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An Assessment of the Absorptive Capacity of Agencies Involved in the Public Works Sector Rosario G

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An Assessment of the Absorptive Capacity of Agencies Involved in the Public Works Sector Rosario G Philippine Institute for Development Studies An Assessment of the Absorptive Capacity of Agencies Involved in the Public Works Sector Rosario G. Manasan and Ruben G. Mercado DISCUSSION PAPER SERIES NO. 2001-17 The PIDS Discussion Paper Series constitutes studies that are preliminary and subject to further revisions. They are be- ing circulated in a limited number of cop- ies only for purposes of soliciting com- ments and suggestions for further refine- ments. The studies under the Series are unedited and unreviewed. The views and opinions expressed are those of the author(s) and do not neces- sarily reflect those of the Institute. Not for quotation without permission from the author(s) and the Institute. August 2001 For comments, suggestions or further inquiries please contact: The Research Information Staff, Philippine Institute for Development Studies 3rd Floor, NEDA sa Makati Building, 106 Amorsolo Street, Legaspi Village, Makati City, Philippines Tel Nos: 8924059 and 8935705; Fax No: 8939589; E-mail: [email protected] Or visit our website at http://www.pids.gov.ph AN ASSESSMENT OF THE ABSORPTIVE CAPACITY OF AGENCIES INVOLVED IN THE PUBLIC WORKS SECTOR* FINAL REPORT Rosario G. Manasan Ruben G. Mercado *This study was jointly undertaken through PIDS Project entitled “An Assessment of the Institutional Capacity and Absorptive Capacity of Agencies Involved in the Public Works Sector” funded by the Japan Bank for Institutional Cooperation (JBIC). Table of Contents Page ABSTRACT EXECUTIVE SUMMARY i-vii 1. INTRODUCTION 1 1.1 Macroeconomic Context 1 1.2 Objectives 5 2. PUBLIC WORKS AND HIGHWAYS SECTOR PERFORMANCE 6 AND CHALLENGES 2.1 Roads 6 2.2 Bridges 8 2.3 Ports 8 2.4 Water Supply 8 2.5 Flood Control 8 3. AGENCIES INVOLVED IN PUBLIC WORKS 8 3.1 DPWH 9 3.2 Local Government Units 14 4. DPWH BUDGET IN PERSPECTIVE 22 AND CHALLENGES 4.1 Annual Budget 22 5. ASSESSMENT OF BUDGET PERFORMANCE 27 5.1 Concepts and Measures of Absorptive Capacity 27 5.2 Assessment of DPWH Absorptive Capacity 31 6. ISSUES 41 6.1 Issues Obtaining from the Agency 42 6.2 Issues Obtaining from Policies or Performance of and 48 Coordination with other Agencies/Institutions 6.3 Issues Obtaining form Budgeting Authorities and System 51 Page 7. RECOMMENDATIONS FOR IMPROVING ABSORPTIVE 55 CAPACITY OF PUBLIC WORKS FUNDS 7.1 Measures Needed to Improve Agency’s Capacity for 55 Fund Absorption 7.2 Measures Needed to Improve Budget Determination and 57 Programming having Bearing on Agency Absorptive Capacity 7.3 Areas for Donor Assistance and Support 57 REFERENCES 59 List of Tables Table 1 Revenue and Disbursements (% of GNP) 2 Table 2 National Government Expenditures, by Sectoral Classification, 4 Obligation Basis: 1982-2001 (percent of GNP) Table 3 Percent Distribution of National Government Expenditures, 4 By Sectoral Classification, 1982-2001 Table 4 Public Works and Highways Performance Status and Targets 7 Table 5 Number of Devolved Personnel, 1992 14 Table 6 Agency Budgets and Devolution, 1992 15 (in thousand pesos) Table 7 Aggregate LGU Expenditures by Sector, 1985-1998 20 Table 8 Department of Public Works and Highways budget, 1990-2000 23 By Expenditure Item and Total, in Pesos Table 9 Department of Public Works and Highways Annual Budget/ 24 Appropriation, Office of the Secretary (in thousand pesos) Table 10 Department of Public Works and Highways Annual Agency 25 Budget/Appropriation, Office of the Secretary (in percent) Page Table 11 Agency Appropriation by Major Implementing Agencies, 26 1995-2000 (Office of the Secretary) Table 12A Budget Utilization Performance, Department of Public Works 32 And Highways, 1996-1999, Summary of Budget Levels Table 12B Budget Utilization Performance, Department of Public Works 33 And Highways, 1996-1999, Summary of Absorptive Capacity Indices Table 12C Previous Year’s Appropriation Release During the Budget 34 Year for Budget Years, 1997-1999 and Availment Index Table 13 Comparative Budget Performance on Local and Foreign 36 Projects, Department of Public Works and Highways, 1996-1999, Summary of Absorptive Capacity Indices Table 14 Manpower Distribution of Project Management Offices, 47 Department of Public Works and Highways Table 15 Quarterly Allotment and Obligations, Fund 102 53 (Foreign Assisted Projects), Cumulative Total List of Figures Figure 1 Growth Rate of Real GDP (1975-1999) 1 Figure 2 Department of Public Works and Highways, 13 Organizational Chart Figure 3 DPWH Appropriation, Allotment and Obligation, 1996-2000 54 (in pesos billions) List of Annexes Annex 1 Recently Completed and on-going DPWH-Implemented 61 Foreign-Assisted Projects, 1997-1999 Annex 2 DPWH-Implemented Foreign-Assisted Projects, 2000 62 Page Annex 3 On-going DPWH-Implemented Foreign-Assisted Projects, 63 1997-1999 Annex 4 On-going DPWH-Implemented Foreign-Assisted Projects, 64 1997-1999, Original and Revised Project Duration Annex 5 On-going DPWH-Implemented Foreign-Assisted Projects, 65 1997-1999, Budget Performance on Net Commitment (Summary of Absorptive Capacity Indices) Annex 6 On-going DPWH-Implemented Foreign-Assisted Projects, 66 1997-1999, Original and Revised Project Cost/Cost Overrun/Timeliness Index Annex 7A Absorptive Capacity Indices, by Program/Project/Region, 68 1996, Department of Public Works and Highways Annex 7B Absorptive Capacity Indices, by Program/Project/Region, 71 1997, Department of Public Works and Highways Annex 7C Absorptive Capacity Indices, by Program/Project/Region, 76 1998, Department of Public Works and Highways Annex 7D Absorptive Capacity Indices, by Program/Project/Region, 79 1999, Department of Public Works and Highways ABSTRACT This study evaluates the absorptive capacity of a government agency for domestic and external funds. It takes the case of the Department of Public Works and Highways (DPWH), one of the biggest recipients of funds from government and foreign sources. Specifically, the paper a) provides an assessment of the institutional framework, capability and absorptive capacity of the DPWH to implement local and foreign-funded projects and programs; b) develops measures or indicators to assess the agency’s absorptive capacity with respect to available resources; c) identifies issues within the agency and with related institutions in financial management and implementation of programs/projects; and d) formulates recommendations on how to strengthen the agency’s capacity to utilize resources. The study makes specific reference to the extent or magnitude of resources utilized, the particular programs where low utilization are more prevalent and the factors that hinder the full absorption of available money that are within and beyond the agency’s control. The paper lists down some concrete recommendations for the agency and its partner institutions that will help improve its overall capacity for fund absorption. Keywords: absorptive capacity, public works, local government, governance, public finance EXECUTIVE SUMMARY Study Objectives: Under the contract agreement with the Japan Bank for International Cooperation (JBIC), the Philippine Institute for Development Studies (PIDS) conducted the present study with the following objectives indicated under the Terms of Reference (TOR) of the said agreement: At the macro level: 1. Assess progress of accomplishments of the overall political and macroeconomic situation in the country by providing updates on the progress of accomplishments and identifying setbacks in the attainment of specific policies/programs; 2. Identify what needs to be done in the attainment of the above in the areas of macroeconomic policies, legislative arena, financial and institutional aspects. Given time constraints and to provide focus to the evaluation, the study will highlight on the public works sector considering that the bulk of JBIC’s loan portfolio is for infrastructure and public works activities. In line with this, the following specific objectives are outlined: At the micro level: 1. Assess the institutional framework, capability and absorptive capacity of institutions involved in the public works sector in (i) implementing local and foreign-funded projects and programs; and (ii) institutionalizing measures that will strengthen the country’s international competitiveness; 2. Review the sector’s preparedness in instituting safety measures or safety nets required under the World Trade Organization (WTO) provisions and the Asian Free Trade Association (AFTA); 3. Assess the capacity of local government units (LGUs) in absorbing/implementing projects that are locally and foreign-funded and instituting measures that are in line with improving competitiveness and addressing poverty incidence. 4. Identify strengths and weaknesses of these institutions in project packaging, management and implementation and sustainable management of projects/programs. 5. Formulate suggestions on how to strengthen the capacities of these institutions (in terms of financing, manpower support, among others). The study has significantly addressed all the abovecited objectives except Objective No. 2, given that it does not relate whatsoever to the issues in the public works sector. In the case of Study Objective No. 3, while a qualitative assessment was made on both the DPWH and the LGUs, a quantitative evaluation was made with respect to DPWH only. This is because the issue of absorptive capacity does not concern LGUs at the moment given that to date LGUs have not been involved significantly in public works projects. The binding constraint with respect to public works development
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