PHILIPPINES - 2008 FISCAL TRANSPARENCY UPDATE

UNCLAS SECTION 01 OF 02 MANILA 000549 SIPDIS SIPDIS SENSITIVE STATE FOR EEB/IFD/OMA Andrew Snow and Richard Figueroa STATE ALSO PASS USAID FOR AA/ANE, AA/EGAT, DAA/ANE STATE ALSO PASS EXIM, OPIC, AND USTR TREASURY FOR OASIA USDOC FOR 4430/ITA/MAC/ASIA & PAC/KOREA & SE ASIA/ASEAN E.O. 12958: N/A TAGS: ECON EAID PGOV RP SUBJECT: PHILIPPINES - 2008 FISCAL TRANSPARENCY UPDATE Ref: State 16737 Sensitive but Unclassified ¶1. (U) In response to reftel request, following is an updated narrative on fiscal transparency for the Philippines. ¶2. (SBU) Begin text: The current legal and regulatory framework for fiscal transparency and accountability is generally adequate although inconsistently applied, especially at the sub-national levels of government. National government budget data is available in a timely manner and in significant detail during the planning stage but transparency during budget execution and monitoring of project performance is still lacking. Compliance with transparency requirements regarding lump sum budget allocations (such as congressional funds and legally-mandated national government transfers to local government units) is weak and inconsistent. The International Monetary Fund reports on Philippine observance of fiscal transparency standards are available on its website. Relevant laws and regulations governing the public disclosure of revenues and expenditures in national budgets are: -- The Philippine Constitution: Subject to reasonable conditions prescribed by law, Article II, Sec. 28 requires public disclosure of all transactions involving the public interest. Article III, Sec. 7 recognizes the people's right to information on matters of public concern and their right to access official records, documents pertaining to official acts, transactions and decisions, as well as government research data. Article VII, Sec. 22 of the Constitution, as well as Executive Book VI, Chap. 3, Sec. 11 of Executive Order 292 (the Administrative Code),requires the President of the Philippines to submit to the Philippine Congress, within thirty days from the opening of every regular session, a detailed Budget of Expenditures and Sources of Financing (BESF). The BESF is published in book form and is accessible through the Department of Budget and Management web site (www.dbm.gov.ph) in accordance with the constitutional provisions on public disclosure and access to information. -- The Administrative Code (Book II, Chap.5, Sec. 18): Unless otherwise specified, a law shall take effect 15 days after publication in the Official Gazette or in a paper of general circulation. In accordance with this provision, the national budget bill approved by the Philippine Congress and subsequently signed into law by the President of the Philippines is published as a special edition of the Official Gazette. -- Presidential Decree 1445 (Government Auditing Code, Sec. 41): Not later than September 30 annually, the Commission on Audit must submit to the President and to the Philippine Congress an annual report on the financial condition and the results of operation of all government agencies (national government, local governments, and government-owned and controlled corporations). The annual reports are available in book form and are accessible through the Commission on Audit web sire (www.coa.gov.ph) in accordance with the constitutional provisions on public disclosure and access to information. The BESF also summarizes the national government's proposed budget by sector and by expenditure class, as well as outlines the national government's fiscal program (revenues, expenditures, and deficit). Budgetary support (subsidy, equity, lending) to government firms and transfers to local government units are specified in the national budget. The Department of Finance (www.dof.gov.ph) and its attached agency, the Bureau of the Treasury (www.treasury.gov.ph),report the National Government's revenues, expenditures, and deficit monthly (with a three-week lag) through press releases and also post the information on their websites. Assessments regarding fiscal targets are released on a quarterly basis. Although generally reliable, these in-year cash operation reports lack detail, making it difficult to monitor and assess whether expenditure goals and priorities set forth in the approved national budget are being met during budget implementation. Lack of capacity, inconsistent political will, and vested interests have combined to limit the degree to which budget data is transparent, timely, and widely available, particularly during budget execution. In-year reports to summarize and monitor the financial/fiscal performance of MANILA 00000549 002 OF 002 sub-national government units are not always publicly available and sub-national agencies generally suffer from weak internal audit and financial controls. National government debt statistics on contingent liabilities are limited to loans incurred by government-owned and controlled enterprises that the national government guarantees. The information does not reflect the potential fiscal risks posed by contingent liabilities arising from performance undertakings under various Build-Operate-Transfer contracts, although new rules limit the extent to which the government can guarantee obligations made under these arrangements. The Philippine government has initiated, and is working to implement, a number of important measures to improve fiscal transparency, expenditure management, and accountability. These include the development of a multi-year, performance-based budgeting framework (Organizational Performance Indicators Framework); a Sectoral Effectiveness and Efficiency Review for program evaluation; and an IT-based budget execution and accountability system. Given the substantial share of national government revenues allotted to local government units under the Local Government Code, the Government is also working to improve the financial database for local governments to better measure their performance. To strengthen coordination, improve efficiency, and promote consistency with development goals, local and national government oversight agencies (i.e., the Department of Finance, Department of Budget and Management, the National Economic and Development Authority, and the Department of Interior and Local Government) signed a joint memorandum circular in March 2007 towards harmonizing procedures for local planning, investment programming, revenue administration, and budgeting. President Gloria Macapagal-Arroy signed the Government Procurement Reform Act in January 2003 to rationalize and standardize a myriad of confusing procurement laws and regulations and to stem significant procurement-related losses. The privatization framework (including Build-Operate-Transfer arrangements and related schemes) is also set out in considerable detail in legislation and implementing rules and regulations. However, controversies surround a number of privatization deals and businesses continue to raise concerns about irregularities in government procurement, indicating gaps between laws/regulations and their implementation and enforcement. Recent and/or ongoing U.S. government-assisted programs that promote accurate disclosure of revenues and expenditures in the national budgets of the Philippines include: -- Working with civil society groups to promote transparency in government by launching a website to provide the public and the media information on the national budget and to enable monitoring of budget formulation and the expenditure process. -- Training for government procurement officials on the implementation of the Government Procurement Reform Act. -- Assisting in revenue enhancement and reorganization of the internal revenue agency, focusing on developing benchmarks to track and monitor tax payments. -- Training local government units on public resource management and on administrative review, and audit procedures, as well as supporting the Local Government Guaranty Corporation in implementing an internal credit screening and rating system specializing in credit and management evaluation. The Australian Agency for International Development, the World Bank, and the Asian Development Bank also have assisted efforts on improving transparency, working with the Department of Budget and Management of the Philippines and other development partners. End text. Kenney