RP may end year with lower-than-expected deficit

The government is likely to end 2006 with a lower-than-expected budget deficit.

The Bureau of Treasury (BTr) and the Department of Finance (DOF) are scheduled to release the November fiscal numbers next week and officials said initial indications show government agencies having difficulties spending their budget allocations.

National Treasurer Omar Cruz told reporters that government agencies are having a hard time spending partly because of limitations in procurement and partly because the funds came too late.

"I can not give any indication of what our cash position looks like," Cruz said. "Suffice it to say that it is very strong. If anything, spending is really weak."

Congress approved a P46.9-billion allocation to supplement the reenacted 2005 budget that the Arroyo administration was forced to use this year because the 2006 budget failed to go through legislation.

According to Cruz, however, the bureaucracy was limited both by the insufficient time left in the year to use up the funds and by the momentum of tight spending throughout the year.

"Imagine we were operating under a reenacted budget so there were a lot of restrictions," he said. "Now suddenly you have to let go because you have more funds. It can’t be done that fast because the bureaucracy is big. It needs time to adjust to the fact that it can spend more than it thought it can."

There were speculations that the government’s inability to spend was an over-reaction to the deficit crisis and could ultimately hamper growth by limiting public spending even in critical social and infrastructure areas.

But Cruz expressed optimism that the bureaucratic limitations could be addressed by selected shifts in the government’s procurement procedures to ensure that funds get to the projects that require them.

Because of the unusually weak absorptive capacity of government line agencies, the DOF earlier projected that the year-end deficit would be at least P10 billion less than the programmed ceiling of P125 billion.

The DOF said the national budget deficit for the first 10 months of the year reached only P56.3 billion, leaving a headroom of over P67 billion for the remainder of the year.

After Congress approved the supplemental budget, finance and budget officials said the government now has the opposite problem of being able to disburse the P46.9 billion in the next two weeks.

If the funds are not spent on time, Cruz said the money would go back to the treasury and could no longer be used for 2007.

In order to use up the rest of the supplemental budget, officials said earlier that the government has also decided to settle part of the government’s arrears with the Government Service Insurance System (GSIS) amounting to P6 billion.

Also under consideration was the possible front-loading of the P6 billion guarantee for the Home Guarantee Corp. and the P1-billion allocation for airport and aviation development programs.

These projects, however, were complicated expenditure that would require lengthy negotiations with government corporations.