TECHNICAL NOTES ON THE 2021 PROPOSED NATIONAL BUDGET RESET, REBOUND, AND RECOVER: Investing for Resiliency and Sustainability II DEPARTMENT OF BUDGET AND MANAGEMENT TECHNICAL NOTES ON THE 2021 PROPOSED NATIONAL BUDGET i TABLE OF CONTENTS MESSAGE FROM THE SECRETARY 1 I. INTRODUCTION 3 II. FINANCING THE NATIONAL EXPENDITURE PROGRAM 9 A. Macroeconomic Environment 9 B. Fiscal Strategy 16 III. DIMENSIONS OF THE NATIONAL EXPENDITURE PROGRAM 21 A. By Sector (Old/Traditional Method and COFOG) 21 B. By Expense Class 24 C. By Recipient Entity 25 D. By Department and Special Purpose Fund 26 E. By Appropriation Source 29 F. By Region 29 G. Intergovernmental Transfers to LGUs 30 H. Transfers to GOCCs 32 I. Earmarked Revenues 33 J. Off-Budget Accounts 34 I V. EXPENDITURE PRIORITIES 37 A. Reset: Recovering From the Pandemic 38 Health 38 Nutrition 42 B. Rebound: Reviving Infrastructure Development 45 Infrastructure 45 C. Recover: Adapting to the Post-Pandemic Life 53 Food Security 53 Livelihood Opportunities 59 Social Protection 66 Education 69 Governance 73 Law, Public Order, and Safety 78 Housing 86 Environment in the New Normal 89 Risk Resiliency and Preparedness 92 V. PUBLIC EXPENDITURE MANAGEMENT REFORMS 99 Better Management of Funds through Transparency and Public Participation 99 Ensuring Responsive Procurement in the Philippines 103 VI. CONCLUSION 107 ii DEPARTMENT OF BUDGET AND MANAGEMENT TECHNICAL NOTES ON THE 2021 PROPOSED NATIONAL BUDGET 105 PB DEPARTMENT OF BUDGET AND MANAGEMENT TECHNICAL NOTES ON THE 2021 PROPOSED NATIONAL BUDGET 1 MESSAGE FROM THE SECRETARY s a staunch advocate of transparency and participation in governance, the Department of Budget and Management (DBM) has been making budget information accessible to the Apublic through its various publications. For years, the DBM has been publishing the Technical Notes on the Proposed National Budget as a supplement to the budget documents submitted to Congress. The Technical Notes provides a narrative to the figures contained in the National Expenditure Program and the Budget of Expenditures and Sources of Financing. It also comprehensively discusses the macroeconomic environment, fiscal strategies, key priorities, programs and projects, and even the current public expenditure reforms of the government. With the comprehensive information that it provides to the readers, the Technical Notes is a useful tool for legislators, civil society organizations, and other stakeholders to better understand, appreciate, and even scrutinize the proposed budget. We hope that through this publication and other citizen-friendly information materials that we produce, we can bring the government budget closer to the Filipino people, not only to spark interest, but more importantly, to enable them to participate in the budgeting process. God bless us all. WENDEL E. AVISADO Secretary 2 DEPARTMENT OF BUDGET AND MANAGEMENT TECHNICAL NOTES ON THE 2021 PROPOSED NATIONAL BUDGET 3 TECHNICAL NOTES ON THE 2021 PROPOSED NATIONAL BUDGET 3 I. INTRODUCTION My task and yours at this moment of our history, is to get us back on the road. We have been able to withstand thus far the virulent onslaught of the Coronavirus, but these efforts must be sustained as we move forward to fully address the impact of the pandemic and accelerate economic recovery… Shifting priorities and realigning spending policies are a must. The entire budget is focused on containing the spread and mitigating the effects of the COVID-19 pandemic; funding a vaccine; restarting the economy to be able to create jobs and attract investments; and transitioning to the post-crisis recovery environment. We will ensure that all these will be in place – indeed will be the priority focus of government action – without losing sight of our fundamental priorities – in alleviating poverty, sustaining a stable economy, assuring an educated and healthy workforce, defending our shores, maintaining peace and order – for all times and in all contexts, in the aftermath of a pandemic or without it. Life continues, and government continues to serve. - President Rodrigo Roa Duterte President’s Budget Message, 25 August 2020 hen the World Health Organization (WHO) officially declared the Coronavirus Disease 2019 (COVID-19) global outbreak a “pandemic” on the 11th of March 2020, there were already 118,000 confirmed cases of COVID-19 in 114 countries. A total Wof 4,291 individuals had died from the infection, and thousands more were battling the disease in hospitals. This was just over two months since the WHO China acknowledged the first cases of “pneumonia of unknown origin” in Wuhan City on December 31, 2019. While the international agency was, until then, thorough and diligent in its monitoring yet cautious with words, this time, the warning to the world was clear: “And we have called every day for countries to take urgent and aggressive action. We have rung the alarm bell loud and clear.”1 The Philippines by then had 52 confirmed COVID-19 cases, tallied since January 30 when the first case was reported in the country – a 38-year-old Chinese woman who arrived in the country as a tourist.2 By then too, the country had chalked up the first death from the virus outside of mainland China – the 44-year-old Chinese male companion of the woman recorded as the first COVID case had died on February 2. The first case of local transmission, a 62-year-old man who had not traveled abroad, was reported on March 7. Though the national statistics were nowhere near the world count then, the government was quick to move into action. Indeed, even days before the WHO official declaration of the pandemic, President Rodrigo Roa Duterte had already issued a series of directives and orders with the objective of controlling the spread of the virus and protecting the citizens. Following the report of the first local transmission, the government declared a state of public health emergency in the country, imposed lockdowns and travel restrictions, limited mass gatherings, and suspended classes in public and private schools, among others. The COVID-19 pandemic is unprecedented in this century and has taken a significant toll on the global economy as well as on the people’s lives. On August 25, 2020, the Johns Hopkins University and Coronavirus Resource Center recorded 23,683,592 confirmed C OVID-19 c ases a nd 8 14,000 c onfirmed de aths fr om th e vi rus gl obally.3 On this same date, the Department of Health (DOH) reported 197,164 confirmed cases and 3,038 confirmed deaths in the Philippines.4 4 DEPARTMENT OF BUDGET AND MANAGEMENT This was the day President Duterte submitted to Congress the proposed National Budget for the Philippines for Fiscal Year (FY) 2021 – a financial program crafted to address the pandemic and stimulate the economy. Confronting the Pandemic on Two Fronts The number of COVID-19 cases has continued to rise albeit at a decreasing rate. Through most of 2020, the world has had to confront the grim reality of a 21st century pandemic and its impact on two major fronts – health and economy. Populations have been decimated and the specter of illness continues to stalk communities; health care facilities and workers are strained and overwhelmed; and public health and the general welfare have been severely impacted. But more than these, the economies have also reeled from the effects of measures to slow down the spread of the virus – e.g., regional lockdowns, community quarantines, and alternative work arrangements. These factors, among others, have therefore resulted in the slowdown of global economic growth. In the Philippines, as in the rest of the world, the pandemic has disrupted people’s lives and posed serious threats to their physical health and financial well-being. It adversely affected the country’s economy as companies and businesses had been forced to slow down or totally cease operations. Unemployment rate, meanwhile, peaked at 17.7 percent5 in April 2020 due to strict quarantine measures imposed nationwide. All these developments, primarily the shutting down of 75 percent of the economy, have resulted in the contraction of the Philippine economy by 0.7 percent in the first quarter, and by 16.5 percent for the second quarter of 2020.6 International agencies have consistently pointed out that as COVID-19 has freely crossed geographical and social boundaries, so too is the virus expected to cut through a path of socioeconomic devastation in the months and years to come. The United Nations’ Framework for the Immediate Socio-Economic Response to the COVID-19 Crisis, for one, has warned that the pandemic is more than just a health crisis because it strikes societies and economies at their core. The United Nations Development Programme continues to quote from this Framework Response, to wit: "While the impact of the pandemic will vary from country to country, it will most likely increase poverty and inequalities at a global scale, making achievement of SDGs (sustainable development goals) even more urgent. Assessing the impacts of the COVID-19 crisis on societies, economies, and vulnerable groups is fundamental to inform and tailor the responses of governments and partners to recover from the crisis and ensure that no one is left behind in this effort. Without urgent socio-economic responses, global suffering will escalate, jeopardizing lives and livelihoods for years to come. Immediate development responses in this crisis must be undertaken with an eye to the future. Development trajectories in the long- term will be affected by the choices countries make now and the support they receive.”7 These observations run parallel to those of the socioeconomic planners of the Duterte Administration, and are thus reflected and addressed in the financial program drafted for the coming year. Consequently, although the Philippine economy is projected to contract by 4.5 to 6.6 percent in 2020, the country’s strong macroeconomic fundamentals and the timely implementation of an economic recovery program are expected to stimulate economic recovery for the next two years with a projected growth of 6.5 to 7.5 percent.