Philippines Analytical Brief: 2018 National Budget

Philippines Analytical Brief | January 4, 2018
Authors: Riley Smith
 
2018 National Budget for the Philippines
 
 

The 2018 National Budget for the Philippines, officially called the General Appropriations Act (GAA) of 2018, or Republic Act 10964, is the first national budget to be a sole product of the administration of President Rodrigo Duterte.  As such, it provides a clearer take on the priorities of the administration, coming one full year after Duterte took office.  When looking at which departments received the largest shares of the 2018 National Budget, it is clear that education, infrastructure development, and internal security, are the three top priorities of the Duterte administration for 2018.

President Duterte signed the 2018 National Budget into law on December 19, 2017.  The P3.767 trillion (US$75.6 billion) budget is the largest passed by any administration to date, surpassing last year’s budget by 12.4%. Commenting on the 2018 budget, Duterte said that it will, “not only foster the golden age of infrastructure and secure peace and order, but also accelerate human capital development for sustained and inclusive growth.”

As with the 2017 National Budget, this year’s budget aims to support the administration’s key initiatives, most especially those associated with improving access to and the quality of education, infrastructure development, and enhancing internal security preparedness and capacity.  Consequently, it includes major outlays for departments and agencies responsible for carrying out these key initiatives.  Overall, social services once again received the largest sectoral allocation – P1.426 trillion (US$28.6 billion), a 5.5% increase from 2017.  Similarly, economic services again received the second-largest allocation – P1.154 trillion (US$23.1 billion), a 25% increase from last year. 

The official version of the 2018 National Budget is not yet available from the Department of Budget and Management, but according to the official press release (available here) the Department of Public Works and Highways (DPWH) received the largest single share of funds on a per-department basis.  The 2018 budget allocated P637.86 billion (US$12.8 billion) to DPWH, an amount that accounts for 16.9% of the total budget.  This amount is also 40.3% higher than in 2017.  The funds allocated to DPWH will go towards supporting the administration’s “Build, Build, Build” infrastructure development program, particularly the development of transportation infrastructure.  DPWH’s allocation is part of the projected P8.1 trillion (US$163 billion) that the administration is aiming to spend on infrastructure development up to 2022, Duterte’s last year in office. 

The Department of Education (DepEd) is allocated the second-largest share of funds this year, on a per-department basis.  According to the official press release, DepEd is allocated P553.3 billion (US$11.12 billion), an increase of only 1.69% from last year’s budget but nevertheless accounting for a significant share – 14.7% – of this year’s total funds.  As with the 2017 budget, most of these funds will go towards building new education facilities and maintaining existing ones, hiring teaching and non-teaching personnel, and providing learning resources to Filipino students across the country.  In addition to DepEd’s funding, State Universities and Colleges (SUCs) are also allocated P62.12 billion (US$1.25 billion).  From these funds, each SUC will receive an increase of at least P10 million (US$200,700) to go towards the purchase of equipment and the repair and construction of learning facilities.  In addition, P327 million (US$6.57 million) will go towards setting up free Wi-Fi for all SUCs.  Lastly, the Commission on Higher Education (CHED) is allocated P49.4 billion (US$991 million) to finance scholarships, grants, and subsidies for higher education.  Collectively, DepEd, the SUCs, and the CHED received P664.8 billion (US$13.3 billion) in the 2018 National Budget, which eclipses the funds allocated to DPWH.  This aligns with the Philippines’ 1987 Constitution, which stipulates that, “[t]he State shall assign the highest budgetary priority to education …” 

The departments that received the third- and fifth-largest shares of funds under the 2018 budget are the Department of the Interior and Local Government (DILG) and the Department of National Defense (DND), respectively, underscoring the continued importance of defense and security issues to the Duterte administration.  Ever since Duterte won the 2016 presidential election his economic team – which includes Secretary of Finance Carlos Dominguez, Secretary of Socioeconomic Planning Ernesto Pernia, and Secretary of Budget and Management Benjamin Diokno – has consistently maintained that rule of law issues are the foundation of the administration’s socio-economic development agenda.  While Duterte’s controversial anti-illegal drug campaign dominated the coverage of most of his first year in office, internal security needs took on a new dimension last May when Islamic State-inspired militants took over parts of the city of Marawi in northern Mindanao, leading to clashes with the Armed Forces of the Philippines (AFP) that lasted five months and destroyed much of the city.  Unsurprisingly, DND’s budget allocation in 2018 is over 9% higher than in 2017, with the funds going towards internal defense, domestic security, and the Armed Forces of the Philippines Modernization Program.  DILG, which has purview over the Philippine National Police (PNP) saw an even greater increase – over 15% – in its allocation from last year.  These funds are intended to go towards improving police operations.  Given the prominence of the administration’s anti-illegal drug campaign, which the PNP led until last October, it is worth noting that the Philippine Congress scrapped roughly P1.4 billion from the 2018 budget that was originally intended to go to DILG and the PNP for their respective anti-drug operations.

Most departments and agencies received higher allocations in the 2018 National Budget, with only six departments and agencies seeing cuts to their budgets from 2017.  However, some of the most significant differences are due to cyclical spending for special events, such as the ASEAN Summit or preparations for midterm elections in 2019.  For example, the Commission on Elections’ (Comelec) budget allocation for this year, which is P12.81 billion (US$257 million), represents a 411.13% increase from 2017.  On the other hand, the Office of the President (OP), which was allocated P20.17 billion (US$405 million) last year, saw a drop of over 70% in its 2018 budget.  This is likely due to the fact that the vast majority of OP’s funds for 2017 went towards hosting the 50th anniversary of ASEAN during the Philippines’ ASEAN Chairmanship year.  Without the need to host such an event this year, OP’s 2018 budget was significantly pared down.    

Nevertheless, some significant differences in budget allocations over last year do provide insight into the Duterte administration’s priorities.  CHED saw its 2018 budget allocation increase by 164%, an increase that emphasizes the importance the administration places on making higher education more affordable.  Similarly, the National Economic and Development Authority (NEDA) saw a higher percentage increase in its 2018 budget over last year – an increase of 72.3% – than even DPWH, which is tasked with carrying out much of the administration’s “Build, Build, Build” infrastructure development initiative.  According to the 2018 National Expenditure Program, most of NEDA’s P8.93 billion (US$179 million) budget will support the agency’s socio-economic policy and planning program.  While the reduction in OP’s budget for 2018 is largely because there is no need to host the ASEAN summit and various related meetings throughout the year, it is also worth noting that one of the agencies that falls under OP is the Philippine Drug Enforcement Agency (PDEA).  The PDEA has been leading the administration’s anti-illegal drug crackdown since October 2017, when Duterte removed the PNP as the lead agency following public protests over the deaths of two teenagers in anti-drug operations.  However, in the months since, Duterte has remarked about allowing the PNP to once again play a larger role in the crackdown.  Just last month he signed a memorandum order allowing the PNP to provide “active support” to the PDEA in anti-illegal drug operations.  Even though the PDEA is still the lead agency, the significant cut in the budget of its parent agency, OP, likely means that the PNP’s role in the crackdown will continue to expand through 2018, despite its curtailment just this past October.     

The following are highlights of the 2018 National Budget:

Budget

  • The 2018 National Budget amounts to P3.767 trillion (US$75.6 billion), a 12.4% increase over the 2017 budget
    • This makes it the highest budget proposed by any administration
  • The 2018 National Budget is equal to 21.6% of project gross domestic product (GDP) for 2018
  • Collectively, social services received the largest sectoral allocation – P1.426 trillion (US$28.6 billion), a 5.5% increase from 2017
  • Economic services received the second-largest allocation – P1.154 trillion (US$23.1 billion), a 25% increase from last year

Infrastructure

  • Department of Public Works and Highways (DPWH) received the largest per-department share of the 2018 National Budget
  • DPWH was allocated P637.86 billion (US$12.8 billion), accounting for 16.9% of the total 2018 National Budget
    • DPWH’s 2018 allocation is 40.3% higher than in 2017
    • Funds will go towards supporting the administration’s “Build, Build, Build” infrastructure development program, particularly the construction, rehabilitation, and improvement of transportation infrastructure and flood control systems
  • Department of Transportation (DOTr) was allocated P66.3 billion (US$1.33 billion), a 24.4% increase over 2017
    • DOTr’s budget allocation is to go towards providing safe, affordable, and comfortable public transportation systems
  • The 2018 National Budget also allocates P10 billion (US$201 million) for the rebuilding and rehabilitation of Marawi
  • In his budget message in July 2017, President Duterte said that around P1.097 trillion (US$22.03 billion) – or roughly one-third of the 2018 National Budget – would go towards infrastructure development in 2018

Education

  • Department of Education (DepEd) received the second highest per-department allocation in the 2018 National Budget
  • DepEd was allocated P553.31 billion (US$11.12 billion), accounting for 14.7% of the total 2018 National Budget
    • DepEd’s 2018 allocation is 1.69% higher than in 2017
    • Budget will go towards
      • Building new and maintaining existing education facilities
      • Hiring people for teaching and non-teaching positions
      • Providing learning resources to Filipino students across the country
  • P62.12 billion (US$1.25 billion) was allocated to State Universities and Colleges (SUCs)
    • Each SUC will receive an increase of at least P10 million to go towards the purchase of equipment and the repair and construction of buildings
    • Over P40 billion (US$803 million) will go towards the Universal Access to Quality Tertiary Education Act
    • P327 million (US$6.57 million) will go towards setting up free Wi-Fi for all SUCs
  • Commission on Higher Education (CHED) received P49.4 billion (US$991 million), an increase of 164% over 2017
    • CHED’s budget will go towards financing scholarships, grants, and subsidies for higher education
  • Technical Education and Skills Development Authority (TESDA) receives P7.6 billion (US$152 million)

Support for Local Governments

  • Department of the Interior and Local Government (DILG) received the third-highest allocation in the 2018 National Budget
  • DILG was allocated P170.8 billion (US$3.43 billion), accounting for 4.53% of the total 2018 National Budget
    • DILG’s 2018 allocation is 15.4% higher than in 2017
    • These funds will go towards improving police operations, including P334 million (US$6.71 million) for the purchase of body cameras for the Philippine National Police and P850 million (US$17.1 million) for the maintenance and other operating expenses of police stations
  • Allocations to Local Government Units are P58.40 billion (US$1.17billion) for 2018, a 20.2% drop from 2017 allocations

Healthcare

  • When the allocation for the Philippines Health Insurance Corporation is included, the Department of Health (DOH) received P167.9 billion (US$3.37 billion) – the fourth-largest allocation in the 2018 National Budget
    • This is 12.3% higher than in 2017
    • Among the programs to which funds will go are the Health Facilities Enhancement Program; the purchase of drugs, medicines, and vaccines for distribution at government healthcare facilities; and medical assistance to indigent patients

Defense & Security

  • Department of National Defense (DND) received the fifth-highest allocation in the 2018 National Budget
  • DND was allocated P149.7 billion (US$3.0 billion), accounting for 3.97% of the total 2018 National Budget
    • DND’s 2018 allocation is 9.12% higher than in 2017
    • The increased budget for DND comes after the five-month-long clashes in Marawi between Armed Forces of the Philippines soldiers and Islamic State-inspired militants
    • As with 2017, the 2018 allocation will go towards territorial defense, other security and stability services, and the Armed Forces of the Philippines Modernization Program

Social Programs

  • Department of Social Welfare and Development (DSWD) was allocated P141.8 billion (US$2.85 billion), accounting for 3.76% of the 2018 National Budget
    • DSWD’s allocation is 10.5% higher than in 2017

Agriculture

  • Department of Agriculture (DA) was allocated P53.3 billion (US$1.07 billion), and increase of 17.9% over its allocation in 2017
  • Department of Agrarian Reform (DAR) was allocated P9.53 billion (US$191 million), a decrease of 2.7% from its allocation in 2017
  • Budget will also provide funding for programs focusing on improving the resiliency of agricultural communities, R&D, market development, the construction of farm-to-market roads, small-scale irrigation projects, and the construction of facilities and procurement of farm equipment

Macroeconomy

  • GDP growth in Q3 was recorded to be 6.9%
    • This was the 75th straight quarter of positive GDP growth for the Philippines and the ninth straight quarter that economic growth exceeded 6%
  • GDP growth in first three quarters of 2017 averaged 6.7%
  • International Monetary Fund and the World Bank estimate the Philippines economy will grow 6.7% in 2018
  • Asian Development Bank revised its forecast for the Philippines GDP growth to 6.8% for 2018
  • From January to September 2017, total exports increased by 12.2% over the same period last year, reaching US$47.71 billion
  • From January to September 2017, total imports increased by 7.4% over the same period last year, reaching US$66.65 billion
  • The services sector remains a leading driver of the economy, having experienced 7.1% year-on-year growth in 2017
  • Industry has re-emerged as a strong of economic growth; in particular, the manufacturing sector saw 9.4% year-on-year growth
    • The manufacture of radio, television, communication equipment, and chemicals and chemical products alone accounted for 2.6% of overall GDP in 2017
  • According to employment statistics from July 2017 (the most recent available), the Philippines has an employment rate of 94.4%
  • National Government Debt is forecasts to reach 40.76% of GDP in 2017, a decline of 1.5% from 2016
  • General Government Debt is also expected to decline – to 27.1% of GDP
  • The external debt-to-GDP ratio fell to 14.6%

Further Reading and Reactions to the National Budget