports and imports in 2012. Merchandise exports in 2012 grew by 8.5
percent, below the government assumption for exports growth of 12.0 percent
for the year. The sub-par expansion was due mainly to reduced demand for
electronics exports, which accounts for about half of the country’s total exports.
Meanwhile, merchandise imports posted a modest growth of 5.1 percent, lower
than the government assumption for imports growth of 18.0 percent, due
primarily to the lower imports of raw materials and accessories for manufacture
of electronics equipment (inputs to electronic exports), and reduced imports of
 2012 YEAR-END REPORT

capital goods (i.e., land transportation equipment, and power generating and
specialized machines).

b. Fiscal Performance

Along this upbeat macroeconomic backdrop, a healthier consolidated

public sector fiscal performance also registered in 2012 as the consolidated
public sector deficit (CPSD) declined by 0.3 percentage point from 1.8 percent of
GDP in 2011 to 1.5 percent in 2012. This improvement in the CPSD is largely
explained by the improved performance of Social Security Institutions (SSIs) and
Local Government Units (LGUs), each posted surpluses higher than the previous
year by 51.6 percent and 112.1 percent, respectively. Similarly, corporations cut
their deficit by more than three-fourths due to governance reforms. Programs
and projects of Government Owned and Controlled Corporations (GOCCs) were
kept within their respective mandates as they rationalize their operations and
investments.

Table 3. Consolidated Public Sector Financial Position, 2011-2012

(in billion pesos, unless otherwise indicated)

Levels As Percent of GDP

Particulars 2011 2012 Growth 2011 2012
Actual Actual % Actual Actual
Public Sector Borrowing Requirement (220.1) (224.0) 1.8 (2.3) (2.1)
National Government (197.8) (242.8) 22.8 (2.0) (2.3)
CB Restructuring (3.5) (3.5) (0.8) (0.0) (0.0)
Monitored Government-Owned and Controlled Corporations (GOCCs) (19.8) (4.9) (75.3) (0.2) (0.0)
Adjustment in Net lending and Equity to GOCCs 1.0 27.2 2,569.3 0.0 0.3
Other Public Sector Position 45.0 60.7 34.9 0.5 0.6
Social Security Institutions (SSS/GSIS/PHIC) 48.0 72.7 51.6 0.5 0.7
Bangko Sentral ng Pilipinas (47.4) (94.8) 100.0 (0.5) (0.9)
Government Financial Institutions (GFIs) 9.8 9.3 (5.0) 0.1 0.1
Local Government Units (LGUs) 34.7 73.6 112.1 0.4 0.7
Timing Adjustment of Interest Payments to BSP 0.0 0.0 #DIV/0! - -
Other Adjustments 0.0 (0.1) #DIV/0! - (0.0)
Consolidated Public Sector Surplus/Deficit (175.1) (163.3) (6.7) (1.8) (1.5)

Memo Items:
Nominal GDP 9,706.3 10,564.9
Source: DOF, FY 2014 BESF

On the other hand, the National Government (NG) deficit in 2012 stood
higher at P242.8 billion than the 2011 level of P197.8 billion. The deficit-to-GDP
ratio increased from 2.0 percent in 2011 to 2.3 percent in 2012 largely due to
disbursements expanding by 14.1 percent intended for increased funding of
social programs and infrastructure projects. Against this increase in spending,
revenues grew by 12.9 percent year-on-year.

c. Revenue Performance

In 2012, total revenues amounted to P1,534.9 billion, with tax revenues

as main contributor to the robust collections, accounting for 88.7 percent of the
collections.
 2012 YEAR-END REPORT

Tax revenues reached P1,361.1 billion, recording an increase of 13.2

percent year-on-year; but lower than the target collection. Tax effort improved
and registered at 12.9 percent due to collection increases of the Bureau of
Internal Revenue (BIR), the Bureau of Customs (BOC), and other offices.

Table 4. National Government Revenue Performance

(in billion pesos, unless otherwise indicated)

2011 2012
Particulars Growth
Actual Program Actual % Deviation
Total Revenues 1,359.9 1,560.6 1,534.9 (1.6%) 12.9%
Tax Revenues 1,202.1 1,427.4 1,361.1 (4.6%) 13.2%
Tax Effort (%) 12.4 13.3 12.9
BIR 924.1 1,066.1 1,057.9 (0.8%) 14.5%
BOC 265.1 347.1 289.9 (16.5%) 9.3%
Other Offices 12.8 14.2 13.3 (6.6%) 3.7%
Non-Tax Revenues 156.9 131.2 165.5 26.2% 5.5%
BTr Income 75.2 61.8 84.1 36.2% 11.8%
Others 81.5 69.4 81.3 17.1% (0.2%)
Grants 0.3 0.0 0.1 n/a (61.2%)
Privatization 0.9 2.0 8.3 317.4% 797.6%
Disbursements 1,557.7 1,839.7 1,777.8 (3.4%) 14.1%
Surplus/(Deficit) (197.8) (279.1) (242.8) (13.0%) 22.8%
% of GDP (2.0%) (2.6%) (2.3%)

BIR collections, which account for about 89 percent of total taxes grew by
14.5 percent year-on-year but fell short of the target by P8.2 billion or 0.8
percent, due mainly to negative effects of the calamities. The improved
collection performance was attributed to the Bureau’s implementation of stricter
tax programs like the Run After Tax Evaders (RATE) program and the
enhancement of tax payment system.

Total collections of BOC amounted to P289.9 billion. This is 9.3 percent or

P24.8 billion higher than the previous year, though lower by P57.2 billion or 16.5
percent than the target set for 2012. The increase for the year’s collections is
attributed to the installation of enhanced customs IT equipment (i.e., X-ray
Inspection Project) and the pursuit of anti-smuggling program (Run After The
Smugglers or RATS). Aside from collecting revenues, BOC filed 60 cases in
connection with the smuggling of goods worth P1.3 billion, confiscated illegal
drugs and chemicals amounting to P462.7 million, and uncovered a number of
anomalies.

Other tax collecting agencies, specifically the Land Transportation Office

(LTO) and the Bureau of Immigration (BI), posted P13.3 billion revenues which
grew by 3.8 percent but lower than the program by P1.0 billion.

Non-tax revenues totaled P165.5 billion, higher than the program by

P34.3 billion or 26.2 percent. The Bureau of the Treasury (BTr) registered an
income of P84.1 billion coming from interest on deposits, investments,
dividends, and other miscellaneous income. BTr income grew by 11.8 percent
and was higher than the program by P22.3 billion on account of the 89 percent
 2012 YEAR-END REPORT

and 61 percent increases on dividends and interest income from the bond
sinking fund, respectively.

A total of P81.3 billion was collected from other non-tax revenue

resources. Of this amount, P27.8 billion came from fees and charges, while
government royalties from Malampaya reached P29.1 billion.

Income from privatization amounted to P8.3 billion following the

successful privatization of the Food Terminal Inc. (FTI) in August 2012.

BIR and BOC Collections in 2012

The taxes on income accounted for 60.7 percent of total BIR collections,
while 21.7 percent came from the Value-Added Tax (VAT). Excise taxes
accounted for 6.8 percent. All BIR tax categories except excise taxes, recorded
double digit increases from 2011 with VAT collections up by 25.4 percent.

Table 5. BIR Collection Performance

(in billion pesos, unless otherwise indicated)

2011 2012 % 2012 %

Particulars Actual Actual Growth Distribution

Total Collections 924.2 1,057.9 14.5% 100.0%

Income Taxes 571.9 642.5 12.3% 60.7%
Excise Taxes 68.0 72.3 6.3% 6.8%
Value-Added Tax 183.1 229.6 25.4% 21.7%
Percentage Taxes 47.0 52.6 11.9% 5.0%
Other Taxes 54.2 60.9 12.4% 5.8%

Import taxes, comprising of VAT and excise tax, accounted for 85.0
percent of BOC’s collections. Specifically, the VAT on non-oil goods collected for
the year amounted to P149.8 billion, registering an annual growth of 10.3
percent. The implementation of various Free Trade Agreements (FTAs) resulted
in lower import duties collected. Import duties registered a contraction of 2.8
percent year-on-year.

Table 6. BOC Collection Performance

(in billion pesos, unless otherwise indicated)

2011 2012 % 2012 %

Particulars
Actual Actual Growth Distribution

Total Collection 265.1 289.9 9.3% 100.0%

Import Duties 44.9 43.6 (2.8%) 15.0%
Import Tax 220.3 246.3 11.8% 85.0%
VAT 200.2 220.8 10.3% 76.2%
Non-Oil 135.8 149.8 10.3% 51.7%
Oil 64.4 71.0 10.1% 24.5%
Excise Tax 20 25.5 27.4% 8.8%
 2012 YEAR-END REPORT

d. Disbursement Performance

As earlier mentioned, NG disbursements for 2012 registered at P1,777.8

billion, up by 14.1 percent from the P1,557.7 billion recorded in 2011. Aside from
the measures discussed above, the improvement also comes at the back of the
closer monitoring of the financial and physical performance of major departments
through the Account Management Teams (AMTs). These AMTs were created in
April 2012 as a response to the significant underspending recorded in the first
quarter of 2012. The teams are composed of representatives from the planning
and finance offices of the eight (8) major departments, namely: DA, DAR, DENR,
DepEd, DOH, DOTC, DPWH and DSWD, and their DBM counterparts. They closely
monitor agency performance, including the review of existing processes,
identification of problems/issues and formulation of immediate, short- and
medium-term solutions to address the programming and implementation
bottlenecks.

As a result of the strengthened monitoring of program/project

implementation, the absorptive capacities of departments/agencies improved
towards the end of the year. The higher-than-program performance at the last
quarter cut by more than 50 percent the underspending recorded in the first
three quarters of 2012. In December alone, disbursements grew by 14.4 percent
year-on-year and reached a monthly record high of P242.1 billion.

Table 7. National Government Disbursement Performance

(in billion pesos, unless otherwise indicated)

2012 2011 vs. 2012

2011
Particulars Deviation Inc./(Dec.)
Actual Program Actual
Amount Percent Amount Percent
CURRENT OPERATING EXP. 1,289.5 1,442.6 1,411.1 (31.5) (2.2) 121.5 9.4

Personnel Services 500.4 585.7 542.6 (43.1) (7.4) 42.2 8.4

MOOE 201.2 254.6 256.7 2.2 0.9 55.5 27.6
Subsidy 45.8 31.8 42.1 10.4 32.7 (3.6) (7.9)
Allotment to LGUs 229.6 218.6 218.6 - - (10.9) (4.8)
Interest Payments 279.0 317.7 312.8 (4.9) (1.5) 33.8 12.1
Tax Expenditures 33.5 34.2 38.1 3.9 11.3 4.5 13.6
CAPITAL OUTLAYS 250.1 374.2 339.3 (34.9) (9.3) 89.2 35.6

Infrastructure/Other CO 159.1 298.2 250.8 (47.5) (15.9) 91.7 57.7

Equity 12.9 2.1 21.3 19.3 926.0 8.5 65.6
Capital Transfers to LGUs 70.3 71.3 67.2 (4.2) (5.8) (3.1) (4.4)
CARP - LO Compensation 7.9 2.5 - (2.5) (100.0) (7.9) (100.0)
NET LENDING 18.1 23.0 27.4 4.4 19.2 9.4 51.9

GRAND TOTAL 1,557.7 1,839.7 1,777.8 (62.0) (3.4) 220.1 14.1

Program vs. Actual

As disbursements picked up towards the end of the fourth quarter,

underspending was reduced to 3.4 percent (P62.0 billion) by year end from the
9.6 percent (P130.3 billion) recorded as of September 2012.

However, the underspending that was recorded in the earlier months of

2012 was large enough to drag down disbursements performance below
program. The bulk of the underspending came from infrastructure and other
 2012 YEAR-END REPORT

Capital Outlays (CO) and personnel services (PS) which fell 15.9 percent and 7.4
percent below program levels, respectively.

The slow obligation and disbursements of funds for major programs and
projects during the first three quarters contributed to the lower-than-
programmed disbursements in infrastructure and other CO. For instance, low
absorption rate for DPWH was recorded in earlier months before closing in to
80.0 percent2 as of end year. In addition, obligations for major projects under
the DPWH were lower than expected due to project implementation problems
arising from the scarcity of materials, right-of-way acquisition, frequent
realignment of funds or modification of projects, peace and order situation, and
unpredictable weather conditions, among others. On the other hand, the low
obligation of funds for airports and air navigational facilities and PPP projects of
the DOTC was due to procurement delays as well as preparedness or capacity
issues. Other factors that accounted for the underspending in CO included the
low obligation rate for various DA programs such as farm-to-market roads, some
foreign-assisted projects and various irrigation projects; and the unreleased
appropriations for lump sum requirements of Basic Education Facilities (BEF)
under the DepEd (P1.2 billion), and for the modernization of 25 regional
hospitals (P3.0 billion) due to the delay in the approval of the DOH PPP.

Nonetheless, the performance of these departments had notably improved

when compared to 2011 based on bank reports3. DA and DPWH for instance,
recorded 91 percent and 80 percent NCA utilization ratios, respectively,
compared to 78 percent and 77 percent in 2011.4 The improvement is credited
to the implementation of measures identified through the AMTs such as:
a) formulation and execution of catch-up plans; b) thorough review of plans and
work programs; c) expedited processing of ROW acquisition documents in the
case of DPWH; and d) closer monitoring of program/project implementation,
including conduct of mid-year and end-year financial and performance review.

Below-programmed spending in PS is mainly accounted for by the

unreleased balances under the Miscellaneous Personnel Benefits Fund (MPBF)
intended for the creation of new positions, filling-up of unfilled positions and
other PS deficiencies. Moreover, savings were generated from Interest Payments
(IP) in view of the combined effects of lower actual interest rates (2.0 percent
compared to the 3.0 percent program) and the lower-than-programmed volume
of T-bill issuances (P143.7 billion outturn vs. P639.0 billion planned) which hiked
the underspending further by about P4.9 billion.

On the other hand, disbursements for the following expenditure items

buoyed government spending and help trimmed down the underspending for
2012:

· The support to GOCCs increased compared to program, with Subsidy

releases reaching P42.1 billion and Equity contributions at P21.3 billion. Both
were higher than program levels by 32.7 percent and 926.1 percent,
respectively. Among the subsidy releases triggering the increase are the
releases for the Government Service Insurance System to cover the
Educational Fund of members’ beneficiaries (P1.5 billion), the Metropolitan
2
MDS-GSBs Report as of 31 December 2012
3
MDS-GSBs Report as of 31 December 2012
4
MDS-GSBs Report as of 31 December 2011
 2012 YEAR-END REPORT

Waterworks and Sewerage System for the Angat Dam rehabilitation (P1.8
billion), the operational requirements of National Food Authority (P7.7
billion), the sitio electrification projects of National Electrification
Administration (P5.0 billion), and the government subsidy for health
insurance premium of the indigents under the Philippine Health Insurance
Corporation (P14.1 billion). On the other hand, the spike in equity releases
is mainly attributed to the P20 billion equity infusion to BSP.

· Net lending stood at P27.4 billion, exceeding the program by P4.4 billion or
19.2 percent largely due to advances made to the Power Sector Assets and
Liabilities Management Corporation (PSALM) to cover its maturing debt and
obligations.

Year-on-Year

The spending for 2012 rebounded from the modest growth in

disbursement performance in the previous year, improving by 14.1 percent
compared to the 2.3 percent growth recorded in 2011. The drivers of this two-
digit growth are increased allocation for PS and expansion in MOOE,
infrastructure and other CO, and IP.

· PS grew by P42.2 billion or 8.4 percent to P542.6 billion mainly on account

of the implementation of the last tranche of SSL III starting July 2012 and
the requirements for the filling-up of vacant positions in the DILG and
DepEd. The releases for retirement gratuity and terminal leave claims
surpassed that of the previous year by almost P6.0 billion due to the
increase in the number of retiring personnel, including those who separated
from service and availed of the incentives under the Rationalization Program
and under E.O. No. 77. The number of total retirees reached 87,986 at the
end of December 2012, compared to 27,528 personnel in the previous year.
The government also remitted P3.5 billion to GSIS as initial payment of the
prior year’s retirement premium of DepEd employees.

· Maintenance expenditures increased by almost P55.5 billion or 28.0 percent,

mainly to cover the expansion of social protection programs and other
banner programs of major departments. The government stepped up the
implementation of these programs and made significant releases for the 4Ps
(P43.2 billon) and the Kapit-Bisig Laban sa Kahirapan-Comprehensive and
Integrated Delivery of Social Services Program or KALAHI-CIDSS (P1.3
billion) under the DSWD. Some P12.1 billion was also released to fund
various preparation activities of the COMELEC for the 2013 National
Elections, including the purchase of the Smartmatic Automated Elections
System. Spending for the Cadastral Survey and National Greening Program
of the DENR also increased this year where more than P2.0 billion of their
respective allotments was released.

· Most notably however, infrastructure and other capital spending rallied to

reach P250.8 billion, up by P91.7 billion or 57.7 percent from last year’s
level of P159.1 billion. The government poured huge investments to finance
country-wide infrastructure development such as roads and bridges
rehabilitation/construction, enhancement of tourism access, as well as
irrigation projects in support of the agriculture sector.
 2012 YEAR-END REPORT

· Interest Payments amounted to P312.8 billion this year from last year’s
outturn of P279.0 billion primarily to cover the semi-annual interest
payments due on bonds issued last January, 2012 and the higher volume of
bond swaps. In terms of its share to total disbursements, however, IP went
down to 17.6 percent this year compared to 17.9 percent in 2011.

e. Financing and Debt

The national government raised a total of P955.1 billion through its

borrowing operations. Of this amount, P417.0 billion was used to refinance
maturing obligations; P242.8 billion was used to fund the deficit; and another
P3.6 billion for off-budget operations, resulting to a net increase in cash of
P291.8 billion.

The government favoured domestic sources of financing, achieving an

84%-16% financing mix compared to its 75%-25% program as it continued to
reduce the reliance on foreign currency debt. Of the total gross borrowings, only
P156.6 billion came from offshore lenders as foreign borrowings were held back
in light of mounting capital inflows and the associated cost of sterilization to the
BSP.

On the domestic side, the government raised P798.5 billion through its
issuance of government securities. Domestic financing was expanded in line with
government efforts to lock-in favorable rates prevailing in the market.

Table 8. National Government Financing

(in million pesos, unless otherwise indicated)

Full Year 2012

Particulars
Program Actual Difference %
Financing 288,853 538,172 249,319 86%
External (Net) 105,167 70,046 (35,121) (33%)
External (Gross) 168,741 156,620 (12,121) (7%)
Less: Amortization 63,574 86,574 23,000 36%
Domestic (Net) 183,686 468,126 284,440 155%
Domestic (Gross) 500,075 798,527 298,452 60%
Less: Amortization 316,389 330,401 14,012 4%
Financing Mix (% of total)
External 25% 16%
Domestic 75% 84%
Source: DBCC, BTr

Total Philippine NG debt grew 9.8 percent year-on-year to P5,437.1 billion

as of end-December 2012. Taking cue from its financing operations, the growth
in NG debt was driven by the expansion in domestic obligations. The NG
domestic debt grew by 20.7 percent vis-à-vis the 5.3 percent contraction in
external debt allowing for a 64%-36% breakdown between domestic and
foreign debt over the 58%-42% split in the previous year. The further shift in
the composition of NG debt bolsters its resiliency against external shocks while
supporting domestic liquidity management.
 2012 YEAR-END REPORT

Table 9. National Government Debt

(in million pesos, unless otherwise indicated)

2011 2012 Growth Growth

Particulars
Actual Actual (Amount) (%)
Total 4,951,188 5,437,104 485,916 9.8
External 2,077,831 1,968,729 (109,102) (5.3)
Domestic 2,873,357 3,468,375 595,018 20.7
Percent of Total (%)
External 42.0 36.2
Domestic 58.0 63.8
Percent of GDP (%) 51.0 51.5
External 21.4 18.6
Domestic 29.6 32.8
Average Interest (%)
External 5.01 4.96
Domestic 6.84 6.47
Average Maturity (years) 10.18 10.87
External 10.8 10.96
Domestic 9.21 10.44
Memo Items:
GDP 9,706,268 10,564,886
Peso/USD 43.95 41.1
Source: BTr

The NG debt indicators above highlight the heightened sustainability

through the prudent liability management efforts of the government. NG debt
continues to be broadly sustainable in proportion to GDP levels in 2012. The
slight increase in the NG debt-to-GDP ratio in 2012 is in light of front-loading
borrowing operations to take advantage of favourable market conditions which
is expected to improve in 2013. Furthermore, proactive liability management has
allowed for the lengthening of the maturity profile alongside a reduction in
borrowing costs. On a residual basis, the average maturity for the government’s
debt portfolio had risen to 10.87 years by end-2012 from 10.18 years in 2011.
This is marked by the lengthening of maturities in both external (10.96 years)
and domestic (10.44 years) debt. This was accompanied by a simultaneous
reduction in average interest rates for foreign (4.96 percent) and domestic (6.47
percent) debt as the government moved to take advantage of the low interest
environment and positive investment outlook for the economy.
 2012 YEAR-END REPORT

III. The National Government Expenditure Performance (Obligation Basis)

On an obligation basis, the programmed ceiling on the allotment releases5

that can be issued from all sources, is P1,816.0 billion. This is 14.9 percent
higher than the actual obligations in 2011 which amounted to P1,580.0 billion.

Table 10. Status of the FY 2012 Budget

(in billion pesos, unless otherwise indicated)

Releases
Particulars Program Amount % of Program Balance
New GAA (R.A. No. 10155) 1,092.4 1,056.5 a/ 96.7% 35.8
Departments 867.2 854.2 98.5% 12.9 c/
Personnel Services 429.6 429.6 100.0% -
MOOE 227.8 225.4 98.9% 2.4
Capital Outlays 209.7 199.2 95.0% 10.5
Special Purpose Funds (SPFs) 214.7 202.3 94.2% 12.4 c/
Pooled Savings 10.5 0.0% 10.5 d/
Automatic Appropriations 723.6 698.2 96.5% 25.4
Other Releases - 61.2 b/ (61.2)
Continuing Appropriations 27.0 (27.0)
Unprogrammed Fund 20.6 (20.6)
Other Automatic Appropriations 13.6 (13.6)
ORIGINAL PROGRAM 1,816.0 1,816.0 100.0% -
ADDITIONAL PROGRAM 57.0 57.0 -
Unprogrammed Fund 55.5 55.5 -
Tax Expenditure Fund 1.5 1.5 -
TOTAL 1,873.0 1,873.0 100.0% -

a/ Include P46.0 billion additional releases to departments/SPFs which were sourced from 2012
pooled savings of P56.5 billion
b/ Other releases accommodated within the 2012 Expenditure Program
c/ Unreleased balances for departments and SPFs, available for release in 2013 as continuing
appropriations
d/ Balance of 2012 pooled savings (P56.5 billion less P46.0 billion per footnote a)

Source: DBM - Budget Technical Service

Table 10 shows that the original expenditure program for 2012 of

P1,816.0 billion was exceeded by P57.0 billion, thus the adjusted program of
P1,873.0 billion. The adjustments were accounted for by the P55.5 billion release
for the Debt Management Program of the PSALM which was charged against the
Unprogrammed Fund, as well as for the automatically-appropriated tax
expenditure subsidies in the amount of P1.5 billion. One hundred percent of this
obligation program were released by 31 December 2012, capturing releases from
all sources - New General Appropriations, Automatic Appropriations, Continuing
Appropriations and the Unprogrammed Fund. The DBM issued almost 98.5
percent of the total budget of the departments and agencies; 94.2 percent of the
Special Purpose Funds (SPFs); and 96.5 percent of the Automatic Appropriations,
with bulk for interest payments and the Internal Revenue Allotment amounting to
P586.1 billion combined.

5
Allotments are obligational authorities issued by the DBM to agencies for them to start implementing programs and
projects, i.e., basis to enter into contracts/commitments or incur obligations.
 2012 YEAR-END REPORT

Among the big-ticket items under department-specific budgets that were

funded in 2012 are as follows: 1) DPWH - Various infrastructure projects such as
roads, bridges, flood control projects, etc. - P107.9 billion; 2) DSWD's 4Ps - P43.2
billion; 3) DA's farm-to-market roads and irrigation projects - P26.1 billion; 4) NG
subsidy for the health insurance premium of indigent families enrolled in the
National Health Insurance Program of the PHIC - P13.9 billion; 5) preparatory
activities for the 2013 automated national and local elections - P12.1 billion; 6)
DA - development of the crops sector - P10.3 billion; 7) Comprehensive Agrarian
Reform Program by DAR - P9.6 billion; 8) DepEd's Basic Educational Facilities -
P7.8 billion; 9) Government Assistance to Students and Teachers in Private
Education, also by the DepEd - P6.3 billion; and 10) DOH's Health Facilities
Enhancement Program - P5.4 billion.

Obligations

From these allotment releases, departments/agencies, GOCCs and LGUs

were able to enter into or fulfill contracts/commitments with its personnel,
contractors, suppliers, creditors, etc. for the implementation of their programs
and projects. Of the total obligation program and total allotment releases of
P1,873.0 billion, obligations incurred by the national government reached
P1,829.0 billion6, recording an average obligation rate of 97.6 percent. This is
better than the 96.0 percent obligation rate in 2011, which indicates a faster
pace of fund absorption by the departments/agencies for the implementation of
their programs and projects.

Table 11. Enacted vs. Actual Expenditures, By Sector

(in billion pesos, unless otherwise indicated)

Levels
Program Actual Obligation Obligations % Distribution
Expenditures by Sector (GAA) a/ Obligations b/ Rate (%) as % of GDP of Obligations
Economic Services c/ 496.0 490.2 98.8 4.6 26.8
Social Services 613.4 592.2 96.5 5.6 32.4
Defense 87.2 74.4 85.3 0.7 4.1
General Public Services 320.3 332.0 103.6 3.1 18.2
Net Lending 23.0 27.4 119.2 0.3 1.5
Interest Payments 333.1 312.8 93.9 3.0 17.1
TOTAL 1,873.0 1,829.0 97.6 17.3 100.0
a/ Based on "2012 Adjusted" levels reflected in the FY 2013 Budget of Expenditures and Sources of Financing
b/ Based on "2012 Actual" levels reflected in the FY 2014 Budget of Expenditures and Sources of Financing
c/ Includes additional program from the Unprogrammed Fund and TEF as shown in Table 10

Before going to the details of the financial performance of selected

departments, Table 11 shows the more general performance by sector. This
compares the enacted levels under the GAA with the actual obligations as
reported by the departments/agencies. As the premier sector, representing one-
third of the total budget, the Social Services Sector was provided with the biggest
funding support of P613.4 billion and the sector performed reasonably well in
terms of absorptive capacity, registering obligations that are 96.5 percent of the
programmed budget. The key services under this sector are education, culture
and manpower development; health; social security, welfare and employment;
and housing and community development. Likewise, the departments/agencies

6
Based on actual obligations as reflected in the FY 2014 Budget of Expenditures and Sources of Financing (BESF)
 2012 YEAR-END REPORT

under the Economic Services Sector obligated 98.8 percent of the program. The
subsectors that largely contributed to this outturn were agriculture and agrarian
reform; power and energy; and communication, roads and other transport. The
excess in the net lending program was as explained above due to the advances
given to PSALM while agencies and GOCCs under the General Public Services had
more-than-projected releases from Special Purpose Funds. It is important to note
however, that these obligation levels include those commitments executed in
2012 under the 2011 Continuing Appropriations or the unobligated allotments
and appropriations as of December 31, 2011, both of which were still valid for
obligation in 2012 given the two-year validity of MOOE and CO appropriations.

Financial and Physical Performance of Selected Major Programs and

Projects, By Department, As of 31 December 2012

Table 12. Enacted vs. Actual Expenditures, Selected Departments (including AMTs)
(in billion pesos, unless otherwise indicated)

FY 2012 As of 31 December 2012

Department Adjusted Allotments Obligations Obligation
1/ 2/ 3/ 4/
Appropriations Received Incurred Rate (%)
Agrarian Reform 19.0 19.0 12.4 65.4
Agriculture 66.7 62.2 56.7 91.1
Education 268.3 268.3 240.6 89.7
Energy 9.7 2.6 1.8 67.1
Environment and Natural Resources 21.6 20.5 17.3 84.3
Health 42.0 39.1 35.4 90.5
Public Works and Highways 207.5 205.7 157.6 76.6
Science and Technology 11.9 11.9 10.3 86.8
Social Welfare and Development 59.7 59.7 55.8 93.4
Transportation and Communications 44.1 35.5 20.0 56.3

1/ FY 2012 Adjusted Appropriations pertain to the following: 1) FY 2012 Budget including the
Department-Specific Budget, releases to the Department charged against the Special Purpose Funds and
Automatic Appropriations; 2) FY 2011 Continuing Appropriations that were released in 2012; and
3) Unobligated allotments as of 31 December 2011, which are still valid for obligation until end-2012
2/ Allotments received by the Departments charged against the following: 1) FY 2012 Budget including the
Department-Specific Budget, Special Purpose Funds and Automatic Appropriations; 2) FY 2011 Continuing
Appropriations; and 3) Unobligated allotments as of 31 December 2011, which are still valid for obligation
until end-2012
3/ Obligations incurred by Departments in 2012 as reported in the FY 2014 BESF
4/ Ratio of obligations incurred and allotments received by Departments - measure of absorptive capacity

Department of Education

· As an essential part of human development investment, allotments for basic

education were increased to P268.3 billion in 2012, higher by 13.4 percent or
P31.8 billion than its year ago level. This increase is primarily to support the
implementation of Republic Act No. 10157 (Kindergarten Act) and to address
the backlogs in the educational inputs, namely, classrooms, teachers, school
furniture and textbooks. In 2012, the PPP scheme was also initiated by
DepEd to facilitate the construction of additional school buildings.

· Financial Performance. As of 31 December 2012, DepEd’s obligation stood at

P240.6 billion or 89.7 percent of the total allotment releases. About 84.5
percent of the said obligation was mainly accounted for by basic salaries,
allowances, incentives and contributions to retirement and life insurance
 2012 YEAR-END REPORT

benefits of teaching, teaching-related and non-teaching personnel. Around

9.8 percent of the DepED’s total obligation was for MOOE, the bulk of which
covered the provision for the universalization of kindergarten education, cash
grants, and procurement of textbooks. Meanwhile the remaining 5.7 percent
represented the contracted amount for the implementation of the basic
education facilities.

· Physical Accomplishment of Major Programs/Projects. In terms of

implementation, a total of 6,802 classrooms or 82 percent of the FY 2012
target, chargeable against the Basic Education Facilities Fund was bidded out.
Of the said target, 22 percent was fully constructed, with the remaining 60
percent to be completed by 2013. The repair and rehabilitation of 6,707
classrooms supported out of the 2012 funds are still currently being done.
One reason cited for the partial completion of the target school buildings is
the fact that the academic year not coinciding with the fiscal year. Moreover,
aside from the regular funds, the Schoolbuilding Program was augmented by
other sources such as the Special Education Fund (SEF) and the private
sector.

Meanwhile, some 7,545 water and sanitation facilities were constructed

while the remaining 2,381 units are still on-going. The actual accomplishment
for water and sanitation facilities fell short by 46 percent as compared to the
2012 target of 18,298 structures.

With regard to the school furniture component, around 1.2 million or 90

percent of the target school desks and chairs were procured, of which
503,060 were delivered.

Of the 16,000 approved teaching and teaching-related items, a total of

15,863 positions or 99 percent were filled up to comply with the
requirements for the mandatory kindergarten education as well as to address
the teacher shortage.

With the provision of textbooks and teachers’ manuals, DepEd has

exceeded its target of 25.8 million learning materials, by 142 percent or 36.7
million learning materials.

On the Government Assistance to Students and Teachers in Private

Education (GASTPE), only 82 percent or 761,314 students benefitted from the
program. The partial availment of the grant was attributed to high tuition fees
and other socioeconomic factors. This meant that parents who sent their
children to private schools and availed of GASTPE had to shoulder the “top up
expenses” in excess of the P10,000 grant per student in all the regions except
in NCR where P15,000 grant was provided.

Under the Universalization of Kindergarten Program, a total of 1,773,492

kindergarten learners enrolled for School Year 2012 – 2013. This represents
103.6 percent of the 1,711,683 target for the year.
 2012 YEAR-END REPORT

Department of Health

· Financial Performance. As the frontrunner for affordable and quality health

services delivery for Filipinos through the Universal Health Care Program, the
DOH reported an obligation of P35.4 billion or 90.4 percent of its total
allotment of P39.1 billion received in 2012. Of the total obligated amount, a
sizeable subsidy of P13.9 billion covered the health insurance premiums of
indigent families being implemented by the PHIC.

Likewise, major spending for the Health Facilities Enhancement Program

(HFEP) amounted to P5.1 billion. The amount was utilized for the upgrading
of health facilities nationwide.

Another budgetary provision of P1.8 billion was spent for the Expanded
Program on Immunization. Through this program, all children aged less than
five years old were given immunization and provided with vitamins and
mineral supplements.

Moreover, the DOH was allocated with P1.7 billion for the Family Health
and Primary Health Care Programs. Under this, the Family Health Program
included family planning services, commodities (i.e. pills, contraceptives) and
counselling, especially for mothers and women of reproductive age. The
Primary Health Care Program on the other hand, focused on the elimination
and control of communicable diseases such as tuberculosis and malaria.

Meanwhile, the Doctors to the Barrios Program incurred an obligation of

P359 million to provide for Pinoy MD Scholars. This program serves as the
government's response to the needs of doctorless and single-doctor
communities in the countryside. Often, these refer to far-flung areas (e.g.
mountain barangays) where patients seeking medical attention travel long
hours to get to the nearest health facility. The doctors sent to these areas are
mostly graduates of the Pinoy MD Scholarship Program, wherein scholars
must render two years of service to government health facilities, thus
addressing staffing complement problems in rural areas.

· Physical Accomplishment of Major Programs/Projects. The PHIC was able to

cover 94 percent of its target, representing 4.95 million families covered by
health insurance, out of the target 5.26 million families for 2012. Meanwhile,
the implementation of the Doctors to the Barrios Program in 2012 has
deployed an average of 148 doctors and 10,267 nurses.

Department of Social Welfare and Development

· To protect the poor and vulnerable sector of the society, continuous support
was provided by the government thru the various social protection programs,
such as the: 1) 4Ps; 2) Social Pension for Indigent Senior Citizens; 3)
KALAHI-CIDSS; and 4) Supplemental Feeding Program. Total allotments for
the said programs amounted to P59.7 billion in 2012.

· Financial Performance. As of 31 December 2012, DSWD had obligated 93.5

percent or P55.8 billion of its total allotments. Based on DSWD's financial
report, 95.8 percent of the total allotment releases for 4Ps, Supplemental
Feeding Program and Social Pension for Indigent Filipino Senior Citizens had
 2012 YEAR-END REPORT

been obligated. Meanwhile, KALAHI-CIDSS posted a lower fund absorption of

68.7 percent due to the delayed implementation of community development
projects.

· Physical Accomplishment of Major Programs/Projects. In general, the 2012

physical targets of the social protection programs had been achieved. For the
said year, DSWD had covered 3.1 million target Conditional Cash Transfer
(CCT) beneficiaries under the 4Ps. These cash transfers had been made to
support basic health, nutrition and educational needs of the beneficiary
families.

With regard to the Social Pension for Indigent Senior Citizens, 181,001 or
97.4 percent of the targeted pensioners had received their monthly stipend of
P500. This is in compliance with Republic Act No. 9994 or the Expanded
Senior Citizens Act of 2010.

Of the 1.8 million Day Care children, only 88.4 percent had benefited from
the Supplemental Feeding Program. This is mainly attributed to the school
year basis of the Program’s implementation. Hence, the remaining
beneficiaries are expected to receive the same assistance in 2013. Also, the
late submission of liquidation papers by LGUs and slow bidding process were
cited for the delayed program implementation in several areas.

Under the KALAHI-CIDSS, a total of 1,615 community development

projects were completed, representing an 88.3 percent accomplishment. As a
result, 400,627 household beneficiaries have been empowered through the
active and direct participation in the completion of the projects. The partial
completion of community development projects was attributed to the delayed
LGU-counterpart contribution to the projects, such as provision of monetary
and manpower assistance.

Department of Public Works and Highways

· At present, the total national road network asset is valued around P1.2
trillion. The road network provides connectivity for various economic and
social activities of the country. Thus, the road network is an important factor
in sustaining economic growth , reducing inequality and uplifting global
competitiveness. The DPWH is tasked to achieve 'good' condition of all
national arterial roads by 2014 and to do the same for national secondary
roads by 2016.

· Financial Performance. Of the P205.7 billion available allotment7 for DPWH,

around P157.6 or 76.6 percent was obligated as of 31 December 2012.

· Physical Accomplishment of Major Programs/Projects. For the current year

appropriation, some 2,946 roads, highways and bridges projects were
programmed to be implemented. As of 31 December 2012, 2,101 projects
were completed while 558 projects are being implemented, which includes
asset preservation, network development, road upgrading, among others. As
of 31 October 2012, 14,476 kms. national arterial roads were paved or 90

7
Available allotment includes releases from the current budget and from continuing appropriations, as well as unobligated
allotment as of 31 December 2012.
 2012 YEAR-END REPORT

percent of the total national arterial road network, while 10,968 kms. or 71
percent of national secondary roads were paved.

As part of DPWH adaptation to climate change, some 1,258 flood control

and drainage projects were programmed as part of the 2012 budget. Out of
this programmed projects, about 623 projects were completed while 374
projects were carried over to 2013.

Department of Transportation and Communications

· The DOTC is the arm of the Executive Branch responsible for the primary
policy, planning, programming, coordinating, implementing and
administration on the promotion, development and regulation of a
dependable and coordinated network of transportation and communications
systems. It also ensures that transportation and communication services is
fast, safe, efficient and reliable. The bulk of the department's budget for the
year was allocated to the construction and improvement of various land, air,
and sea transportation facilities.

· Financial Performance. Of the P35.5 billion available allotment8 for DOTC,

about 56.3 percent of the allotments was obligated as of 31 December 2012.

· Physical Accomplishment of Major Programs/Projects. The bulk of the

obligation made during the year was for the MRT 3 Operation and
Maintenance (P1.2 billion), and the Subsidy for Mass Transport (P5.0 billion).
Big-ticket projects of the department were in various stages of procurement
and were not obligated until end-2012. Among these projects are the LRT
Line 1 South Extension and Privatization, and the MRT/LRT Common
Ticketing Project. Meanwhile, some of the projects of the department have
been bidded out and were implemented including the New Legaspi Airport
Development Project and the Puerto Princesa Airport Development.

Department of Energy

· One of the main factors for continued economic development and poverty
alleviation is sustainable energy. The DOE aims to steer the nation towards
achieving sustainable energy with its 2012-2030 Philippine Energy Plan.

· Financial Performance. Of the P2.6 billion allotment released for the

department (including continuing allotment), around P1.8 billion or 67.1
percent was obligated.

· Physical Accomplishment of Major Programs/Projects. Out of the total

obligations for the department, around P704 million was for the Philippine
Energy Efficiency Project (PEEP). Among the milestones for the year include
the retrofitting of six (6) government buildings of set of lighting fixtures
complete with lamps, electronic ballast and luminaries and other lighting
accessories; the supply and distribution to residential houses of 8.6 million
compact fluorescent lamps (CFLs) and 223 photovoltaic solar home systems;
the retrofitting of some 314 parklights and streetlights in Baguio and Cagayan

8
Ibid.
 2012 YEAR-END REPORT

De Oro; and the installation of about 159 intersections LED traffic lights in
Metro Manila.

Department of Agrarian Reform

· Financial Performance. In 2012, DAR reported an obligation of P12.4 billion,

or 65.4 percent of its total allotment of P19.0 billion.

Its major project, the PAyapa at MAsaganang PamayaNAn in Agrarian

Reform Areas (PAMANA-ARA), obligated P14.2 million (or 86 percent) and
disbursed P13.5 million from its P16.5 million allotment. All the expenditures
were incurred for activities in Samar (Region VIII), Compostela Valley (Region
XI), and North Cotabato (Region XII).

· Physical Accomplishment of Major Programs/Projects. At the start of 2012,

the department committed to implement 55 PAMANA-ARA projects such as
minor infrastructure repairs, livelihood training and other activities in Samar,
Compostela Valley and North Cotabato provinces. Of these projects, nine (9)
were completed at the end of the year, while the implementation of 31 others
extended up to the following year. DAR had to defer 15 other projects either
because of failure to come up with a proposal or due to deficiencies in the
existing proposal.

Department of Agriculture

· Financial Performance. In 2012, DA incurred P56.7 billion of obligations, or

approximately 91.1 percent of its P62.2 billion allotment.

In that year, the major programs of DA - namely, rice, corn, high value
crops, livestock and fisheries programs as well as the farm-to-market roads
and irrigation systems development- made up a huge fraction of the
department's total expenditures.

The Rice Program obligated P1.8 billion (95.3 percent) of its P1.9 billion
allotment; the Corn Program incurred obligations amounting to P1.0 billion
(97.4 percent) of its P1.1 billion allotment; the High Value Crops Program
reported obligations of P1.7 billion (94.8 percent) from its P1.8 billion
allotment; the Livestock Program obligated P849.9 million (87.2 percent) of
its allotment of P975.0 million. Meanwhile, a total of P4.9 billion of obligations
(99.8 percent) from the P4.9 billion allotment releases for the
Repair/Rehabilitation and the Construction of Farm-to-Market Roads in the
Designated Key Production Areas were made.

The Fisheries Program, which was administered by BFAR, obligated P2.7

billion (96.6 percent) of its P2.8 billion allotment. The Irrigation Development
Services under NIA, reported obligations of P17.7 billion (91.1 percent) from
its allotment releases amounting to P19.4 billion.

· Physical Accomplishment of Major Programs/Projects. In 2012, the Rice

Program provided 837,171 individuals, or 95.6 percent of target beneficiaries,
with production assistance such as rice seeds (7,579,040 kilograms), farm
machineries and equipment (42,469 pieces), variety of biological control
agents (283,825 pieces) as well as pesticides (93,984 kilograms). The
 2012 YEAR-END REPORT

program also distributed 401,346 postharvest equipments and constructed

1,406 facilities including drying pavements and palay sheds for the farmers.
Also, 69 local market-related events were conducted, while 67 trading centers
were facilitated under the Market Development Services component of the
program.

For the Corn Program, production support services such as seeds

(194,992 kilograms), planting materials (2,548,000 pieces), fertilizers (8,073
kilograms), biological control agents (11,801,338 pieces) were handed out to
25,346 individuals, or 257 percent of the target beneficiaries. Also, 263
postharvest equipment and machineries were distributed while 42
postharvest facilities were constructed for the beneficiaries. About 46,285
participants, or 92 percent of the target, underwent trainings and technology
demonstrations conducted under the program, while 2,638 farmers and rural
folks, or 92 percent of the target, were given incentives such as allowance
and scholarship.

For the High Value Crops Development Program, 3,055 groups, or 107
percent of the target, were given production support services such as
vegetable seeds (120,518 kilograms), different planting materials (6,834,318
pieces), carabaos (509 heads) and farming equipments (3,561 pieces).
Meanwhile, 429 of 774 production facilities, such as nurseries and
greenhouses, and 25 of 89 postharvest facilities had been completed in 2012.
The construction of the remaining facilities went on in the proceeding year.

For the Livestock Program, seeds (2,155 kilograms), perennial crop

planting materials (927,166 pieces), semen straws (248,333 pieces), different
kinds of livestock and poultry animals (8,946 heads), and vaccines and drugs
(4,300,077 doses) were distributed to 3,022 beneficiaries, or 110 percent of
the target. About 1,715 individuals and groups, or 108 percent of the target,
benefited from market services provided, while a total of 46,865 individuals
took part in trainings and technology demonstrations hosted by the program.
Likewise, 2,928 farm folks and rural people received incentives, in form of
allowance and scholarship, through the program.

For the infrastructure programs of the department, 76.5 kms. of farm-to-

market roads, or 7.7 percent of 1,000 km. target, were constructed, repaired
or rehabilitated as of the end-2012. This program benefited around 100,092
individuals. Meanwhile for the Irrigation Development Services, NIA
generated new national, communal and small-scale irrigation systems, as well
as restored and rehabilitated existing ones. Based on the report submitted by
the agency, a total of 42,559 has. of irrigation systems, or 48.8 percent of
87,164 ha. target, were generated over the country. About 35,265 has. of
existing irrigation systems, or 59.3 percent of 59,514 ha. target, were
restored Also, 91,236 has., or 79.1 percent of 115,397 ha. target, were
rehabilitated. These development services benefited around 117,483
households - mostly farmers, and generated some 111,763 jobs.

For the Fisheries Program, about 66,028 fisher folks, or 125 percent of
the target beneficiaries, were provided production assistance such as variety
of fish seeds, fish brood stock, fishing gears and paraphernalia as well as
maintenance support for hatcheries and holding cages. A total of 51,984 of
training activities and technical assistance, and 1,618 technology
 2012 YEAR-END REPORT

demonstrations were held for the fishermen. Meanwhile, a total of 15,026

propagules were planted during mangrove reforestation activities under the
Coastal Resource Management component of the program. About 23 fisheries
management patrol vessels were deployed over the country waters.

Department of Environment and Natural Resources

· Financial Performance. The allotment releases for DENR in 2012 aggregated

to P20.5 billion, of which P17.3 billion (84.3 percent) was obligated. For its
major programs and projects, the National Greening Program received a total
allotment of P2.9 billion, of which P2.6 billion (88 percent) was obligated. The
Cadastral Survey had an allotment P2.7 billion of which P2.2 billion (82
percent) was obligated. The DENR's Forest Protection services received
allotments of P538.1 million and incurred obligations amounting to P284.0
million (53 percent).

· Physical Accomplishment of Major Programs/Projects. For the National

Greening Program, the DENR had produced a total of 125,597,730 seedlings,
exceeding the target. The department spearheaded planting activities in
different areas, covering 221,763 has., which was also above the target of
200,000 hectares.

For the Cadastral Survey Program, about 6,413,888 has. of areas, or 89

percent of 7,234,590 ha. target, had been surveyed in 2012, covering 315
out of 385 target municipalities.

For the Forest Protection, 3,613,687 hectares of untenured forest areas-

covering the entire target for the year- were patrolled and 188 entry points
were monitored, significantly reducing the number of illegal logging hotspots
to 31.

Department of Science and Technology

· Financial Performance. The total allotment releases for DOST in 2012

amounted to P11.9 billion, of which P10.3 billion (86.8 percent) was
obligated. The department's major program, the PAGASA Automation
Program, received allotments of P578.0 million in that year. Of this, P284.6
million (49.2 percent) was obligated and P80.5 million was disbursed.

· Physical Accomplishment of Major Programs/Projects. For its Automation

Program in 2012, PAGASA installed the following equipments to further
improve its weather forecasting system: 28 automatic weather stations
(AWS); four (4) soil moisture and soil temperature sensors; seven (7)
automatic evaporation rate sensors; two (2) forecaster's workstations; six (6)
very-small-aperture terminals (VSAT); an integrated satellite facility and a
global telecommunication system message switching system (GTS MSS). Also,
an X-Band Mobile Radar was procured for the automation program of the
agency.
 2012 YEAR-END REPORT

IV. Fiscal Reforms and Future Policy Directions

The national government is improving its fiscal position by pursuing an

aggressive combination of revenue generation, active debt and liability
management, and more efficient spending. This improvement in fiscal health is one
of the reasons cited by major credit rating agencies in upgrading the Philippines to
Investment Grade.

To raise the tax effort, the BIR is focusing on improving voluntary tax
payments from businesses and self-employed professionals. The bureau also
implemented stricter estate tax imposition to improve its revenue collections.

The BOC on the other hand, is undergoing a massive reorganization to raise

its efficiency and performance. Two specialized units - the Office of Revenue Agency
Modernization (ORAM)9 and the Customs Policy Research Office (CPRO)10 - both
under the DOF have been created to help improve BOC collections through the
formulation of necessary enhancements in systems and procedures.

The legislative agenda of the DOF is also centered on the passage of the
Fiscal Incentive Rationalization Bill, Tax Incentive Management and Transparency
Act, Fiscal Regime for Mining Industry, and Valuation Reform Act.

On the expenditure side, the government remains committed to the

implementation of expenditure management reforms aiming to sustain a strong and
healthy fiscal position over the medium-term (sustaining deficits at 2.0 percent of
GDP until 2016), better quality expenditures, and a more transparent and
accountable spending. For one, the government intensified its efforts in weeding out
lump-sum budgets and is piloting this year the one year validity of appropriations (a
shift from the two-year validity of appropriations on maintenance and capital
outlays). The government also designated DPWH as the principal infrastructure
agency to ensure that infrastructure outlays are focused on “the right projects, with
the right costs and the right quality.” In relation to this, the budget this year also
directs line agencies to focus on their core mandates and accelerated delivery of
targets to ensure the greatest impact of government activities.

Moreover, the DBM is rolling-out technological innovations to speed-up budget

release and procurement transaction, improve information flows and strengthen
transparency and accountability. Additional functionalities of e-payment and e-
bidding to the Philippine Government Electronic Procurement System (PhilGEPS) are
being developed. The National Payroll System is being tested in pilot agencies; and
the Cashless Purchase Cards System is piloted in the military to reduce the use of
cash advances. Meanwhile, the Government Integrated Financial Management
Information System (GIFMIS), which will enable timely and more comprehensive
monitoring of budget execution and agency utilization of funds, is now under
development.

In crafting a better focused Budget for 2014, the government started with the
conduct of Cabinet-level discussions on the government’s priorities that should be
funded for 2014 to 2016. These decisions and commitments were summarized in a
Budget Priorities Framework that guided all departments in strategically planning
their activities and crafting their budgets for 2014. The 2014 Budget also adopted
9
Executive Order No. 139, s. 2013
10
Executive Order No. 140, s. 2013
 2012 YEAR-END REPORT

the Performance-Informed Budgeting (PIB), integrating performance information

from the strengthened Organizational Performance Indicator Framework (OPIF) to
the National Expenditure Program/General Appropriations Act. The Performance-
based Incentive System was installed via E.O. No. 80, s.2012 to provide top-up
bonuses based on performance to incentivise continuing improvements in the
performance of departments and agencies and will support the PIB.

The greater disaggregation of the Budget and the one-year validity of

appropriations will pave the way for the onset of a new budgetary regime: General
Appropriations Act will serve as the Budget Release Document in 2014. This
eliminates the duplicative process of requesting, processing and releasing budgetary
allotments.

On the financial side, the roadmap for Public Financial Management (PFM)
Reforms will continue to be implemented. Of this roadmap, the Treasury Single
Account should hopefully be installed by 2014. This will revolutionize Treasury cash
management operations and provide more predictability in budget releases, easing
cash programming and financial reporting.

Moving forward, the National Budget will continue to reflect the nation’s
priorities in accordance with the Plan; and will be more open and participatory as we
actively engage multi-sectoral stakeholders in the budgeting process. The evaluation
of existing major programs/project, through the Zero-Based Budgeting approach,
will be widened in scope. Government performance in achieving the targeted
outputs and sectoral outcomes will be continuously monitored under the OPIF,
where performing institutions will be rewarded under the Performance-based
Incentive System. Spending commitments of government agencies will be constantly
under check, so prompt, efficient and effective public goods and services will be
delivered.

In terms of financing the deficit, the government intends to continue its

preference for domestic sources considering prevailing market conditions and risk
management. The government is also looking at the issuance of new instruments
with the aim of deepening the domestic capital market. On top of Retail Treasury
Bonds (RTB), and the recently issued On-shore Dollar Bonds (ODB), the government
is also considering inflation linked securities that protects investments from upswings
in inflation. On the external financing side, the NG will continue to maximize
concessional loans from development partners even as it reduces borrowing from
foreign markets. Given low deficits and financing requirements, the government has
considerable room for flexibility in its funding operations to accommodate shifts in
financial market conditions

Much of the advances in debt management achieved in 2012 is expected to

carry over in the coming years on the back of favourable investment outlook driven
by sound macroeconomic fundamentals. Nevertheless, the National Government
continues to be vigilant as it makes its case for investment grade status among the
credit rating agencies. It continues to strengthen capacity in risk management to
augment current capability in managing the country’s debt portfolio.