PUBLIC BUDGETING:

INTRODUCTORY CONCEPTS
GILBERT R. HUFANA
Professor
 WHAT IS FUND?

• The word "fund" in government has taken several

meanings or connotations.
• It is sometimes used to refer an appropriation which
is a legislative authorization to spend or an allotment
which is an authorization by the Department of
Budget and Management (DBM) to obligate, or as
actual cash available.
 BASIS FOR THE USE OF GOVERNMENT
FUNDS

• The following provision of the Philippines Constitution

sets the basic rule for the use of government funds:
"Art. VI, Sec. 29. No money shall be paid by the
Treasury except in pursuance of an appropriation
made by law."
• The aforequoted provision of the Constitution also
establishes the need for all government entities to
undergo the budgeting process to secure funds for
use in carrying out their mandated functions,
programs and activities.
 HOW ARE GOVERNMENT FUNDS
APPROPRIATED?

1. individual agencies prepare their estimates of

expenditures or proposed budgets for the
succeeding year and submit these estimates or
proposals contained in required budget forms to
the DBM following baseline figures, guidelines and
timetable earlier set;
2. agencies justify details of their proposed budgets
before DBM technical review panels;
3. DBM reviews and consolidates proposed budgets of
all agencies for inclusion in the President's
proposed budget for submission to Congress;
 HOW ARE GOVERNMENT FUNDS
APPROPRIATED
CONTINUATION

4. agencies explain the details of their proposed

budgets in separate hearings called by the House of
Representatives and the Senate for inclusion in the
General Appropriation Bill; and
5. the President signs the General Appropriation Bill
into law or what is known as the General
Appropriations Act (GAA).
 WHAT IS A GOVERNMENT BUDGET?

• In general, a government budget is the financial plan

of a government for a given period, usually for a
fiscal year, which shows what its resources are, and
how they will be generated and used over the fiscal
period.
• The government budget also refers to the income,
expenditures and sources of borrowings of the
National Government (NG) that are used to achieve
national objectives, strategies and programs.
• The budget is the government's key instrument for
promoting its socio-economic objectives.
 NATIONAL GOVERNMENT BUDGET

• The National Government budget (also known simply

as the budget) refers to the totality of the budgets of
various departments of the national government
including the NG support to Local Government Units
(LGUs) and Government-Owned and Controlled
Corporations (GOCCs).
• It is what the national government plans to spend for
its programs and projects, and the sources of what it
projects to have as funds, either from revenues or
from borrowings with which to finance such
expenditures.
 USE OF THE NATIONAL BUDGET

The national budget is allocated for:

1. the implementation of various government
programs and projects,
2. the operation of government offices,
3. payment of salaries of government employees, and
4. payment of public debts.

• These expenditures are classified by expense class,

sector and implementing unit of government.
 EXPENDITURE PROGRAM VS
FINANCING PROGRAM

• The EXPENDITURE PROGRAM is that portion of the

national budget that refers to the current operating
expenditures and capital outlays necessary for the
operation of the programs, projects and activities of
the various government departments and agencies.
• The FINANCING PROGRAM includes the projected
revenues from both existing and new measures, the
planned borrowings to finance budgetary
transactions and the payment of debt principal failing
due.
 THE NEED TO PREPARE FOR THE BUDGET

• The preparation of the government's budget every

year is in accordance with the Constitution.
• The yearly preparation of the budget is also in
consonance with the principle which requires all
government spending to be justified anew each year.
• This principle ensures that government entities
continuously evaluate and review the allocation of
resources to project/activities for cost efficiency and
effectiveness
 LEGAL BASIS

• Section 22, Article VII of the Constitution states that:

"The President shall submit to the Congress

within 30 days from the opening of every regular
session, as the basis of the general appropriation
bill (GAB), a budget of expenditures and sources
of financing including receipts from existing and
proposed revenue measures."
 SOURCES OF APPROPRIATION

• The sources of appropriations of the annual budget

are:
1. new general appropriations legislated by Congress
for every budget year under the General
Appropriations Act (GAA); and
2. existing appropriations previously authorized by
Congress.
• Under the Constitution, Article VI, Section 29, no
money can be withdrawn from the Treasury except in
pursuance of an appropriation made by law.
 APPROPRIATION VS. BUDGET

• An appropriation refers to an authorization made by

law or legislative enactment directing payment out of
government funds under specified conditions or for
specific purposes.
• On the other hand, the budget may be construed as
the total amount of appropriations programmed to be
spent during the budget year and that can be
supported by available resources in accordance with
the fiscal program to enable the national government
to enter into contract for the delivery of goods and
services to the public.
 APPROPRIATION VS. ALLOTMENT

• Appropriation refers to an authorization made by law

or legislative enactment directing payment out of
government funds under specified conditions or for
specific purposes.
• On the other hand, allotment is an authorization
issued by the DBM to an implementing agency to
incur obligations for specified amounts contained in a
legislative appropriation.
 EXISTING OR CONTINUING
APPROPRIATIONS

• Existing or continuing appropriations are those which

have been previously enacted by Congress and which
continue to remain valid as an appropriation authority
for the expenditure of public funds.
• There are two type of existing appropriations:
1. continuing and
2. automatic.
 CONTINUING APPROPRIATION

• Appropriations available to support obligations for a

specified purpose or project, such as multi-year construction
projects which require the incurrence of obligations even
beyond the budget year.
• Examples of continuing appropriations are those from
existing laws such as : RA 8150, otherwise known as the
Public Works Act of 1995; and Republic Act No. 6657 and
Republic Act 8532 (CARP Laws) which set funds specifically
for the Agrarian Reform Program (ARP).
• Currently, appropriations for capital outlays and
maintenance and other operating expenses are considered
as continuing appropriations but only for a period of 2 years.
 AUTOMATIC APPROPRIATION

• Appropriations programmed annually or for some

other period prescribed by law, by virtue of
outstanding legislation which does not require periodic
action by Congress.
• Falling under this category are expenditures authorized
under Presidential Decree (PD) 1967, RA 4860 and RA
245, as amended, for the servicing of domestic and
foreign debts, Commonwealth Act 186 and RA 660, for
the retirement and insurance premiums of government
employees, PD 1177 and Executive Order 292, for net
lending to government corporations, and PD 1234, for
various special accounts and funds.
 “ONE-FUND” CONCEPT

• The "one-fund" concept is the policy enunciated

through PD 1177 which requires that all income and
revenues of the government must accrue to the
General Fund and thus can be freely allocated to fund
programs and projects of government as prioritized.
• The "one-fund" concept is a fiscal management policy
requiring that as much as possible, all revenues and
other receipts of the government must enter the
General Fund and their utilization and disbursement
subject to the budgeting process.
 “ONE-FUND” CONCEPT
IMPORTANCE

• The one-fund concept is significant in that it serves as

an avenue through which fiscal authorities may
properly allocate scarce government resources in
accordance with the priorities in the over-all program
of economic development.
• It likewise provides a mechanism to control drawdowns
on pooled resources. Regularly, the level of funds
disbursed are monitored against the level of revenues
generated. This way, we are able to stick to the
targeted level of disbursement for a given period and
avoid incurring a deficit. It also alerts us of possible
revenue shortfalls.
 A BALANCED BUDGET

• In the context of government budgeting, a budget is said

to be balanced when revenues match expenditures or
disbursements.
• When expenditures exceed revenues, the government
incurs a deficit which may result in the following
situations:
1. The government borrows money either from foreign
sources or from the domestic capital market which
increases the debt stock of the NG and its debt servicing
requirements;
2. The government borrows money from the Central Bank; or,
3. The government withdraws funds from its cash balances in
the Treasurer
 THE GOVERNMENT'S FISCAL POLICY

• Historically, national government expenditures have

always exceeded total revenues resulting in annual
budget deficits. Thus, the national government had to
resort to borrowing to cover said deficits which resulted
in the ballooning of foreign and domestic debts.
• However, in 1994, the government broke the deficit
trend by posting a budget surplus of P16 billion through
an aggressive privatization and revenue generation
program and a prudent expenditure program. Since
then, the government has been exerting efforts to
maintain the surplus budget policy.
 IMPORTANCE OF SURPLUS BUDGET

• The surplus budget policy is important to encourage

economic growth.
• The less the government borrow from the public, the
lesser the pressure on interest and inflation rates and
the more funds are made available in the financial
market.
• Such funds may be used by businessmen to build
factories, hire workers, buy equipment and open
more employment opportunities.
 IMPORTANCE OF SURPLUS BUDGET

• By keeping more funds in the hands of the private sector

rather than competing for credit, the government helps
make financing available for families who want to own
homes, buy cars, or support their children's education.
• The government also needs to generate a budget surplus
to repay the huge debt it has accumulated over the years.
• The reduction of the national budget debt will
correspondingly lessen government's requirements for
interest and principal payments. This becomes important
particularly during periods of rising interest rates and
unstable exchange rates.