When savings is not a virtue

From an early age, people have been taught that savings is a guaranty for the future but in fiscal management, savings or the way the government defines it is not necessarily an advantage.

The Department of Budget and Management (DBM) indicated that the declaration of savings is needed to generate ready and fast-moving funds to respond to emergency situations such as relief operations in the aftermath of a typhoon.

Even President Aquino explains the generation of savings in government is not preferable.

In a speech at the height of the debate on the DAP after the Supreme Court ruled that schemes undertaken to create it, including the declaration of savings before the end of a fiscal year, were unconstitutional, said “What would happen to the funds that were not being used—what would happen to what some would term savings? . . .In any household, savings are good; they can be kept for a rainy day or for an emergency. In government, however, savings are almost always bad. They are the equivalent of programs and projects left unfulfilled, of foregone benefits for the Filipino people.”

Yet, the practice of generating savings from the budget persisted with even the term getting a redefinition under the General Appropriations Act of 2015 with some saying that the redefinition was meant to circumvent the SC ruling.

The weak 5.3 percent growth rate in the third quarter was the result of poor agricultural output and more importantly the lag in government spending.

The service sector which has been the lynchpin of previous strong growths posted decelerated to 5.4 percent.

The industry sector slowed down to 7.6 percent, slightly lower than the previous year’s 7.7 percent and the previous quarter’s 7.9 percent growth.

The entire agriculture sector contracted by 2.7 percent, which was a level not experienced since the fourth quarter of 2009.

Government spending would have offset the low net primary income (NPI) expansion of only 2.7 percent during the quarter which was way below the 19.9 percent growth a year ago.

NPI is mainly the remittances of Filipinos working overseas and which sustains the consumption-led economy.

Gross national income (GNI) grew a slower 4.8 percent from a nine percent growth a year ago as a result.

Former budget secretary and now University of the Philippines School of Economics professor Benjamin Diokno said underspending is a scourge afflicting the administration of Noynoy.

He noted that the affliction was either through incompetence of those appointed by Noynoy in government or is a deliberate act to generate savings which are then used as discretionary funds of Noynoy.

The Disbursement Acceleration Program (DAP) which the Supreme Court earlier declared was created through unconstitutional means was mainly built up through the juggling of funds in the budget and the declaration of savings prior to what is allowed under the law.

Diokno said from January 2011 to the end of last September 2014, total government underspending reached an unbelievable P594 billion.

The failure to efficiently use the yearly budget was even made worse with the creation of the DAP in which P140 billion to P150 billion were diverted from it from 2011 to 2013 when it was in effect.

For the first three quarters of 2014, programmed spending was P1.73 trillion but actual spending reached only P1.456 trillion resulting in underspending of P274 billion.

Diokno explains the creation of savings mainly through underspending affects growth:

With agriculture output sluggish and cannot be relied on as a growth driver, it would be up to fiscal managers to budget and spend more in job-generating and economic enhancing activities.