PA 241 Final

Business Cycle: Characteristics and Causes of Fluctuation
Reporter: Dessa Marie L. Fale, CE
Business Cycle
• Shows the periodic up and down movements in economic activities

• Economic activities measured in terms of production, employment and income
move in a cyclical manner over a period of time.
• Cyclical movement is characterized by alternative waves of expansion and
contraction.
• Associated with alternate periods of prosperity and depression.
Characteristics of Business Cycles
• Periodicity
• Wavelike movements in income and employment occur at intervals
of 6 to 12 years
• Gap between two cycles is not regular or predictable with certainty
• Synchronism
• Impacted is all embracing, ex. Large sections of the economy
experience the same phase
• Happens because of interdependence of various sectors of the
economy
• Self-Reinforcing
• Due to interdependence in the economy, cyclical movements faced
by one sector spread to other sectors in the economy; and from one
economy to other economies
Thus the upward swing of the cycle is reinforced for further upward movement and vice
versa.
1. Cyclical fluctuations are wave like shifts
2. Fluctuations are recurring in nature
3. They are non-periodic or uneven. In other words the peaks and channel do not
occur at usual intervals.
1 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

4. They transpire in such total variables as productivity, earnings, employment and
prices.
5. These variables move at about the same period in the same course but at diverse
rates.
6. The sturdy commodity industries experience associatively wide fluctuations
in productivity and employment but relatively small variations in prices.
7. On the other hand, non-durable commodity industries experience relatively
wide variations in prices but associatively small variations in productivity and
employment.
8. Business cycles are not seasonal variations such as upswings in retail trade during
festive seasons.
9. They are not secular trends such as long run growth or decline in fiscal
performance.
10. Upswings and downswings are collective in their effects.
11. Therefore, business cycles are recurring fluctuations in total employment,
earnings, productivity and price level.
Phases of Business Cycle
Four Phases:
 Expansion, B to C and from F
 Peak, (Boom) C to D
 Contraction D to E (recession),

 Trough (slump/depression) A to B and E to F
Time gap between two bouts of trough (from B to E) or peaks (from D to G)
can vary between 6 to 12 years
For 3 to 5 years, the economy experience growth, then for another 3 to 5 years, it
faces contraction or recession.
GG’ is the steady growth line, to show that the general trend is that of growth.
• Expansion:when all macro-economic variables like output, employment, income
and consumption increase.
 Prices move up, money supply increases, self-reinforcing feature of
business cycle pushes the economy upward.
• Peak: the highest point of growth; referred to as “boom”.
 Stage beyond which no further expansion is possible,
 Sees the downward turning point.

• Contraction/Recession: means the slowing down process of all economic
activities.
• Trough or Slump:the lowest ebb of the economic cycle.
 Followed by the next turning point in the cycle, when new growth process
starts afresh.
What is recession?
• Recession is a decline in a country’s gross domestic product growth for two or
more consecutive quarters of a year.
• A recession is also preceded by several quarters of slowing down.
• An economy which grows over a period of time tends to slow down the growth as
a part of the normal economic cycle.
• A recession normally takes place when
 Consumers lose confidence in the growth of the economy and spend less
 Investors spend less as they fear stocks values will fall and thus stock
markets fall on negative sentiment.
Causes of Recessions:
• The business cycle can go into recession for a variety of reasons, such as:
• Falling house prices causing negative wealth effect and lower consumer spending

• Credit crunch causing an increase in cost of borrowing and shortage of funds
• Volatile stock markets and money markets undermining business and investment
confidence.
• Higher interest rates causing lower spending and investment.
• Tight fiscal policy – higher taxes and lower spending.
• Appreciation in the exchange rate.
• Climatic changes such as sunspots that may cause different moods.
• Psychological aspects of entrepreneurs and consumers, such as moods of
optimism and pessimism.
• Monetary phenomenon like changes in money supply, rate of interest, etc.
• Economic factors, such as over investment, under consumption and over savings.
• Shocks in the conditions under which producers supply goods such as
technological breakthroughs.
What are the causes of Business cycle Fluctuation?
• Fluctuationis normal, weather, style choice, raw materials, competition, marketing
variables, among other things cause business cycle fluctuations.
• Recessions, Economic Depression are caused by Macro imbalances, usually
caused by too much, or too little, governmental regulation.
Keynes’ Theory
• John Maynard Keynes, 5 June 1883 – 21 April 1946), was a British economist. His
ideas fundamentally changed the theory and practice of macroeconomics and the
economic policies of governments. He built on and greatly refined earlier work on
the causes of business cycles, and is widely considered to be one of the most
influential economists of the 20th century and the founder of modern
macroeconomics. His ideas are the basis for the school of thought known
as Keynesian economics and its various offshoots.
• Keynes has defined as “A trade cycle is composed of periods of goods trade
characterized by rising prices and low redundancy percentages.”
• Economic fluctuations are due to changes in rate of investment
• Rate of investment depends upon:
1. Rate of investment, which remains stable in the short run

2. Marginal efficiency of capital (MEC)
Keynes introduce the concept of “marginal efficiency of capital” (MEC) to explain the
expected rate of return on investment.
1. Changes in prospective yield
2. Supply price of capital
• Entrepreneurial expectations and the psychological aspects of business determine
prospective yields.
• Supply price of capital goods does not change in the short run.
•
• With increase in entrepreneurial expectations the marginal efficiency of capital
increases
• Hence entrepreneurs make huge investments (upward turning point)
• The multiplier starts its action, bringing an increase in income, which is much
higher than increase in investment, this is the multiplier effect
• Expansion phase
• Abundance of capital goods reduces marginal efficiency of capital, which
discourages further investment.
• Downward turning point
• Reverse action of multiplier

Effects of business cycle
During Expansion
• High growth: large investments, increase in employment, income and
expenditure
• Inflation: increase in investment forces more money supply in the system,
demand for factor inputs increase, hence their prices increase which increases
cost of production. So wages and prices of goods also increase.
• Severe Competition: firms resort to large amount ofnon productive expenditure
on advertisements and publicity.
During Recession
• Excess inventory: those firms which had produced in abundance during
expansion phase face the problem of maintaining unsold items.
• Unemployment: in order to reduce investment, recession phase is marked by
large scale retrenchment.
• Below capacity operations and liquidation of firms.
Controlling Business Cycle
At Firm Level
• Precaution Measure: to be taken at the time of expansion
• Investments: deter from investing huge amount of fund assets.
• Inventory: should not create large inventory of raw material of finished
goods.
• Products: diversify in different markets and different products, so that risk
is diversified.
• Open market operations:
• Expansion: sells securities and takes away disposable income from
people.
• Recession: buys securities to give more in the hands of the people.
• Selective credit control:
• Banks are advised to extend credit to certain areas, while restrict to certain
other areas.
• Fiscal Measures

• Public expenditure
• Expansion: Government reduce expenditure to curtail demand
• Recession: Government increases expenditure on various activities
like health, transport, communication, etc., to increase income of
individuals; this in turn increases aggregate demand.
• Public revenue
• Expansion: An increase in taxes takes away portion people’s money
income and thus brings down aggregate demand.
• Recession: it is desirable that governments reduce taxes.
REFERENCES:
www.investopedia.com/terms/b/businesscycle.asp
https://en.wikipedia.org/wiki/Business_cycle
https://www.thebalance.com
www.econlib.org/library/Enc/BusinessCycles.html
www.frbsf.org/education/publications/doctor-econ/2002/.../business-cycles-economy/
www.economicsdiscussion.net/business-cycles/5-phases-of-a-business-cycle

Economic Roles of Government
Reporter: Bainor U. Gumbila
The government enhances growth and stability of the economy. It provides the
infrastructure and systems that facilitate economic activity while formulating regulations
and controls to ensure order and fairness in business operations. The government may
directly chip into up to economy.
1. Providing government provide a clear and predictable legal framework for

business. Regulations are administered in an open and transparent system and
applied fairly to all parties. The government makes it clear to business that it deals
with them solely on the merits of their case. There is no favored treatment for local
companies or for government-linked companies.
2. Providing a stable Environment for business.
a. Fiscal Policy
In Singapore is guided by the principle that it should support the private sector as
the engine of growth and ensures that the macro environment s stable. The Singapore
government has been prudent and conservative in its budgetary policy. It has balanced
its budget in nearly every year for the last 3 decades.
b. Monetary Policy
is geared towards keeping inflation low and stable for long-term competitiveness
an to ensure that savings are not debase. The government also sets clear and
transparent ground-rules an ensures that markets are competitive.
The Economic Role of Government
Failure of Market Economy Government intervention Current Example of

Government Policy

Inefficiency:
Anti trust laws,

deregulations
Monopoly Encourage competition
Antipollution laws, anti
Externalities Intervene in Markets smoking ordinances,
Public Goods Encourage beneficial Build guidance systems,
Activities provide public education
Inequality
Unacceptable inequalities of Redistribute income Progressive taxation of

income and wealth
income and wealth
Income-support or transfer
programs(e.g. food stamps)
Macroeconomic Problems Monetary policies (e.g.

changes in money supply
Business cycle( high inflation and Stabilize through
and interest rates)
unemployment) macroeconomic policies
Fiscal policies (e.g. taxes
Slow economic growth Stimulate growth
and spending program)
Improve efficiency of tax

system
Raise national savings rate

by reducing budget deficit or
increasing budget surplus.

Government Planning and Development
Reporter: Odessa Deguzman
Economic Planning and Policy
The Philippines has traditionally had a private enterprise economy both in policy
and in practice. The government intervened primarily through fiscal and monetary policy
and in the exercise of its regulatory authority. Although expansion of public sector
enterprises occurred during the Marcos presidency, direct state participation in economic
activity has generally been limited. The Aquino government set a major policy initiative of
consolidating and privatizing government-owned and government-controlled firms.
Economic planning was limited largely to establishing targets for economic growth and
other macroeconomic goals, engaging in project planning and implementation, and
advising the government in the use of capital funds for development projects.
Development Planning
The responsibility for economic planning was vested in the National Economic and
Development Authority. Created in January 1973, the authority assumed the mandate
both for macroeconomic planning that had been undertaken by its predecessor
organization, the National Economic Council, and project planning and implementation,
previously undertaken by the Presidential Economic Staff. National Economic and
Development Authority plans calling for the expansion of employment, maximization of
growth, attainment of fiscal responsibility and monetary stability, provision of social
services, and equitable distribution of income were produced by the Marcos
administration for 1974-77, 1978-82, and 1983-88, and by the Aquino administration for
1987-92. Growth was encouraged largely through the provision of infrastructure and
incentives for investment by private capital. Equity, a derivative goal, was to be achieved
as the result of a dynamic economic expansion within an appropriate policy environment
that emphasized labor-intensive production.
The National Economic and Development Authority Medium-Term Development

Plan, 1987-92 reflected Aquino's campaign themes: elimination of structures of privilege

and monopolization of the economy; decentralization of power and decision making; and
reduction of unemployment and mass poverty, particularly in rural areas. The private
sector was described as both the "initiator" and "prime mover" of the country's
development; hence, the government was "to encourage and support private initiative,"
and state participation in the economy was to be minimized and decentralized. Goals
included alleviation of poverty, generation of more productive employment, promotion of
equity and social justice, and attainment of sustainable economic growth. Goals were to
be achieved through agrarian reforms; strengthening the collective bargaining process;
undertaking rural, labor-intensive infrastructure projects; providing social services; and
expanding education and skill training. Nevertheless, as with previous plans, the goals
and objectives were to be realized, trickle-down fashion, as the consequence of achieving
a sustainable economic growth, albeit a growth more focused on the agricultural sector.
The plan also involved implementing more appropriate, market-oriented fiscal and
monetary polices, achieving a more liberal trade policy based on comparative advantage,
and improving the efficiency and effectiveness of the civil service, as well as better
enforcement of government laws and regulations. Proper management of the country's
external debt to allow an acceptable rate of growth and the establishment of a
"pragmatic," development-oriented foreign policy were extremely important.
Economic performance fell far short of plan targets. For example, the real GNP
growth rate from 1987 to 1990 averaged 25 percent less than the targeted rate, the growth
rate of real exports was one-third less, and the growth rate of real imports was well over
double. The targets, however, did provide a basis for discussion of consistency of official
statements and whether the plan growth rates were compatible with the maintenance of
external debt-repayment obligations. The plan also set priorities. Both Aquino's campaign
pronouncements and the policies embodied in the planning document emphasized
policies that would favorably affect the poor and the rural sector. But, because of
dissension within the cabinet, conflicts with Congress, and presidential indecisiveness,
policies such as land and tax reform either were not implemented or were implemented
in an impaired fashion. In addition, the Philippines curtailed resources available for

development projects and the provision of government services in order to maintain good
relations with international creditors.
The Philippine government has undertaken to provide incentives to firms, both

domestic and foreign, to invest in priority areas of the economy since the early 1950s. In
1967 an Investment Incentives Act, administered by a Board of Investments (BOI), was
passed to encourage and direct investment more systematically. Three years later, an
Export Incentives Act was passed, furthering the effort to move the economy beyond
importsubstitution manufacturing. The incentive structure in the late 1960s and 1970s
was criticized for favoring capital-intensive investment as against investments in
agriculture and export industries, as well as not being sufficiently large. Export incentives
were insufficient to overcome other biases against exports embodied in the structure of
tariff protection and the overvaluation of the peso.
The investment incentive system was revised in 1983, and again in 1987, with the
goal of rewarding performance, particularly exporting and labor-intensive production. As
a results of objections made by the United States and other industrial nations to export-
subsidy provisions contained in the 1983 Investment Code, much of the specific
assistance to exporters was removed in the 1987 version. The 1987 Investment Code
delegates considerable discretionary power over foreign investment to the government
Board of Investments when foreign participation in an enterprise exceeds 40 percent.
Legislation under consideration by the Philippine Congress in early 1991 would limit this
authority. Under the new proposal, foreign participation exceeding 40 percent would be
allowed in any area not covered by a specified "negative list."
Fiscal Policy
Historically, the government has taken a rather conservative stance on fiscal

activities. Until the 1970s, national government expenditures and taxation generally were
each less than 10 percent of GNP. (Total expenditures of provincial, city, and municipal
governments were small, between 5 and 10 percent of national government expenditures
in the 1980s.) Under the Marcos regime, national government activity increased to

between 15 and 17 percent of GNP, largely because of increased capital expenditures
and, later, growing debt-service payments. In 1987 and 1988, the ratio of government
expenditure to GNP rose above 20 percent. Tax revenue, however, remained relatively
stable, seldom rising above 12 percent of GNP. Chronic government budget deficits were
covered by international borrowing during the Marcos era and mainly by domestic
borrowing during the Aquino administration. Both approaches contributed to the vicious
circle of deficits generating the need for borrowing, and the debt service on those loans
creating greater deficits and the need to borrow even more. At 5.2 percent of GNP, the
1990 government deficit was a major consideration in the 1991 standby agreement
between Manila and the IMF.
Over time, the apportionment of government spending has changed considerably.

In 1989 the largest portion of the national government budget (43.9 percent) went for debt
servicing. Most of the rest covered economic services and social services, including
education. Only 9.1 percent of the budget was allocated for defense. The Philippines
devoted a smaller proportion of GNP to defense than did any other country in Southeast
Asia.
The Aquino government formulated a tax reform program in 1986 that contained
some thirty new measures. Most export taxes were eliminated; income taxes were
simplified and made more progressive; the investment incentives system was revised;
luxury taxes were imposed; and, beginning in 1988, a variety of sales taxes were replaced
by a 10 percent value-added tax--the central feature of the administration's tax reform
effort. Some administrative improvements also were made. The changes, however, did
not effect an appreciable rise in the tax revenue as a proportion of GNP.
Problems with the Philippine tax system appear to have more to do with collections
than with the rates. Estimates of individual income tax compliance in the late 1980s
ranged between 13 and 27 percent. Assessments of the magnitude of tax evasion by
corporate income tax payers in 1984 and 1985 varied from as low as P1.7 billion to as
high as P13 billion. The latter figure was based on the fact that only 38 percent of
registered firms in the country actually filed a tax return in 1985. Although collections in

1989 were P10.1 billion, a 70 percent increase over 1988, they remained P1.4 billion
below expectations. Tax evasion was compounded by mismanagement and corruption.
A 1987 government study determined that 25 percent of the national budget was lost to
graft and corruption.
Low collection rates also reinforced the regressive structure of the tax system. The
World Bank calculated that effective tax rates (taxes paid as a proportion of income) of
low-income families were about 50 percent greater than those of high-income families in
the mid-1980s. Middle-income families paid the largest percentage. This situation was
caused in part by the government's heavy reliance on indirect taxes. Individual income
taxes accounted for only 8.9 percent of tax collections in 1989, and corporate income
taxes were only 18.5 percent. Taxes on goods and services and duties on international
transactions made up 70 percent of tax revenue in 1989, about the same as in 1960.
The consolidated public sector deficit--the combined deficit of national

government, local government, and public-sector enterprise budgets--which had been
greatly reduced in the first two years of the Aquino administration, rose to 5.2 of GNP by
the end of 1990. In June 1990, the government proposed a comprehensive new tax
reform package in an attempt to control the public sector deficit. About that time, the IMF,
World Bank, and Japanese government froze loan disbursements because the
Philippines was not complying with targets in the standby agreement with the IMF. As a
result of the 1990-91 Persian Gulf crisis, petroleum prices increased and the Oil Price
Stabilization Fund put an additional strain on the budget. The sudden cessation of dollar
remittances from contract workers in Kuwait and Iraq and increased interest rates on
domestic debt of the government also contributed to the deficit.
Negotiations between the Aquino administration and Congress on the

administration's tax proposals fell through in October 1990, with the two sides agreeing
to focus on improved tax collections, faster privatization of government-owned and
government-controlled corporations, and the imposition of a temporary import levy. A new
standby agreement between the government and the IMF in early 1991 committed the
government to raise taxes and energy prices. Although the provisions of the agreement

were necessary in order to secure fresh loans, the action increased the administration's
already fractious relations with Congress.
Monetary Policy
The Central Bank of the Philippines was established in June 1948 and began
operation the following January. It was charged with maintaining monetary stability;
preserving the value and covertibility of the peso; and fostering monetary, credit, and
exchange conditions conducive to the economic growth of the country. In 1991 the policy-
making body of the Central Bank was the Monetary Board, composed of the governor of
the Central Bank as chairman, the secretary of finance, the director general of the
National Economic and Development Authority, the chairman of the Board of Investment,
and three members from the private sector. In carrying out its functions, the Central Bank
supervised the commercial banking system and managed the country's foreign currency
system.
From 1975 to 1982, domestic saving (including capital consumption allowance)

averaged 25 percent of GNP, about 5 percentage points less than annual gross domestic
capital formation. This resource gap was filled with foreign capital. Between 1983 and
1989, domestic saving as a proportion of GNP declined on the average by a third, initially
because of the impact of the economic crisis on personal savings and later more because
of negative government saving. Investment also declined, so that for three of these years,
domestic savings actually exceeded gross investment.
From the time it began operations until the early 1980s, the Central Bank
intervened extensively in the country's financial life. It set interest rates on both bank
deposits and loans, often at rates that were, when adjusted for inflation, negative. Central
Bank credit was extended to commercial banks through an extensive system of
rediscounting. In the 1970s, the banking system resorted, with the Central Bank's
assistance, to foreign credit on terms that generally ignored foreign-exchange risk. The
combination of these factors mitigated against the development of financial intermediation
in the economy, particularly the growth of long-term saving. The dependence of the

banking system on funds from the Central Bank at low interest rates, in conjunction with
the discretionary authority of the bank, has been cited as a contributing factor to the
financial chaos that occurred in the 1980s. For example, the proportion of Central Bank
loans and advances to government-owned financial institutions increased from about 25
percent of the total in 1970 to 45 percent in 1981-82. Borrowings of the government-
owned Development Bank of the Philippines from the Central Bank increased almost 100-
fold during this period. Access to resources of this sort, in conjunction with subsidized
interest rates, enabled Marcos cronies to obtain loans and the later bailouts that
contributed to the financial chaos.
At the start of the 1980s, the government introduced a number of monetary

measures built on 1972 reforms to enhance the banking industry's ability to provide
adequate amounts of long-term finance. Efforts were made to broaden the capital base
of banks through encouraging mergers and consolidations. A new class of banks, referred
to as "expanded commercial banks" or "unibanks," was created to enhance competition
and the efficiency of the banking industry and to increase the flow of long-term saving.
Qualifying banks--those with a capital base in excess of P500 million--were allowed to
expand their operations into a range of new activities, combining commercial banking with
activities of investment houses. The functional division among other categories of banks
was reduced, and that between rural banks and thrift banks eliminated.
Interest rates were deregulated during the same period, so that by January 1983
all interest rate ceilings had been abolished. Rediscounting privileges were reduced, and
rediscount rates were set in relation to the cost of competing funds. Although the short-
term response seemed favorable, there was little long-term change. The ratio of the
country's money supply, broadly defined to include savings and time deposits, to GNP,
around 0.2 in the 1970s, rose to 0.3 in 1983, but then fell again to just above 0.2 in the
late 1980s. This ratio was among the lowest in Southeast Asia.
Monetary and fiscal policies that were set by the government in the early 1980s,
contributed to large intermediation margins, the difference between lending and
borrowing rates. In 1988, for example, loan rates averaged 16.8 percent, whereas rates

on savings deposits were only slightly more than 4 percent. The Central Bank traditionally
maintained relatively high reserve requirements (the proportion of deposits that must
remain in reserve), in excess of 20 percent. In 1990 the reserve requirement was revised
upward twice, going from 21 percent to 25 percent. In addition, the government levied
both a 5 percent gross tax on bank receipts and a 20 percent tax on deposit earnings,
and borrowed extensively to cover budget deficits and to absorb excess growth in the
money supply.
In addition to large intermediation margins, Philippine banks offered significantly

different rates for deposits of different amounts. For instance, in 1988 interest rates on
six-month time deposits of large depositors averaged almost 13 percent, whereas small
savers earned only 4 percent on their savings. Rates offered on six-month and twelve-
month time deposits differed by only 1 percentage point, and the rate differential for
foreign currency deposits of all available maturities was within a single percentage point
range. Because savings deposits accounted for approximately 60 percent of total bank
deposits and alternatives for small savers were few, the probability of interest rate
discrimination by the commercial banking industry between small, less-informed
depositors and more affluent savers, was quite high. Interest rates of time deposits also
were bid up to reduce capital flight. This discrimination coupled with the large
intermediation margins, gave rise to charges by Philippine economists and the World
Bank that the Philippine commercial banking industry was highly oligopolistic.
Money supply growth has been highly variable, expanding during economic and
political turmoil and then contracting when the Philippines tried to meet IMF requirements.
Before the 1969, 1984, and 1986 elections, the money supply grew rapidly. The flooding
of the economy with money prior to the 1986 elections was one reason why the newly
installed Aquino administration chose to scrap the existing standby arrangement with the
IMF in early 1986 and negotiate a new agreement. The Central Bank released funds to
stabilize the financial situation following a financial scandal in early 1981, after the onset
of an economic crisis in late 1983, and after a coup attempt in 1989. The money was then
repurchased by the Treasury and the Central Bank--the so-called Jobo bills, named after
then Central Bank Governor Jose Fernandez--at high interest rates, rates that peaked in

October 1984 at 43 percent and were approaching 35 percent in late 1990. The interest
paid on this debt necessitated even greater borrowing. By contrast, in 1984 and 1985, in
order to regain access to external capital, the growth rate of the money supply was very
tight. IMF dictates were met, very high inflation abated, and the current account was in
surplus. Success, however, was obtained at the expense of a steep fall in output and high
unemployment.
Privatization
When Aquino assumed the presidency in 1986, P31 billion, slightly more than 25
percent of the government's budget, was allocated to public sector enterprises--
government-owned or government-controlled corporations--in the form of equity
infusions, subsidies, and loans. Aquino also found it necessary to write off P130 billion in
bad loans granted by the government's two major financial institutions, the Philippine
National Bank and the Development Bank of the Philippines, "to those who held positions
of power and conflicting interest under Marcos." The proliferation of inefficient and
unprofitable public sector enterprises and bad loans held by the Philippine National Bank,
the Development Bank of the Philippines, and other government entities, was a heavy
legacy of the Marcos years.
Burdened with 296 public sector enterprises, plus 399 other nonperforming
assets transferred to the government by the Philippine National Bank and the
Development Bank of the Philippines, the Aquino administration established the Asset
Privatization Trust in 1986 to dispose of government-owned and government-controlled
properties. By early 1991, the Asset Privatization Trust had sold 230 assets with net
proceeds of P14.3 billion. Another seventy-four public sector enterprises that were
created with direct government investment were put up for sale; fifty-seven enterprises
were sold wholly or in part for a total of about P6 billion. The government designated
that about 30 percent of the original public sector enterprises be retained and expected
to abolish another 20 percent. There was widespread controversy over the fairness of
the divestment procedure and its potential to contribute to an even greater
concentration of economic power in the hands of a few wealthy families.

Economic Development Until 1970
In the mid-nineteenth century, a Filipino landowning elite developed on the basis

of the export of abaca (Manila hemp), sugar, and other agricultural products. At the
onset of the United States power in the Philippines in 1898-99, this planter group was
cultivated as part of the United States military and political pacification program. The
democratic process imposed on the Philippines during the American colonial period
remained under the control of this elite. Access to political power required an economic
basis, and in turn provided the means for enhancing economic power. The landowning
class was able to use its privileged position directly to further its economic interests as
well as to secure a flow of resources to garner political support and ensure its position
as the political elite. Otherwise, the state played a minimal role in the economy, so that
no powerful bureaucratic group arose that could pursue a development program
independent of the wishes of the landowning class. This situation remained basically
unchanged in the early 1990s.
At the time of independence in 1946, and in the aftermath of a destructive

wartime occupation by Japan, Philippine reliance on the United States was even more
apparent. To gain access to reconstruction assistance from the United States, the
Philippines agreed to maintain its prewar exchange rate with the United States dollar
and not to restrict imports from the United States. For a while the aid inflow from the
United States offset the negative balance of trade, but by 1949, the economy had
entered a crisis. The Philippine government responded by instituting import and foreign-
exchange controls that lasted until the early 1960s.
Import restrictions stimulated the manufacturing sector. Manufacturing net

domestic product (NDP) at first grew rapidly, averaging 12 percent growth per annum in
real terms during the first half of the 1950s, contributing to an average 7.7 percent
growth in the GNP, a higher rate than in any subsequent five-year period. The
Philippines had entered an import-substitution stage of industrialization, largely as the
unintended consequence of a policy response to balance-of-payments pressures. In the
second half of the 1950s, the growth rate of manufacturing fell by about a third to an

average of 7.7 percent, and real GNP growth was down to 4.9 percent. Import demand
outpaced exports, and the allocation of foreign exchange was subject to corruption.
Pressure mounted for a change of policy.
In 1962 the government devalued the peso and abolished import controls and
exchange licensing. The peso fell by half to P3.90 to the dollar. Traditional exports of
agricultural and mineral products increased; however, the growth rate of manufacturing
declined even further. Substantial tariffs had been put in place in the late 1950s, but
they apparently provided insufficient protection. Pressure from industrialists, combined
with renewed balance of payments problems, resulted in the reimposition of exchange
controls in 1968. Manufacturing recovered slightly, growing an average of 6.1 percent
per year in the second half of the decade. However, the sector was no longer the
engine of development that it had been in the early 1950s. Overall real GNP growth was
mediocre, averaging somewhat under 5 percent in the second half of decade; growth of
agriculture was more than a percentage point lower. The limited impact of
manufacturing also affected employment. The sector's share of the employed labor
force, which had risen rapidly during the 1950s to over 12 percent, plateaued. Import
substitution had run its course.

Public Policy Decision Making Process
Reporter: Loreta O. Cortez
The process of allocating public funds involves the decisions of different fiscal
decision-makers at the various levels of government. Setting the overall allocation of
national government expenditures across programs and projects of departments requires
the enactment of an appropriation which would have to be approved by Congress and the
President. Once an appropriation law is in place, budget authorities from the Department
of Budget Management (DBM) and head of agencies exercise fiscal powers which
determine where public funds and by how much are actually utilized.
Budget Preparation
Budget preparation phase involves activities linked to the formulation and

consolidation of the national budget which will eventually be proposed by the President
for approval by Congress. Preparation of the annual budget for a particular year is done
in the preceding year.
Generally, the major activities in this phase are:
1. Setting of overall budget policy

2. Agency-level budget formulation
3. Executive review, deliberation and approval
4. Preparation of budget documents and submission to Congress
Setting of overall budget policy.
The overall budget policy for a given year is set by the Development Budget
Coordination Committee or DBCC, an inter-agency body responsible for setting the fiscal
policies of government. The DBCC is chaired by the DBM secretary and the members
include the Department of Finance (DoF) secretary, director general of the National
Economic Development Authority (NEDA), head of the Monetary Board of the Bangko
Sentral ng Pilipinas (BSP) and a representative from the Office of the President.
The composition of the DBCC reflects the different fiscal and socio-economic
development concerns that are taken into consideration and harmonized in the

formulation of the annual budget. The DBM ensures the appropriate allocation,
management and control of public expenditures; the DoF provides the guidance on
appropriate revenue, borrowing and cash management policies and targets that should
support these expenditures; the NEDA ensures that the budget is supportive of the socio-
economic development objectives and goals as set out in the country's Medium-term
Development Plan; the Monetary Board ensures that monetary policies are considered in
setting budget policies.
The DBCC decides on the overall budget policy which will guide the formulation of
the budget. These decisions include the setting of the macroeconomic assumptions.
These assumptions are crucial in the formulation of the budget since the level of revenues
and expenditures are affected by these macroeconomic factors.
Agency-level budget formulation.
After the DBCC deliberates and decides on the overall budget policy, DBM issues
the Budget Call to guide agencies in the preparation of their respective proposed budget.
It defines the budget framework/priorities, the macroeconomic assumptions and fiscal
targets. The Budget Call also prescribes the priority thrusts and spells out the detailed
policies on agency-level budget preparation such as budget ceilings, resource allocation,
required budget preparation documents and formats, and timeline of the budget
preparation phase.
Based on the Budget Call, the agency’s mandate, strategic plans and goals, the
agencies set out formulating their budget. The process involves deciding the allocation of
resources across programs and projects by determining the monetary requirements per
objects of expenditures, i.e., current operating expenditures (personal services and
maintenance and operating expenses) and capital outlay. Agencies also decide on the
allocation of budget across the different bureaus, regional offices and attached agencies.
The head of agency is responsible for the prioritization in the allocation of the agency’s
budget subject to the budget policies prescribed in the Budget Call.
Executive review, deliberation and approval.
The budgets formulated by agencies are submitted to the DBM and undergo a
series of review and deliberation at the DBM, DBCC and Cabinet levels. The DBM reviews

the submitted budgets for consistency with existing policies and guidelines. Technical
budget hearings are conducted to discuss with agencies the justifications for their budget
and appropriate adjustments to be made when warranted. The budget of the agencies
are then reviewed and deliberated at the DBCC level and finally presented at the Cabinet
level. Once the budget is cleared with the President, the DBM finalizes the budget
documents which the President will submit to Congress for approval.
Preparation of budget documents and submission to Congress. The budget

documents prepared by the DBM consist of at least the following:
The President's Budget Message
Budget of Expenditures and Sources of Financing
National Expenditures Program
Details of Selected Programs/Projects
Staffing Summary
The set of budget documents consolidates the budgets from different agencies of
government. The President’s Budget Message provides information on the overall thrust
of the budget being proposed and an explanation of the sectoral spending priorities and
how it supports development goals.
This constitutes the proposed budget which the President submits to Congress for
approval. The Constitution provides that the President “submits to the Congress within 30
days from the opening of every regular session, as the basis of the general appropriation
bill (GAB), a budget of expenditures and sources of financing including receipts from
existing and proposed revenue measures.”
Budget Legislation
Budget legislation starts once the President transmits the proposed budget to
Congress. Congress plays a central role in this phase. Article VI, Sec. 29 of the
Constitution provides that “No money shall be paid out of the Treasury except in
pursuance of an appropriation made by law.” An appropriation is essentially an

authorization made by law or other legislative enactment, directing payment out of
government funds under specified conditions for specified purposes.
The general appropriations bill goes through roughly the same legislative process
as the passage of any other bills. It undergoes three readings first at the House of
Representatives (HOR) and later at the Senate. Committee-level deliberations are
conducted through public hearings at the Committee of Appropriations at the HOR and
the Committee on Finance at the Senate.
In the course of Congressional deliberations and approval, legislators can make

changes in the allocation of the budget for the various expenditure items. However, this
prerogative is not unrestricted. The Constitution provides limits to this prerogative of
Congress. Among these restrictions are that:
 Congress may not increase the appropriations recommended by the President. This
implies that any budget items which Congress wants to increase would have to be
accompanied by concomitant cuts in other items.
 The budget of the Judiciary, which enjoys fiscal autonomy, may not be reduced to a
level below the amount appropriated for the previous year.
 Education shall be assigned the highest budgetary priority.
Aside from these Constitutional restrictions, the existence of automatic appropriations

effectively limits the share of the budget pie that is subject to realignments/amendments
by the legislators. These automatic appropriations are provided under existing laws
identifying certain shares of government revenues to automatically fund specific
expenditure items in the budget. In terms of amounts, the most significant budgetary items
which are subject to automatic appropriations are those for debt service-interest
payments, the Internal Revenue Allotment or IRA which is the share of local government
units (LGUs) from national government revenue4, and the Retirement and Life Insurance
Premiums (RLIP) which is the share of the national government in the premium payments
to GSIS for the life insurance and retirement benefit fund of government employees.
Bicameral Conference Committee.
The general appropriations bills approved by the two chambers of Congress are
not usually identical. Thus, the two chambers form a bicameral conference committee (or

bicam committee) to iron out the differences in their respective budget bills. The bicam
committee is tasked to come up with a consolidated version of the general appropriations
bill which is contained in a bicam report. The bicam report is brought back to both houses
for approval of their members.
Approval of the consolidated budget by Congress does not yet complete the
budget authorization phase. Just like any other legislative enactment, the budget bill is
sent to the President for its signature for it to become the General Appropriations Act
(GAA). The President is given thirty (30) days to review and sign the appropriations bill
into law. If the President fails to take action after the said period, the appropriations bill is
deemed approved and enacted.
The President can sign the bill as is or he/she can exercise his/her veto power
before signing. Line-item veto power is granted to the President which allows him/her to
strike out specific budget items or special provisions in the budget bill and thus approve
all other items which he/she does not object to. When veto power is exercised, a
President’s Veto Message is issued wherein the items to be vetoed are identified and the
justification for such a veto is explained.
Reference:
Public Expenditure: Policies, Processes & Institutions by Alvin M. Padilla

Government Taxing Power Principles,Structures and Effect on the Multiplier
Reporter: Elvira Tio- Petisme
FUNDAMENTAL PRINCIPLES IN TAXATION
 Taxation is the inherent power of the sovereign, exercised through the legislature,
to impose burdens upon subjects and objects within its jurisdiction for the purpose
of raising revenues to carry out the legitimate objects of government.
 It is also defined as the act of levying a tax, i.e. the process or means by which
the sovereign, through its law-making body, raises income to defray the necessary
expenses of government. It is a method of apportioning the cost of government
among those who, in some measure, are privileged to enjoy its benefits and must
therefore bear its burdens.
Taxes
 Taxes are the enforced proportional contributions from persons and property
levied by the law-making body of the State by virtue of its sovereignty for the
support of the government and all public needs.
Essential elements of a tax
1. It is an enforced contribution.
2. It is generally payable in money.
3. It is proportionate in character.
4. It is levied on persons, property, or the exercise of a right or privilege.
5. It is levied by the State which has jurisdiction over the subject or object of taxation.
6. It is levied by the law-making body of the State.
7. It is levied for public purpose or purposes.
Purposes of taxation
1. Revenue or fiscal: The primary purpose of taxation on the part of the government
is to provide funds or property with which to promote the general welfare and the
protection of its citizens and to enable it to finance its multifarious activities.
2. Non-revenue or regulatory: Taxation may also be employed for purposes of

regulation or control.
a) Imposition of tariffs on imported goods to protect local industries.
b) The adoption of progressively higher tax rates to reduce inequalities in
wealth and income.
C) The increase or decrease of taxes to prevent inflation or ward off
depression.

Sumptuary purpose of taxation
 More popularly known as the non-revenue or regulatory purpose of

taxation. While the primary purpose of taxation is to raise revenue for the support
of the government, taxation is often employed as a devise for regulation by means
of which certain effects or conditions envisioned by the government may be
achieved.
 For example, government may provide tax incentives to protect and promote new
and pioneer industries. The imposition of special duties, like dumping duty,
marking duty, retaliatory duty, and countervailing duty, promote the non-revenue
or sumptuary purpose of taxation.
Theory and basis of taxation
 The power of taxation proceeds upon the theory that the existence of government
is a necessity; that it cannot continue without means to pay its expenses; and that
for these means, it has a right to compel all its citizens and property within its limits
to contribute.
 The basis of taxation is found in the reciprocal duties of protection and support
between the State and its inhabitants. In return for his contribution, the taxpayer
received benefits and protection from the government. This is the so-
called “benefits received principle.”
Life blood or necessity theory
 The life blood theory constitutes the theory of taxation, which provides that the
existence of government is a necessity; that government cannot continue without
means to pay its expenses; and that for these means it has a right to compel its
citizens and property within its limits to contribute.
 In Commissioner v. Algue, the Supreme Court said that taxes are the lifeblood
of the government and should be collected without unnecessary hindrance. They
are what we pay for a civilized society. Without taxes, the government would be
paralyzed for lack of motive power to activate and operate it. The government, for
its part, is expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral and material
values.
Illustrations of lifeblood theory
1. Collection of taxes cannot be enjoined by injunction.

2. Taxes could not be the subject of compensation or set off.
3. A valid tax may result in destruction of the taxpayer’s property.

4. Taxation is an unlimited and plenary power.
Benefit-received principle
This principle serves as the basis of taxation and is founded on the

reciprocal duties of protection and support between the State and its
inhabitants. Also called “symbiotic relation” between the State and its citizens.
In return for his contribution, the taxpayer receives the general advantages
and protection which the government affords the taxpayer and his property. One
is compensation or consideration for the other; protection for support and support
for protection.
However, it does not mean that only those who are able to and do pay
taxes can enjoy the privileges and protection given to a citizen by the government.
In fact, from the contribution received, the government renders no special

or commensurate benefit to any particular property or person. The only benefit to
which the taxpayer is entitled is that derived from the enjoyment of the privileges
of living in an organized society established and safeguarded by the devotion of
taxes to public purpose. The government promises nothing to the person taxed
beyond what may be anticipated from an administration of the laws for the general
good. [Lorenzo v. Posadas]
Taxes are essential to the existence of the government. The obligation to

pay taxes rests not upon the privileges enjoyed by or the protection afforded to the
citizen by the government, but upon the necessity of money for the support of the
State. For this reason, no one is allowed to object to or resist payment of taxes
solely because no personal benefit to him can be pointed out as arising from the
tax. [Lorenzo v. Posadas]
SURVEY OF PHILIPPINE TAXES
A. Internal revenue taxes imposed under the NIRC

1. Income tax
2. Transfer taxes
a. Estate Tax
b. Donor’s Tax
3. Percentage taxes
a. Value Added Tax
b. Other Percentage Taxes
4. Excise taxes
5. Documentary stamp tax
B. Local/Municipal Taxes
C. Tariff and Customs Duties
D. Taxes/Tax incentives under special laws
CLASSIFICATION OF TAXES
AS TO SUBJECT MATTER OR OBJECT

1. Personal, poll or capitation tax - Tax of a fixed amount imposed on persons
residing within a specified territory, whether citizens or not, without regard to their property
or the occupation or business in which they may be engaged, i.e. community tax.
2. Property tax - Tax imposed on property, real or personal, in proportion to its value
or in accordance with some other reasonable method of apportionment.
3. Excise tax - A charge imposed upon the performance of an act, the enjoyment of
a privilege, or the engaging in an occupation.
AS TO PURPOSE
1. General/fiscal/revenue tax - imposed for the purpose of raising public funds for
the service of the government.
2. Special/regulatory tax - tax is imposed primarily for the regulation of useful or
non-useful occupation or enterprises and secondarily only for the purpose of raising public
funds.
AS TO WHO BEARS THE BURDEN

1. Direct tax - is demanded from the person who also shoulders the burden of the
tax. It is a tax which the taxpayer is directly or primarily liable and which he or she cannot
shift to another.
2. Indirect tax - is demanded from a person in the expectation and intention that he
or she shall indemnify himself or herself at the expense of another, falling finally upon the
ultimate purchaser or consumer. A tax which the taxpayer can shift to another.
AS TO SCOPE OF THE TAX

1. National tax -s imposed by the national government.
2. Local tax - imposed by municipal corporations or local government units (LGUs).
AS TO THE DETERMINATION OF AMOUNT
1. Specific tax is a tax of a fixed amount imposed by the head or number or by some
other standard of weight or measurement. It requires no assessment other than the listing
or classification of the objects to be taxed.
2. Ad valorem tax is a tax of a fixed proportion of the value of the property with respect
to which the tax is assessed. It requires the intervention of assessors or appraisers to

estimate the value of such property before the amount due from each taxpayer can be
determined.
AS TO GRADATION OR RATE
1. Proportional tax - Tax based on a fixed percentage of the amount of the property
receipts or other basis to be taxed. Example: real estate tax.
2. Progressive or graduated tax - Tax the rate of which increases as the tax base or
bracket increases. Example: income tax.
Digressive tax rate: progressive rate stops at a certain point. Progression halts at
a particular stage.
3. Regressive tax - Tax the rate of which decreases as the tax base or bracket
increases. There is no such tax in the Philippines.

Government Exercises Borrowing Power Internal and External Debt
Reporter: Bimbo L. Salazar & Adela Dorego
Debt – It is an amount of money borrowed by one party from another

- It is used by many corporations and individuals as a method of making large
purchases that they could not afford under normal circumstances.
- A debt arrangements gives the borrowing party permission to borrow money
under the condition that it is to be paid back at a later date usually with interest.
Two Categories of Government Debts
Internal Debts- owed to lenders within the country
External Debts- Owed to foreign Lenders.
Theory of Public Debt:
What are the origins of public Borrowing?
Adam Smith –European economist between 1500 and 1750. One of the greatest
critics of mercantilism. He was strong in emphasizing the disadvantages of borrowing and
expostulated on the advantages of the balanced budget during the years of capitalism.
John Maynard Keynes- Author of “ Keynesian Theory of Deficit Financing”
- The idea of public borrowing was introduce during the
great depression, mainly as a compensatory tool in times
of economic stability.
A. INTERNAL DEBT OR DOMESTIC DEBT is the part of the total government
debt in a country that is owed to lenders within the country.
Types of Internal Debt
1. Productive and Unproductive Debt

2. Redeemable and Ireedeemable Debt
3. Funded and Unfunded Debt
4. Short- term, Medium-Term and Long-Term Debt.
5. Floating Debt, Short term borrowing such as T-Bill.

1. Productive Debt
Is said to be productive when it raised for productive purposes and is used to

productive capacity of the economy
Unproductive debt
Are those which do not add to the productive capacity.

Are not necessarily self-liquidating.
The interest and the principal amount may have to be paid from other sources of
revnue generally from taxation, and therefore such debts are a burden on the community.
2. Redeemabale
The debt which the government promises to pay off atat same future date are
called redeemable debt. Most of the debt is redeemable in nature . There is certain
maturity oeriod of the debt. The government has to make arrangement to repay the
principal and interest on the due date.
Ireedeemable debt
This debt has no maturity period. In the case, the government may pay the interest
regularly, but the repayment date of the principal amount is not fixed.
3. Funded Debt
Is repayable adter a long period of time . The period maybe 30 years or more.
Funede debt has an obligations to pay fixed sum of interest subject to an option to the
government to repay the principal.
Unfunded Debt
Are incurred to meet temporary needs of the government. In such debts
duaratio`ns is comparatively short say a year. The rate of interest on unfunded debt is
very low. Unfunded debt has an obligation to pay at due date with interest.
4. Short- Term Debt
Short term debt matures with in a duration of 2 to 9 months. Generally, rate of

interest is low.

Long- Term Debt
Has a maturitty period of 10 years or more. Generally the rate of interest is high.
Such loans are raised for development programmes and to meet other long term needs
of public authorities.
Meduim-Term Debt
The government may borrow funds for medium terms needs. These fundds can be
used for development and non development activities. The period of medium term debt
is normally for a period above one year and up to 5 years.
5. Treasury Bill or T-Bill
T-Bills are attractive to investors because they offer a very low-risk way to earn a
guaranteed return on invested money.
T-bills can have maturities of just a few days up to the maximum of 52-weeks, but
common maturities are one month, three months or six months. The longer the maturity
date, the higher the interest rate that the T-Bill will pay to the investor
B. EXTERNAL DEBT
The portion of a country’s debt that was borrowed from foreign lenders including
commercial banks, government or international financial institutions.
These loans including interest must usually be paid in the currency, the borrowing
country may sell and export goods to the lender’s country.
Breaking Down….. External Debts
A Debt Crisis can occur if a country with weak economy is not able to repay
external Debt due to instability to produce and sell goods and make a profitable return.
Less Credit Worthy Countries usually developing Countries directly borrowed from:
1. International Monetary Fund (IMF)

2. World Bank or Other International Institutions

1. International Monetary Fund(IMF)
It is an International Organization based in Washington DC of 189 countries working

to foster global monetary cooperation , secure financial stability , facilitate international
Trade promote high employment and sustainable economic growth and reduce poverty
around the world.
It was formed in 1944 at thye Bretton Woods conference primarily by the Ideas of
Harry Dexter White and John Meynard Keynes.
It came into Formal Existence in 1945
It is one of the Agencies that keep track of the copuntry’s external debt.
It is composed of 189 MEMBERS and the goal is for the reconstruction of the
international payment system
It plays Central Role in the management of balance of payments difficulties snd

international financial crisis.
It works to improve the economies of its member countries.
The Organization Objectives:
1. To promote International Monetary International Cooperation

2. High International Trade
3. High Employment
4. Exchange Stability
5. Sustainable Economic Growth
6. And Making resources available to member countries who are experiencing
financial difficulties.
2. The World Bank:
- Is to end Extreme Poverty , by reducing the share of global population that lives in
extreme poverty to 3 % by 2030.
- To promote shared prosperity by increasing the incomes of the poorest to 40 % of people
in every economy.
Risks of external debt to Philippine economy

According to BangkoSentralngPilipinas:
Debt sustainability is a major issue, particularly for countries facing higher public
debts, such as what most advanced economies are currently experiencing. These
countries are vulnerable to rollover risks as maturing debt obligations could become more
expensive to refinance considering that investors will demand significant premium to
compensate for the greater risks that they will be assuming. The punitive action of the
market through higher borrowing costs will make it more difficult for these countries to
service their obligations, creating a vicious cycle of debt trap. This could be aggravated
when governments planning to undertake unpopular measures that will increase
revenues and/or reduce public expenditures face political backlash that render them not
politically feasible.
References:
1. Wikepedia:
2. Debt http://www.investopedia.com/terms//e/externaldebt.asp#xzz4e0uIEN3G
3. O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action.
Pearson Prentice Hall.p. 264. ISBN 0-13-063085-3

Foreign Trade
Reporter: Elliel Dominic F. Cerna, Lary V. Gleyo & Jenny U. Umag
Foreign trade is exchange of capital, goods, and services across international

borders or territories. In most countries, it represents a significant share of gross domestic
product (GDP). While international trade has been present throughout much of history,
its economic, social, and political importance has been on the rise in recent centuries.
All countries need goods and services to satisfy wants of their people. Production
of goods and services requires resources. Every country has only limited resources. No
country can produce all the goods and services that it requires. It has to buy from other
countries what it cannot produce or can produce less than its requirements. Similarly, it
sells to other countries the goods which it has in surplus quantities. India too, buys from
and sells to other countries various types of goods and services.
Generally no country is self-sufficient. It has to depend upon other countries for

importing the goods which are either non-available with it or are available in insufficient
quantities. Similarly, it can export goods, which are in excess quantity with it and are in
high demand outside.
International trade means trade between the two or more countries. International
trade involves different currencies of different countries and is regulated by laws, rules
and regulations of the concerned countries. Thus, International trade is more complex.
According to Wasserman and Haltman, “International trade consists of

transaction between residents of different countries”.
According to Anatol Marad, “International trade is a trade between nations”.

According to Eugeworth, “International trade means trade between nations”.
Industrialization, advanced transportation, globalization, multinational

corporations, and outsourcing are all having a major impact on the international trade
system. Increasing international trade is crucial to the continuance of globalization.

Without international trade, nations would be limited to the goods and services produced
within their own borders.
International trade is in principle not different from domestic trade as the motivation
and the behaviour of parties involved in a trade do not change fundamentally regardless
of whether trade is across a border or not. The main difference is that international trade
is typically more costly than domestic trade.
THREE TYPES OF FOREIGN TRADE
1. Import Trade refers to purchase of goods by one country from another country or
inflow of goods from home country to foreign country.
2. Export Trade refers to the sale of goods by one country to another country or
outflow of goods from home country to foreign country
3. Entrepot also known as RE-EXPORT. It refers to purchase of goods (raw) from
one country and then selling them to another country after some processing
operations.
NEED AND IMPORTANCE OF FOREIGN TRADE

 Division of Labor and Specialization
 Optimum Allocation and Utilization of Resources
 Equality of Prices
 Availability of Multiple Choices
 Ensure Quality and Standard Goods
 Raise Standards of Living of the People
 Generate Employment Facilities
 Facilitate Economic Development
 Assistance during Natural Calamities
 Maintains Reputation and Helps earn Good will
 Promotes World Peace
 Maintains Balance of Payment

References:
The Economist Guide to Management Ideas and Gurus”, by Tim Hindle (Profile Books;
322 pages;)
Guadalupe, Teresita J. 2013.Public Administration, Management and
Governance.United Nations Avenue Ermita, Manila.
http://encyclopedia.thefreedictionary.com/Elton+Mayo

Government control of money supply
Reporter: Esmail T. Gani
If a nation’s economy were a human body, then its heart would be the central bank.
And just as the heart works to pump life-giving blood throughout the body, the central
bank pumps money into the economy to keep it healthy and growing. Sometimes
economies need less money and sometimes they need more. In this article, we’ll discuss
how central banks control the quantity of money in circulation. (Related reading What Are
Central Banks?)
The methods central banks use to control the quantity of money vary depending
upon the economic situation and power of the central bank. In the United States, the
central bank is the Federal Reserve, often called the Fed. Other prominent central banks
include the European Central Bank, Swiss National Bank, Bank of England, People’s
Bank of China, and Bank of Japan. (Related readingGet To Know The Major Central
Banks)
Why the Quantity of Money Matters
The quantity of money circulating in an economy affects both micro and

macroeconomic trends. At the micro level, a large supply of free and easy money means
more personal spending. Individuals also have an easier time getting loans such as
personal loans, car loans, or home mortgages.
At the macroeconomic level, the amount of money circulating in an economy

affects things like gross domestic product, overall growth, interest rates,
and unemployment rates. The central banks tend to control the quantity of money in
circulation to achieve economic objectives and effect the monetary policy. Through this
article, we take a look at some of the common ways that central banks control the quantity
of money in circulation.

1. Print More Money
As no economy is pegged to a gold standard, central banks can increase the

amount of money in circulation by simply printing it. They can print as much money as
they want, though there are consequences for doing so. Merely printing more money
doesn’t affect the output or production levels, so the money itself becomes less valuable.
Since this can cause inflation, simply printing more money isn't the first choice of central
banks.
2. Set the Reserve Requirement
One of the basic methods used by all central banks to control the quantity of money
in an economy is the reserve requirement. As a rule, central banks
mandate depository institutions to keep a certain amount of funds in reserve against the
amount of net transaction accounts. Thus a certain amount is kept in reserve and this
does not enter circulation. Say the central bank has set the reserve requirement at 9
percent. If a commercial bank has total deposits of $100 million, it must then set aside $9
million to satisfy the reserve requirement. It can put the remaining $91 million into
circulation.
When the central bank wants more money circulating into the economy, it can
reduce the reserve requirement. This means the bank can lend out more money. If it
wants to reduce the amount of money in the economy, it can increase the reserve
requirement. This means that banks have less money to lend out and will thus be pickier
about issuing loans.
4. Engage in Open Market Operations
Central banks affect the quantity of money in circulation by buying or

selling government securities through the process known as open market
operations (OMO). When a central bank is looking to increase the quantity of money in
circulation, it purchases government securities from commercial banks and institutions.
This frees up bank assets—they now have more cash to loan. This is a part of an

expansionary or easing monetary policy which brings down the interest rate in the
economy. The opposite is done in case where money needs to taken out from the system.
In the United States, the Federal Reserve uses open market operations to reach a
targeted federal funds rate. The federal funds rate is the interest rate at which banks and
institutions lend money to each other overnight. Each lending-borrowing pair negotiate
their own rate and the average of these is the federal funds rate. The federal funds rate,
in turn, affects every other interest rate. Open market operations are a widely used
instrument as they are flexible, easy to use, and effective.
5. Introduce a Quantitative Easing Program
In dire economic times, central banks can take open market operations a step
further and institute a program of quantitative easing. Under quantitative easing, central
banks create money and use it to buy up assets and securities such as government
bonds. This money enters into the banking system as it is received as payment for the
assets purchased by the central bank. The bank reserves swell up by that amount, which
encourages banks to give out more loans, it further helps to lower long-term interest rates
and encourage investment. After the financial crisis of 2007-2008, the Bank of England
and the Federal Reserve launched quantitative easing programs. More recently, the
European Central Bank and the Bank of Japan have also announced plans for
quantitative easing.
The Bottom Line
Central banks work hard to ensure that a nation's economy remains healthy. One way
central banks do this is by controlling the amount of money circulating in the economy.
They can do this by influencing interest rates, setting reserve requirements, and
employing open market operation tactics, among other approaches. Having the right
quantity of money in circulation is crucial to ensuring a healthy and sustainable economy.

How monetary affects inflation?
In a purely economic sense, inflation refers to a general increase in price

levels due to an increase in the quantity of money; the growth of the money stock
increases faster than the level of productivity in the economy. The exact nature of price
increases is the subject of much economic debate, but the word "inflation" narrowly refers
to a monetary phenomenon in this context.
Contemporary governments and central banks rarely ever print and distribute
actual physical money to influence the stock of money, instead relying on other controls
such as interest rates for interbank lending. There are several reasons for this, but the
two largest are: 1) new financial instruments, electronic account balances and other
changes in the way individuals hold money make basic monetary controls less
predictable; and 2) history has produced more than a handful of money-printing disasters
that have led to hyperinflation and mass recession.
In short, central banks manipulate interest rates to either increase or decrease the
present demand for goods and services, the levels of economic productivity and the
impact of the banking money multiplier. However, many of the impacts of monetary policy
are delayed and difficult to evaluate. Additionally, economic participants are becoming
increasingly sensitive to monetary policy signals and their expectations about the future.
There are some ways in which the Federal Reserve controls the money stock; it
participates in what is called "open market operations," by which federal banks purchase
and sell government bonds. Buying bonds injects new dollars into the economy, while
selling bonds drains dollars out of circulation. So-called quantitative easing, or QE,
measures are extensions of these operations. Additionally, the Federal Reserve can
change the reserve requirements at other banks, limiting or expanding the impact of
money multipliers. Economists continue to debate the usefulness of monetary policy, but
it remains the most direct tool of central banks to combat or create inflation

How is money supply used in monetary policy?
Regulating the money supply is the sole tool of the Federal Reserve's monetary
policy. The Federal Reserve can affect the money supply through its monetary policy in
three ways: with open market operations, through the required reserve ratio and through
the discount rate.
Open market operations affect the money supply through buying and selling U.S.
government securities. The Federal Reserve can increase the money supply by buying
securities and decrease the money supply by selling securities.
The required reserve ratio affects the money supply by regulating how much
money banks must hold in reserve. If the Federal Reserve wants to increase the money
supply, it can decrease the amount of reserves required, and if it wants to decrease the
money supply, it can increase the amount of reserves required to be held by banks.
The third way the Federal Reserve's monetary policy regulates the money supply
is through the discount rate, which is the rate at which banks can borrow money from the
Federal Reserve. If the Federal Reserve wants to increase the money supply, it can
decrease the discount rate and encourage banks to borrow more money for lending. If it
wants to decrease the money supply, it can increase the discount rate and discourage
banks from borrowing money.
All of this works to do a few very specific things. Increasing the money supply
through monetary policy can decrease interest rates; increase savings and investments;
and increase consumer spending, therefore expanding the economy. Decreasing the
money supply has the opposite effects.

Public Expenditure
Reporter: Angie Lloyd S. Saligan
Public expenditure is spending made by the government of a country on collective

needs and wants such as pension, provision, infrastructure, etc. It is also defined as the
expenditure incurred by public authorities like central, state and local government to
satisfy the collective social wants and need of the people
Significance of Public Expenditure
1. To promote rapid economic development.

2. To promote trade and commerce.
3. To promote rural development
4. To promote balanced regional growth
5. To develop agricultural and industrial sectors
6. To build socio-economic overheads eg. roadways, railways, power etc.
7. To exploit and develop mineral resources like coal and oil.
8. To provide collective wants and maximize social welfare.
9. To promote full - employment and maintain price stability.
10. To ensure an equitable distribution of income.
Philippine Expenditure Policies

Section 3, Book VI, Executive Order 292 - declares it a policy of the State to formulate
and implement a national budget that is, among others:
 An instrument of national development, reflective of national objectives,
strategies and plans;
 Supportive of and consistent with the socio-economic development plan; and
 Oriented towards the achievement of explicit objectives and expected results.
Philosophy of Philippine Expenditure Policy
1. Redistribution of income and wealth and balanced development.

2. Economic Development
3. Stability
4. Countryside Development
Process of Philippine Expenditure Policies
1. Preparation of Budget - Development Budget Coordination Committee or DBCC, an

inter-agency body responsible for setting the fiscal policies of government. The DBCC is
chaired by the DBM secretary and the members include the Department of Finance (DoF)
secretary, director general of the National Economic Development Authority (NEDA),
head of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) and a
representative from the Office of the President.
2. Budget Legislation - Article VI, Sec. 29 of the Constitution provides that “No money
shall be paid out of the Treasury except in pursuance of an appropriation made by law.
Proposed budget must be approved by the congress.
The Constitution provides limits to this prerogative of Congress. Among these

restrictions are that:
1. Congress may not increase the appropriations recommended by the President. This
implies that any budget items which Congress wants to increase would have to be
accompanied by concomitant cuts in other items.
2. The budget of the Judiciary, which enjoys fiscal autonomy, may not be reduced to a level
below the amount appropriated for the previous year.
3. Education shall be assigned the highest budgetary priority
4. Budget Execution - General Appropriations Act (GAA) serves as the legal basis which
allows for the use of funds from the national treasury for specified expenditure items
provided therein.
5. Budget Accountability. The Commission on Audit and the DBM ensures that these
systems are in place and that agencies comply with these accounting rules and are
subjected to audit.
Local governments’ share of national revenues

Under the Local Government Code of 1991 (Republic Act 7160), local government units
are allotted shares from the national internal revenue taxes in the form of Internal
Revenue Allotment (IRA). The Code prescribes that the IRA shall be forty (40) percent of
the national internal revenue collections for the third fiscal year preceding the current
fiscal year. The total IRA is further subdivided among the different levels of LGUs:
 Provinces – 23 percent
 Cities – 23 percent
 Municipalities – 34 percent
 Barangays – 20 percent
The Code further prescribes that the share of each province, city and municipality shall
be determined on the basis of the following formula:
 Population – 50 percent
 Land Area – 25 percent
 Equal sharing – 25 percent
The Code specifies that these shares of LGUs shall be automatically released.
However, in the event that the national government incurs an unmanageable public sector
deficit, the President, upon the recommendation of the Secretaries of DoF, DILG and
DBM, to make the necessary adjustments in the IRA but cannot lower it further than 30
percent.
Classification of Philippine Public Expenditures
A) Level of Government
1. National Government - Department of Agriculture, Department of Health,
Department of Education, etc.
2. Local Government Unit - Provincial LGU, Municipal LGU, Barangay LGU
B) Nature of Expenditure

1. Current Operating Expenditure - is an ongoing cost for running a product,
business, or system. Examples of COE are personnel salaries, supplies, etc.
2. Capital Expenditure - is the cost of developing or providing non-consumable

parts for the product or system. Capital Expenditure of the government refers to that
expenditure which results in creation of fixed assets. They are in the form of investment.
They add to the net productive assets of the economy.
Functional Categories Philippine Public Expenditures

1. Economic Development/ Services - All expenditures that promote economic growth
development are termed as development expenditure.
a. Development of industries.
b. Development of transport and communication.
2. Social Development/Services - expenditure refers to those kind of expenditures

against there is no corresponding transfer of real resources i.e., goods or services. Such
expenditure includes public expenditure on :- National Old pension Scheme, Interest
payments, subsidies, unemployment allowances, welfare benefits to weaker sections etc.
By incurring such expenditure, the government does not get anything in return, but it adds
to the welfare of the people, especially to weaker sections of society. Such expenditure
results in redistribution of money incomes within the society.
a. Provision for public health.
b. Creation of social goods.
3. Defense- It is expenditure on defense equipments, wages and salaries of armed

forces, navy and air force etc. It is incurred by government to provide security to citizens
of country from external aggression.
a. Maintenance of police force.

b. Maintenance of army and provision for defense goods.
c. Maintenance of diplomats in foreign countries.

4. General Public Services - Government/incurs this expenditure to maintain law and
order and administration of justice.
a. Public Administration.
b. Administration of law and order and justice.
Debt Services -
a. Servicing of public debt.
Patterns of Philippine Public Expenditure

Conclusions
1. There is a constant increase in public expenditures caused by continuous expansion

and improvement of governments function and services.
2. Urbanization, growing population and changing economic needs of the people incur
more expenses in the government.
3. The distribution of public expending in different sectors reflects the priorities of every
administration.

4. Different reduction measures such as streamlining of bureaucracy are implemented
to reduce budget deficit. However, number of employees continued to grow since the
government's function is expanding.
Piana, Valentino (2016). Public Expenditure. Available from:

http://www.economicswebinstitute.org/glossary/pubexp.htm. (Accessed: February 16,
2017)
Ibus, Mark Jim(October 13, 2013). Classification and Pattern of Philippine Public
Expenditure. Available from: https://prezi.com/k9m3fx-5wr_b/classification-and-pattern-
of-philippine-public-expenditure/. (Accessed: February 19, 2017)
Trading Economics. Philippine Government Spending. Available from

http://www.tradingeconomics.com/philippines/government-spending. (Accessed:
February 19, 2017)
Domingo, Rhea (June 30, 2014). Patterns of Philippine Expenditure.

http://www.slideshare.net/rheastodomingo/patterns-of-philippine-
expenditure.(Accessed: February 19, 2017).

Spending decisions to abate recession: Case Analysis on Washington Recession
Reporter: Donna Eve M. Fetalino
Great significance has been attached to the 1948 - 1949 recession because it
appeared to be the first post war test of the basic strength of the New Economy equipped
as it was with a whole array of built-in stabilizers. The episode was far more significant as
a test of what might be called the New 'Political Economy, the capacity of government to
fulfil its obligations under the Employment Act of 1946 with respect to the furtherance of
"maximum employment, production and purchasing power."
Recession
It is a significant decline in activity across the economy, lasting longer than a few
months. It is visible in industrial production, employment, real income and wholesale-
retail trade. The technical indicator of a recession is two consecutive quarters of
negative economic growth as measured by a country's gross domestic product (GDP),
although the National Bureau of Economic Research (NBER) does not necessarily need
to see this occur to call a recession.
Inventory Recession
The forces which initiated the downturn had their major impact on the accumulation
of inventories. These initiating factors have been well summarized by. Professor R. A.
Gordon,' as follows:
1.) The increasing availability of goods both at home and abroad exerted increasing
downward pressure on prices, particularly on farm prices.
2.) The postwar abnormal expansion in consumers' demand began to level off. This
resulted from the satisfaction of the most urgent backlogs of demand, the rise in consumer
credit, and increasing price resistance, all leading to a more normal rate of saving.
3.) Private fixed investment failed to maintain its rate of expansion and, on the contrary,
developed a slight declining tendency.
Salient Features of the Decline

The year 1949 was one of recession, although as pointed out earlier, the major
impact on gross national product came in the first quarter while the second half of the
year was primarily a leveling-off period. S briefly, but in more detailed fashion, the salient
features of that decline.
Government’s Response to Recession
Unlike its poor record in diagnosing the turning point in the economy, the record of
government was very good during this phase of the recession. The President presented
a program which was in sharp contrast to his anti-inflationary program. It proposed
measures to strengthen purchasing power by improving the unemployment
compensation system, to improve social security, to encourage advance planning of
public works, to increase the minimum wage, to improve farm supports, to improve the
tax system without any major increase in taxes, and to promote foreign aid and trade.
The response of government to the recessionary phase was good. It saw the root
cause in the liquidation of inventories; it saw from the behavior of markets that this was
being done in an orderly fashion; and it cànáluded that there would not be a serious
downturn.
Lessons of Experience
The problem lies deeper than the improvement of scientific method. It is nothing
less than the problem of historical development. The experience of 1948—1949 does not
provide much of a clue to the capacity of the economy and government to handle the
more serious problems of recession. It does indicate, however, that once the problem
was recognized, government proved to be quite flexible in readjusting its policies. The
policies proved to be adequate mainly because of the inherent strength of the economy.
But that raises another question: Had the downturn proved more serious than it actually
was, would the response of government have been adequate? It is to be hoped that it
would have been, but the 1948— 1949 recession throws little light on that question.
Breaking Down 'Recession'

Recession is a normal, albeit unpleasant, part of the business cycle; however, one-
time crisis events can often trigger the onset of a recession. As a result of the wide-spread

global recession, the economies of virtually all the world's developed and developing
nations suffered significant setbacks. Numerous government policies were implemented
to help prevent a similar future financial crisis as a result. Typically, a recession lasts from
six to 18 months, and interest rates usually fall during these months to stimulate the
economy.
Indicators
Aside from two consecutive quarters of GDP decline, economists assess several
metrics to determine whether a recession is imminent or already taking place. These
indicators are divided into two categories
a) Leading indicators materialize before a recession is officially declared.
Perhaps the most common leading indicator is contraction in the stock market.
Declines in broad stock indices, such as the Dow Jones Industrial Average
(DJIA) and Standard & Poor's (S&P) 500 index, often appear several months
before a recession takes shape. This was the case in 2007, when the market
began declining in August, four months ahead of the official recession in
December 2007.
b) Lagging indicators of a recession include the unemployment rate. Though the
Great Recession began in December 2007, the unemployment rate still
indicated full employment -- a rate of 5% or lower -- four months later. The
unemployment rate began declining in May 2008 and did not recover until
several months after the recession ended in June 2009.
Recession versus Depression

A depression is a deep and long-lasting recession. While no specific criteria exist
to declare a depression, unique features of the last U.S. depression, the Great
Depression of the 1930s, included a GDP decline in excess of 10% and an unemployment
rate that briefly touched 25%.
5 Things you shouldn’t do to during a recession

1) Becoming a Cosigner

Cosigning a loan can be a very risky thing to do even in flush economic times. After
all, if the individual taking the loan doesn't make the scheduled payments, the cosigner
could well be asked to make them.However, during an economic downturn the risks
associated with cosigning a note could be even greater as the person may be at
greater risk of losing his or her job and the means to pay down the loan. Also, the
cosigner is more likely to land in the unemployment line as well.
2) Getting Into an Adjustable-Rate Mortgage
When purchasing a home, some individuals may choose to take out an adjustable
rate mortgage (ARM). In some cases, this move might make sense. After all, as long
as interest rates are low, the monthly payment will be low as well.
However, what if the individual were to be laid off and interest rates were to rise as
the recession or slowdown started to abate. As rates rise, the monthly payment may
go up. In such a case, the homeowner may find it extremely difficult to come up with
the money to make the payments. Keep in mind that late payments or non-payment
can have an adverse impact on the individual's credit rating, which can in turn make it
more difficult for them to obtain a loan at a future date.
3) Adding Debt
Taking on new debt (such as a car loan, home loan or similar obligation) may not
be a problem in good times if the individual makes enough money to cover the
monthly payments and still has extra funds to live on and to save for retirement.
In many cases, recently laid off individuals may have to take jobs that pay less
than their previous salaries just to make ends meet and to keep money coming in the
door. Unfortunately, the new income may not be anywhere near the amount they had
previously earned. When this happens, savings can quickly dwindle away
4) Taking Your Job for Granted
Job cuts are targeted by many companies that are struggling because the cost of
keeping an employee on board can be huge. Think about it. Sometimes in addition
to salary, the employer may also have to contribute to healthcare costs and/or
make retirement contributions.
5) Taking Risks With Investments

Business owners should always be thinking about the future. They should always
be thinking about new and exciting ways to grow their businesses. However, an
economic slowdown may not be the best time to make risky bets.
References:
http://www.investopedia.com/terms/r/recession.asp
file:///C:/Users/User/Downloads/c2798.pdf
http://www.investopedia.com/articles/pf/09/avoid-five-recession-risks.asp

Fiscal Policy Implementation Phase: Budget Cycle
Reporter: Nizza Leigh Kimberly F. Gumana
Budget Budget Budget Budget Budget

Preparation Authorization Review Execution Accountability
Budgeting is the process of creating a plan to spend your money. This spending
plan is called a budget. Creating this spending plan allows you to determine in advance
whether you will have enough money to do the things you need to do or would like to do.A
budget is a quantitative expression of a plan for a defined period of time. It may include
planned sales volumes and revenues, resource quantities, costs and expenses, assets,
liabilities and cash flows. It expresses strategic plans of business units, organizations,
activities or events in measurable terms.
According to Fontinelle, “Basically, it's making sure that you're spending less than you're
bringing in and planning for both the short- and long-term.
BUDGET PREPARATION
The budget preparation is e first phase in the local budget process. It involves cost
estimation per PPAs, preparation of budget proposals, executive review of budget
proposals, and preparation of the Budget Message, Local Expenditure Program, and the
Budget of Expenditures and sources of Financing. This phase starts with the issuance of
Budget Call and ends with the submission of executive budget to the Sanggunian on or
before October 16 of each year.
Steps in Budget Preparation
Step 1. Issue the Budget Call

-The Budget Call is a directive from the LCE that contains general objectives,
policy decisions, strategies, and prioritized PPAs by sector/office as reflected in the AIP
for the budget year.
Step 2. Conduct the Budget Forum
-The LBO explains to Department Heads the major thrusts and policy directions,
sources of income, spending ceilings and budget strategies.
Step 3. Prepare and Submit Budget Proposals
-Each Department Head prepares the budget proposals and submits these to the
LBO for review and consolidation.
Step 4. Conduct Budget Hearings
-The technical budget hearings are conducted by the LFC to validate the revenue
sources, PPAs, cost estimates and expected outputs for the budget year.
Step 5. Evaluate the Budget Proposals
-The LFC evaluates all budget proposals using the output and cost criteria.
Step. 6 Submit Executive Budget to Sanggunian
-After consolidation of the budget proposal and approval thereof by the LCE, the
LGU shall submit the proposed executive budget not later than October 16 of the current
fiscal year pursuant to Section 318 of RA No. 7160. This is usually done through a State
of the Province/City/Municipality Address, where the LCE presents the proposed Annual
Budget to the Sanggunian and stakeholders.
BUDGET AUTHORIZATION
This is the second phase in the local budget process. This phase starts from the time the
Sanggunian receives the Local Expenditure program submitted by the LCE, and ends
with the enactment of the Appropriation Ordinance and approval thereof by the LCE.
Steps in the Budget Authorization Phase

Step 1. Enact the Appropriation Ordinance
-Check the Budget Documents Submitted (Annual and Supplemental)
-Evaluate the Budget
-Deliberate on the Budget
-Authorize the Annual Budget
Step 2. Approve the Appropriation Ordinance
Step 3. Submit the Appropriation Ordinance for Review
Budget Review
Its primary purpose is to determine whether the ordinance has complied with the
budgetary requirements and general limitations set forth in the Local Government Code
of 1991 as well as provisions of other applicable laws. It starts from the time the reviewing
authority receives the Appropriations Ordinance for the review and ends with the issuance
of the review action.
Steps in the Budget Review Phase
Step 1. Check the Appropriation Ordinance with the Appended Budget Documents.
Step 2. Review the Appropriation Ordinance

Step 3. Issue the Review Action
Budget Execution
It involves the release of allotments and the certification of available appropriations

and cash; the recording of actual obligations and disbursements of funds for authorized
PPAs to produce goods and services that will benefit the general public.
A critical aspect of this phase is the collection of funds, such that disbursements
do not exceed appropriations. While seemingly a separate activity, the collection and/or
receipt of revenues are considered an integral part of budget execution.
Steps in Budget Execution

Step 1. Release of Allotment on the Basis of the Authorized and Approved Appropriation
Ordinance
Step 2. Prepare the Cash Program and Summary of Financial and Physical Performance
Targets
Step 3. Obligate and Disburse Funds
Step 4. Adjust cash Program for shortages and overages.
Step 5. Implement corrective measures as proposed by the Local Finance Committee
and approved by the Local Chief Executive
Budget Accountability
It is essentially accounting for the performance of the LGU in terms of

income/revenue generation and resource utilization for the implementation of its PPAs for
the year. Basically, it is the evaluation of the financial and physical performance of the
LGU in the execution of its budget. This review and assessment of performance is
necessary to introduce improvements and reforms to make the budget more transparent
to the people and stakeholders.
Legal Basis
Persons Accountable for Local Government Funds.
Any officer of the local government unit whose duty permits or requires the possession or
custody of local government funds shall be accountable and responsible for the
safekeeping thereof in conformity with the accountable by the nature of their duties, may
likewise be held accountable and responsible for the local government funds through their
participation in the use or application thereof. (Section 340, R.A. No. 7160).
Fiscal Responsibility shall be shared by all those exercising authority over the financial
affairs, transactions, and operations of the local government unit. (Section. 305, R.A.
7160).
Steps in accounting for the local budgets

Step 1. Monitor Receipts and Expenditures
Step 2. Submit Accountability Reports
Step 3. Evaluate Performance of each Department/Office
Other Info:
Distribution of Shares
Section 285 of the Local Government Code as implemented by Article 382 (a), IRR
of RA No.7160, provides the “codal formula” or the manner of allocation of the IRA share
prescribed by Code for the four levels of LGUs as follows:
-Provinces - 23% Population - 50%

-Cities - 23% Land Area - 25%
-Municipalities- 34% Equal Share - 25%
-Barangays - 20%
Sources/References:
Budget Operations Manual for Local Government Units, 2016 Edition (Department of
Budget and Management)
http://www1.worldbank.org/publicsector/LearningProgram/PEAM/DorotinskyBackCh4.pd
f
http://www.mymoneycoach.ca/budgeting/what-is-a-budget-planning-forecasting

Fiscal Policy Implementation Phase: Fiscal Control
Appropriation System
Reporter: Hyryn C. Pastor
Government budgeting is the critical exercise of allocating revenues and borrowed

funds to attain the economic and social goals of the country. It also entails the
management of government expenditures in such a way that will create the most
economic impact from the production and delivery of goods and services while supporting
a healthy fiscal position.
Government budgeting is important because it enables the government to plan and
manage its financial resources to support the implementation of various programs and
projects that best promote the development of the country. Through the budget, the
government can prioritize and put into action its plants, programs and policies within the
constraints of its financial capability as dictated by economic conditions.
Funds for the use of government entities are appropriated or authorized following
a process with the following major steps:
1. Individual agencies prepare their estimates of expenditures or proposed
budgets for the succeeding year and submit these estimates or proposals
contained in required budget forms to the DBM following baseline figures,
guidelines and timetable earlier set;
2. Agencies justify details of their proposed budgets before DBM technical review
panels;
3. DBM reviews and consolidates proposed budgets of all agencies for inclusion
in the President's proposed budget for submission to Congress;
4. Agencies explain the details of their proposed budgets in separate hearings
called by the House of Representatives and the Senate for inclusion in the
General Appropriation Bill;
5. The President signs the General Appropriation Bill into law or what is known
as the General Appropriations Act (GAA).

In accordance with the requirements of the Constitution, the President submits
his/her proposed annual budget in the form of Budget of Expenditure and Sources of
Financing (BESF) supported by details of proposed expenditures in the form of a National
Expenditure Program (NEP) and the President's Budget Message which summarizes the
budget policy thrusts and priorities for the year. In Congress, the proposed budget goes
first to the House of Representatives, which assigns the task of initial budget review to its
Appropriation Committee. The Appropriation Committee together with the other House
Sub-Committee conducts hearings on the budgets of departments/agencies and
scrutinizes their respective programs/projects. Consequently, the amended budget
proposal is presented to the House body as the General Appropriations Bill. While budget
hearings are on-going in the House of Representatives, the Senate Finance Committee,
through its different subcommittees also starts to conduct its own review and scrutiny of
the proposed budget and proposes amendments to the House Budget Bill to the Senate
body for approval. To thresh out differences and arrive at a common version of the
General Appropriations Bill, the House and the Senate creates a Bicameral Conference
Committee that finalizes the General Appropriations Bill.
The General Appropriations Act (GAA) is the legislative authorization that contains
the new appropriations in terms of specific amounts for salaries, wages and other
personnel benefits; maintenance and other operating expenses; and capital outlays
authorized to be spent for the implementation of various programs/projects and activities
of all departments, bureaus and offices of the government for a given year.

Allotment System
Reporter: Joan S Makalasay & Zenitha Safiyya M Talungon
The topography of the Philippines is by itself a strong reason for a decentralized form of
government. It is composed of more than 7,100 islands. Pre-Spanish history says that the
country was composed of villages called "barangay'. Each barangay was ruled by its own
chieftain, spoke its own dialect, formulated its own laws based on tradition and needs.
There were no alliances between barangay and very little notion of a country. "The people
do not act in concert or obey any ruling body; each man takes care only of himself and of
his slaves."
Centralization came with the invasion of the country by the Spaniards, the
Americans, and the Japanese. A strong central government was needed to control
numerous attempts to regain freedom. When independence was finally restored in 1946,
reconstruction was directed by a strong government. But the innate desire for autonomy
asserted itself through the years. A Local Autonomy Act was passed in 1959 (Republic
Act 2264) to grant fiscal and regulatory powers to local governments. In 1967, a
Decentralization Act (RA 5185) was enacted to increase the financial resources and
powers of local governments. The 1973 Constitution of the Republic mandated that the
state "shall guarantee and promote the autonomy of local governments to ensure their
fullest development as self-reliant communities". These initiatives were stymied by the
martial rule of the country for twenty years. Its end was brought about by the expressed
action of the Filipinos against authoritarianism. Thus, the strengthening of democracy
through people empowerment was on top of the agenda of the Aquino and Ramos
governments. A Local Government Code was enacted in 1991 that institutionalized a
systematic allocation of powers and responsibilities between the national and local
governments. It would be fair to say that the political motive was a strong factor that
influenced devolution. Decentralization was perceived to be an effective means of
diffusing power from the center that would effectively prevent an authoritarian regime,
such as the Marcos regime, from re-emerging in the future. Decentralization was a

common response of many governments all over the world to the clamor for a greater
voice in the way they are governed.
The efficiency factor in devolution began to surface during the Ramos
administration. Market reforms were vigorously pursued by government. Trade, banking
and industry were liberalized. A privatization program was pursued to relieve the central
government of several functions where it has no comparative advantage. Devolution
was compatible with these thrusts. Government recognized that it would be more
efficient if communities were given the power and the responsibility to decide on goods
and services that they need. President Ramos encouraged the processes of
consultations, consensus building, and provision of adequate information to
constituents.
1. LEGAL BASIS
 Section 284 of RA No. 7160 or the Local Government Code of 1991, which
provides that LGUs shall have a 40% share from the national internal revenue
taxes on collection of the third (3rd) fiscal year preceding the current fiscal year;
and Section 285 which provides the manner of allocation to the LGUs.
 Section 286 of RA No. 7160 provides that the share of each local government units
shall be released without need of any further action, directly to the provincial, city,
municipal or barangay treasurer, as the case may be, on a quarterly basis within
five (5) days after the end of each quarter, and which shall not be subject to any
lien or holdback that may be imposed by the national government for whatever
purpose (actually, the allotment for IRA is released comprehensively but cash
allocation is released monthly, 80% of IRA share of LGUs on or before the 8th day
of the month and the remaining 20% on or before the 24th day of every month).
 Section 4 of RA No. 9358 or the Supplemental Appropriation for FY 2006 provides
that future local government share in the national internal revenue taxes or IRA
shall henceforth be automatically appropriated.

2. FORMULA OR COMPUTATION
LGUs % Allocation
Provinces 23%
Cities 23%
Municipalities 34%
Barangays 20%
Total 100%
3. The distribution of shares of individual provinces, cities and municipalities shall be

made on the basis of the following formula:
Factor Percentage Source Document
National Statistics Proclamation

Population 50% Office (NSO) Order
Lands Official
Management Masterlist of
Land Area 25% Bureau (LMB) Land Area
Equal
Sharing 25%
Total 100%
4. The share of each barangay is computed as follows:
 Php 80,000 for each barangay with a population of not less than one hundred (100)
inhabitants.

 The balance is allocated as follows:
Population 60%
Equal Sharing 40%
Total 100%
5. USES OF FUND
 To fund basic services and facilities pursuant to Section 17 of the Local
Government Code of 1991 particularly those which have been devolved by the
National Government.
 To fund development projects as identified in the LGUs Annual Investment Plan
(Section 287 of the LGC directs LGUs to set aside not less than 20% of their IRA
for development projects).
6. RELEASE PROCEDURE
 BIR submits to DBM certification of collections made and 40% share of LGUs.
 DBM verifies with BTr collections remitted and computes the share of LGUs based
on codal formula as provided under Section 285 of RA No. 7160, the Local
Government Code.
 DBM Central Office (CO) programs the amount and releases the allotment
comprehensively to the DBM Regional Office (RO) at the start of the year.
 DBM CO issues the Notice of Cash Allocation (NCA) monthly for deposit with the
Government Servicing Banks of DBM ROs. Subsequently, the DBM RO issues
the funding check for credit of IRA share to the individual bank account of
the LGUs.
(Source: dbm.gov.ph)
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Obligation Accounting
Reporter: Nor-Zhainab S. Alawi
In governmental agencies, the basis for accounting for appropriations or contract

authorizations. The obligations are recorded as soon as they are incurred, and
appropriations, allotments, or contract authorizations are reduced accordingly (whether
the expenditures are to be made in the same fiscal period or not.
OBLIGATION
Liabilities legally incurred and committed to be paid for by the government either
immediately or in the future.
In governmental agencies, the basis for accounting for appropriations or contract
authorizations. The obligations are recorded as soon as they are incurred, and
appropriations, allotments, or contract authorizations are reduced accordingly (whether
the expenditures are to be made in the same fiscal period or not).
In finance, is the responsibility to meet the terms of a contract. If an obligation is

not met, the legal system often provides recourse for the injured party.
Is an important aspect of personal finance. Every budget should first include all
financial obligations for which the individual is responsible over the given time period.
Financial obligations
Represent any outstanding debts or regular payments that you must make. If you
owe or will owe money to anybody, that is one of your financial obligations. Almost any
form of money represents a financial obligation – coins, bank notes, or bonds are all
promises that you will be credited the accepted value of the item. Most formal financial
obligations, like mortgages, student loans or scheduled service payments, are set down
in written contracts signed by both parties.

An important aspect of personal finance. Every budget should first include all
financial obligations for which the individual is responsible over the given time period.
Financial Obligation Ratio (FOR)

A quarterly figure released by the Federal Reserve Board that estimates the ratio
of household debt payments to disposable income, is a useful benchmark for individual
budgets. Assessing obligations carefully is especially important for retirement planning.
When planning over longer periods of time such as this, the individual budgeter should
consider more long-term obligations, like interest rates on mortgage payments or
healthcare costs that have yet to be incurred.
The failure to meet obligations is met with punishment, the degree of which
depends on the character of the contract. If an individual fails to make their car payments
regularly, the auto company will repossess the car. Taxes, too, are a form of obligation,
and failing to meet those results in large fines or imprisonment. When large companies
fail and find themselves unable to fulfill their outstanding debts, they can declare
bankruptcy, which initiates the relief of the total debt for the debtor while giving the creditor
an opportunity to recuperate some of their losses in the form of assets held by the debtor.
Obligations
Can be held by any individual or entity that is engaged in any sort of contract with
another party, and broadly speaking, can be written or unwritten. A politician, for example,
has the written obligation to serve all of his constituents within the confines of the law, but
they may also have an unwritten obligation to make decisions that will affect their largest
donors. The existence of these kinds of agreements is nearly impossible to prove and
such obligations cannot be effectively regulated. Justice systems dating back to the
Romans have offered stringent legal enforcement of important contracts.
ACCOUNTING
Is the mechanism used to record activities and transactions that occur within a
business.

Its simplest terms, it is the "language of business." However, in order to have an
understandable record, a standard set of rules for accounting within the U.S. has been
established. These rules are called the Generally Accepted Accounting
Principles (GAAP), and all U.S. businesses are expected to follow them.
Overview of the Accounting Cycle

When a transaction occurs, a document is produced. Most of the time, these documents
are external to the business, however, they can also be internal documents, such as inter-
office sales. These documents are referred to as a source document. Some examples of
source documents are:
 The receipt you get when you purchase something at the store.
 Interest you earned on your savings account which is documented in your
monthly bank statement.
 The monthly electric utility bill that comes in the mail.
Journal
Where these source documents mentioned above are then recorded.
It is also known as a book of first entry.
Records both sides of the transaction recorded by the source document. These
write-ups are known as Journal entries.
Journal Entries are then transferred to a Ledger.
Ledger
Is the group of accounts.

Ledger is also known as a book of accounts.
Its purpose is to bring together all of the transactions for similar activity. For example, if a
company has one bank account, then all transactions that include cash would then be
maintained in the Cash Ledger. This process of transferring the values is known
as posting.

Once the entries have all been posted, the Ledger accounts are added up in a process
called Balancing. (This will make much more sense when you learn about Debits and
Credits. Balancing implies that the sum of all Debits equals the sum of all Credits.)
A particular working document called an unadjusted trial balance is created.

This lists all the balances from all the accounts in the Ledger. Notice that the values are
not posted to the trial balance, they are merely copied.
At this point accounting happens. The accountant produces a number

of adjustments which make sure that the values comply with accounting principles.
These values are then passed through the accounting system resulting in an adjusted
trial balance. This process continues until the accountant is satisfied.
Financial statements are drawn from the trial balance which may include:
 the Income statement

 the Balance sheet
 the Cash flow statement
Finally, all the revenue and expense accounts are closed.
Debits and Credits
For the purposes of accounting, please forget what you know about credits and
debits. In accounting, debit (Dr.) and credit (Cr.) have nothing to do with plastic cards that
let you buy stuff. In fact, what most beginning accounting students need to know about
Dr/Cr can be boiled down to two sentences.
Debit is on the left. Credit is on the right.
How are debit and credit rules applied to different types of accounts?
DEBIT......NATURE OF A/Cs.......CREDIT
Increase.........ASSETS........Decrease
Decrease......LIABILITIES......Increase
Decrease.........REVENUE.......Increase
Decrease.........EQUITY........Increase

Increase........EXPENSES.......Decrease
Increase........DRAWINGS.......Decrease
In case of ASSETS and EXPENSES; increases go to the debit side, while

decreases go to credit side. On the other hand, in case of LIABILITIES, REVENUE and
EQUITY; increases go to the credit side and decreases go to debit side.
An account will have either a "normal credit balance" or a "normal debit

balance", depending on the type of account. The normal balance indicates which side of
the account the amount goes to when the account balance increases.
Debits and credits may be derived from the fundamental accounting equation.
They result from the nature of double entry bookkeeping. Two entries are made in each
balanced transaction, a debit and a credit. This allows the accounts to be balanced to
check for entry or transaction recording errors.
Example Journal - Page 1

Post
Date Description Dr Cr
Ref.
200
5 1 account1 350
Feb
account2 350
Owner's Equity = Assets - Liabilities is written from the perspective of the owner. In
accounting this is generally rewritten from the perspective of the business or commercial
entity the books detail:
Assets = Owner's Equity + Liabilities (Fundamental Accounting Equation)
Entries in the books are in pairs and track the advantage or asset of the company
simultaneously with the disadvantage or liability. In this view the Owner's equity is a claim
of the investor against the company.
 On the left side or Assets side of the Fundamental Accounting Equation:

 Transaction halves which increase the business assets are "debits" on the left side
of the equation.
 Transaction halves which decrease the business assets are "credits".
 On the right or balancing side or Owner's Equity + Liabilities:

 Transaction halves (i.e. the part of the transaction) that increase the Owner's
Equity are credits to the company books as they are claims of what the company
owes the owner or investor
 Transaction halves that decrease the Owner's Equity (dividends paid or loss
writeoffs) are beneficial to the company's future financial position by reducing
claims and are considered debits.
 Liabilities incurred by the business entity (which are tracked by the books) are
credits
 Liabilities reduced or paid off are debits.
Resources:
https://en.wikibooks.org/wiki/Accountancy/Introduction_to_Accountancy
http://www.investopedia.com/terms/o/obligation.asp#ixzz4fLxqIMjN

Audit System
Reporter: Talha D. Sarip
Auditing
Is the process of reviewing the financial information prepared by the management
of a company which is the financial statements and the footnotes. These documents are
then to be determined if it conforms to a particular standard that is an applicable financial
reporting framework.
it is also considered as an objective examination and evaluation of the financial
statements of an organization with the purpose to make sure that the records are a fair
and accurate representation of the transactions they prove to represent as.
It is a means of evaluation of the effectiveness of a company’s internal controls. It
is important to maintain an effective system of internal controls in order to achieve:
the goals of the company’s business
• to obtain reliable financial reports on its operations
• to prevent fraud and misappropriation of its assets
• Minimizing its cost of capital.
Audit system
Is both played a part by internal and independent auditors in different but
important manner.
Process of auditing
Can be done the company itself internally or externally by hiring auditors by an
outside firm.
Can also be done by the IRS or Internal Revenue Service, a public sector.
The person or persons who conduct the assessment follows a set of standards
which governs the person or the company being audited.

Auditing Standards
The three standard-setting organizations that are involved in establishing the
auditing standard are:
 Auditing Standards Board (ASB) of the American Institute of Certified
Public Accountants (AICPA)
 The Public Company Accounting Oversight Board (PCAOB)
 The International Auditing and Assurance Standards Board (IAASB) of
the International Federation of Accountants (IFAC)
Audit Evidence
Is the information used by the auditor to determine which audit
opinion to issue.
It includes the information in the
• accounting records, which contains the records of initial entries
• supporting documents such as checks, invoices, and contracts
• the company’s general and subsidiary ledgers.
Management is responsible for preparing the financial statements.

Auditor is responsible for gathering sufficient (enough), appropriate (relevant and
reliable) evidence to determine that management has prepared the
financial statements in accordance with the applicable financial reporting
framework.
The evidence gathered by the auditor can be described as one of three types:
• Substantive evidence that describes whether the transactions and balances
listed in the financial statements are presented fairly according
to the applicable financial reporting framework.
• Internal control evidence that determines whether internal controls can be
relied onto detect or prevent misstatements in the financial
statements

• Analytical procedure evidence that identifies changes from prior year financial
statements.
The 4 Phases in Auditing
1. Audit preparation
Consists of the preparation done ahead by interested parties, such as the auditor, the
lead auditor, the client, and the audit program manager, to ensure that the audit complies
with the client’s objective.
The preparation stage of an audit begins with the decision to conduct the audit.
Preparation ends when the audit itself begins.
2. Audit Performance
Also referred as fieldwork
It is the data-gathering portion of the audit and covers the time period from arrival at
the audit location up to the exit meeting.
It consists of activities including on-site audit management, meeting with the auditee,
understanding the process and system controls and verifying that these controls work,
communicating with team members, and communicating with the auditee.
3. Audit Reporting
It is where the communication begins.
Its purpose is to communicate the results of the investigation. The report should
provide correct and clear data that will be effective as a management aid in addressing
important organizational issues. The audit process may end when the report is issued
by the lead auditor or after follow-up actions are completed.
4. Audit follow-up and closure
By following the ISO standards, clause 6.7 of ISO 19011 continues by stating
that verification of follow-up actions may be part of a subsequent audit. “The audit is
completed when all the planned audit activities have been carried out, or otherwise

agreed with the audit client.” This phase is considered to be a part of a subsequent
auditing in which all the planned auditing to be done is finished.
Types of Auditing
1. External Audit (Financial Audit or Statutory Audit)

It involves the examination of the truth and fairness of the financial statements of
an entity by an external auditor who is independent of the organization in accordance with
a reporting framework such as the IFRS.
Company law in most jurisdictions requires external audit on annual basis for
companies above a certain size.
2. Internal Audit (Operational Audit)

It is performed by the employees of the organization who report to the audit
committee of the board of directors as opposed to external audit.
It is referred as a voluntary appraisal activity undertaken by an organization to
provide assurance over the effectiveness of internal controls, risk management and
governance to facilitate the achievement of organizational objectives.
3. Forensic Audit
It involves the use of auditing and investigative skills to situations that may involve
legal implications.
it may be required in the following instances:
• Fraud investigations involving misappropriation of funds, money
laundering, tax evasion and insider trading
• Quantification of loss in case of insurance claims
• Determination of the profit share of business partners in case of
a dispute
• Determination of claims of professional negligence relating to the
accountancy profession

• Findings of a forensic audit could be used in the court of law as
expert opinion on financial matters.
4. Public Sector Audit

It involves the scrutiny of the financial affairs of the state-owned enterprises to
assess whether they have been operated in way which is in the best interest of the public
and whether standard procedures have been followed to comply with the requirements in
place to promote transparency and good governance (e.g. public sector procurement
rules). It therefore goes a step further than the financial audit of private organizations
which primarily focuses on the reliability of financial statements.
5. Tax Audit
Are conducted to assess the accuracy of the tax returns filed by a company and
are therefore used to determine the amount of any over or under assessment of tax
liability towards the tax authorities.
6. Information System Audit

It involves the assessment of the controls relevant to the IT infrastructure within an
organization. Information system audits may be performed as part of the internal control
assessment during an internal or external audit.
It generally comprises of the evaluation of the following aspects of information system:

• Design and internal controls of the system
• Information security and privacy
• Operational effectiveness and efficiency
• Information processing and data integrity
• System development standards
7. Environmental & Social Audit

It involve the assessment of environmental and social footprints that an
organization leaves as a consequence of its economic activities.

Its need is increasing due to higher number of companies providing environment
and sustainability reports in their annual report describing the impact of their business
activities on the environment and society and the initiatives taken by them to reduce any
adverse consequences.
8. Compliance Audit
The company is required to conduct specific audit engagements other than the
statutory audit to comply with the requirements of particular laws and regulations.
9. Value for Money Audit

It involves the assessment of the efficiency, effectiveness, and economy of an
organization's use of resources.
It is increasingly relevant to sectors which do not have profit as their main
objectives such as the public sector and charities. They are usually performed as part of
an internal audit or public sector audit.
Reference:
 ASQ, The Global voice of Quality, 2017, http://asq.org/learn-about-

quality/auditing/
 Accounting-Simplified.com, 2017, http://accounting-
simplified.com/audit/introduction/types-of-audits.html
 ACCA Think Ahead, Audit Procedure, 10 Aug 2015,
http://www.accaglobal.com/ng/en/student/exam-support-resources/fundamentals-
exams-study-resources/f8/technical-articles/audit-procedures.html
 Investopedia, Audit, 2017,http://www.investopedia.com/terms/a/audit.asp

Supply Management
Reporter: Chaand K. Ebos
Supply Management or Property Custodianship refers to the guardianship of

government property by the person accountable. This includes the receipt of supplies,
materials and equipment, the safekeeping, issuance, repair and maintenance. Likewise,
it includes the accountability, responsibility and liability of accountable or responsible
officers arising from loss, misuse, damage or deterioration of government property due to
fault or negligence in the safekeeping. It may be physical/actual or constructive.
ACCOUNTABILITY, RESPONSIBILITY AND LIABILITY FOR GOVERNMENT

PROPERTY
Accountability
The Glossary of Terms for State auditors defines Accountability as “a person’s
obligations to carry out responsibilities and be answerable for decisions and activities.”
Every officer of government, whose duties permits or requires the possession or

custody of funds and property, is accountable and responsible for the safekeeping
thereof. He is liable for all losses resulting to the unlawful, improper deposit, use or
application thereof and attributable to negligence in the keeping of the same. Other officer
though not accountable may likewise be similarly held accountable and responsible
through their participation in the use or application thereof.
On the other hand, the head of the agency is immediately and primarily responsible
for funds and property pertaining to his agency.
Accountable – Answerable or one whose duties permit or require possession or custody

of funds and property such as the cashier, collecting/ disbursing officer, treasurer,

property or supply officer and other persons though not accountable may be held
accountable by virtue of their participation on a particular transaction.
Accountable Officer is any officer or employee of the government who by reason of his
office or duties is required or is permitted to have custody of public funds or property.
The Accountable Officer shall maintain and keep records of his property
accountability and shall render accounts as prescribed by the Commission. The Head of
the Agency may designate such number of property officer or agents as maybe deemed
necessary. Upon appointment or designation he/she must be properly bonded with the
Bureau of Treasury Fidelity Fund.
Responsibility
The acceptance of assigned authority and the obligation prudently to exercise
assigned or imputed authority attaching to the assigned or imputed role of an individual
or group participating in organizational activities or decisions.
Officers covered –
 Officers, who by reason of their office or duty, ought to be or are deemed to be in
possession or custody of government funds and property
 Persons entrusted with the actual possession or custody of government funds or
property
 Head of the agency
Primary and Secondary Responsibility

The head of any agency in the national sector is immediately and primarily
responsible for all government funds and property pertaining to his agency and the
persons entrusted with the possession or custody of the funds or property under the
agency head shall be immediately responsible to him without prejudice to the liability of
either party to the government. (Sec. 104, PD 1445).

The heads of any agency, or instrumentality of the (a) national government, or (b)
any government-owned or controlled corporation, and (c) any other self-governing board
or commission of the government are the officers who are made responsible for the
supervision and control of accountable officers. If they fail to exercise the diligence of a
good father of a family in the supervision of their subordinates who are accountable
officers, they are jointly and severally liable together with such accountable officer.
Liability
Refers to the obligation that arises as a consequence of an illegal or improper act

or the non-performance of what one is mandated to do.
Such obligation generally comes in the nature of penalty but it could be in the form
of a fine, administrative punishment, imprisonment, or a combination of these.
 The Accountable Officer is generally liable for the improper or unauthorized use or
misapplication of property, by himself or any person for whose acts he may be
responsible, and for the loss, damage, or deterioration thereof thru negligence,
whether or not it be in his actual custody at the time.
It is therefore the implied duty of the Accountable Officer to carefully choose the person
upon whom to entrust physical custody/possession of property for which he is
accountable.
 Measure of Liability – “Money Value” - The Fair market Value of the equipment will be
chargeable to the officer or employee less some allowance for depreciation.
 An Accountable officer is secondarily liable and a superior primarily liable for an illegal
act done by the former under the direction of the latter.

If the Accountable Officer gave written notice of his objections to the superior’s directive
and the latter insists, he/she is relieved of liability and the superior becomes solely liable.
BONDING OF ACCOUNTABLE OFFICERS

Treasury Order No. 01-95
Immediately after appointment/ designation of the accountable official to a bonded
position he/she shall notify the Bureau of Treasury, fiscal examiner by accomplishing
general form No. 57(A) which requests for application, increase, decrease, reduce, cancel
or transfer of a bond shall be duly signed by the head of the agency.
BOND – An undertaking that is sufficiently secured. A bondable officer is one whose

duties permit or require the custody of funds or property for which he is accountable.
An officer whose fidelity is insured in the fidelity fund shall, from the moment he
assumes the duties of office, be considered bonded to the government for the benefit of
whom it may concern for the faithful performance of all duties imposed by law upon him
and for the faithful accounting for all funds and public property coming into his possession,
custody or control by appropriation, collection, transfer or otherwise, as well as for the
lawful payment, disbursement, and expenditures or transfer of all such funds or public
property in his custody or possession under his control as accountable or responsible.
TRANSFER OF PROPERTY ACCOUNTABILITY
Transfer of Accountability for government property may occur under the following
situations:
 When property is no longer serviceable or no longer needed is transferred from one
agency to another without cost or at appraised value.
 When property is transferred from one accountable officer to another or from an
outgoing officer to his successor. The former officer shall secure clearance for
property accountability.

In case of change of accountable officers, transfer of property shall be effected through
Invoice Receipt for Property.
INSURANCE OF GOVERNMENT PROPERTY
The Agency Head has the responsibility to insure government property under the
Property Insurance Fund administered by the GSIS.
Agencies covered are Departments, Commissions, Boards, Bureaus, Officer of the
National and Local Governments, EXCEPT Municipal Governments below 1st class,
Government Owned or Controlled Corporations and their subsidiaries/ affiliates, and
Acquired Assets Corporations.
Properties covered are all insurable assets, contracts, rights of action and other
insurable risks to protect the government against property losses.
LOSS OF GOVERNMENT PROPERTY

When loss of government funds or property occurs while they are in transit or the
loss is caused by fire, theft, or other casualty or force majeure, the officer accountable
therefor or having custody thereof shall immediately notify the Commission, the auditor
concerned and within thirty (30) days or such longer period as the Commission or auditor
may in the particular case allow, shall present his application for relief, with the available
supporting evidence. Whenever warranted by the evidence, credit for the loss shall be
allowed. Any officer who fails to comply with the requirement shall not be relieved of
liability or allowed credit for any loss in the settlement of his accounts. (Sec. 73, PD 1445)
STORAGE, WAREHOUSING AND INVENTORY TAKING
Storage
This refers to the scientific and economical receipt, warehousing and issue of materials
for their best safekeeping and rapid availability.

Warehousing
Procedures in Warehousing
 Receipt of Materials and Equipment and Other Property
Supplies, materials and equipment delivered by the supplier must be accompanied by

a Delivery Receipt (DR) and/or Sales Invoice (SI), which are pre-inspected by the
property/supply officer before the items delivered are accepted.
 Arrangement of Materials
The warehouseman/ storekeeper arranges the materials inside the
warehouse/stockroom in accordance with the storage plan using the right materials
handling equipment.
 Recording of Receipts/Deliveries
The warehouseman/storekeeper posts the information taken from the Inspection and
Acceptance Report (IAR) (Appendix 9-3) in the bin card. This information should
reconcile with either the SAI, PR, PO, DR and the stock/property card maintained by the
stock/property clerk with the stocks and the bin card. The receipts, issues and balances
on hand must be properly posted and kept updated.
 Reconciliation of entries of bin cards with Stock/property Cards and with Physical
count of stocks on hand.
All should be current and properly updated.

 Care of Materials
It is the responsibility of the warehouseman to see to it that materials are maintained

in such condition most suitable for use.

“Due care” is the amount of care and attention which an official or employee would
reasonably give to his private property, considering all the attending circumstances.
Inventory Taking
Is an indispensable procedure for checking the integrity of property custodianship.
The physical stock - taking of equipment and supplies serves as a basis for preparing
accounting reports. At the end of each quarter the Accounting and the Supply/ Property
Unit should reconcile their records.
The chief of agencies, are required to take a physical inventory of all the equipment
and supplies of their respective offices at least once a year. Supplies and materials in
stock, including medicines, drugs and medical supplies exclusively for either commissary,
sale, manufacture or relief purposes should be inventoried at least every six (6) months
as of June 30 and December 31 of each year.
PROPERTY REPAIR AND MAINTENANCE
The Repairs and Maintenance Program

The repairs and maintenance program is necessary for the purpose of attaining
and/or extending the established standard economical and useful life of an
equipment/property and serves as a sound basis for scheduling its replacement.
The program shall include policies on how government property will be properly
maintained. It should also provide a system to retain properties/ equipment in serviceable
condition or to restore them to serviceability when they are economically repairable.
The Property Unit of the Agency shall maintain a Property/Equipment Card, which
contains the history of the equipment owned and maintained by the agency. He/She shall
regularly review the records to ensure that the needs for repairs and/or replacements are
addressed immediately.
Source: Property Supply and Management System (PSMS) Handbook

Budgeting Process
Reporter: Rohaidah S. Maruhom
THE BUDGETING PROCESS

A national budget is the budget of our country, which is a printed estimate of
projected revenue and expenditures during a definite period of time. It is is the allocation
of public funds to achieve the economic and social objectives of the country. It also
requires the management of government expenditures to generate the most influence
from the production and distribution of goods and services.
As we all know, budgeting is the process of estimating the revenue the government
anticipates that it will generate and the expenses it will incur. Government budgeting is
important because it permits the government to organize and manage its financial assets
to upkeep the implementation of various programs and projects that promotes the
progress of our country. Through the budget, the government can prioritize and positionits
action plans, programs and policies within the limits of its financial capability.
Budget Cycle
Budgeting for the national government involves four (4) distinct phases: budget
preparation, budget legislation or authorization, budget execution or implementation and
budget accountability. It is said to be a budget cycle because while distinctly separate,
these processes overlap in implementation during a budget year. Budget preparation for
the next budget year proceeds while government agencies are executing the budget for
the current year. At the same time, the state is engaged in budget accountability as it
reviews the past year's budget.
i. Budget Preparation
The budget preparation phase begins with the Development Budget Coordination
Committee (DBCC). It is headed by the DBM Secretary and its members are the
Secretary of Finance, the NEDA Director-General, and the Bangko Sentral Governor, with
the Office of the President for general oversight.

The NEDA are responsible forthe over-all macro-economic assumptions with which
budgetary levels are to be determined. They comprisethe projected Gross National
Product (GNP) real growth rates, inflation rates, 91-day Treasury bill rates, the London
Interbank Offered Rates (LIBOR) rates, foreign exchange rates, population growth, and
other economic parameters.
The Department of Finance (DOF), the Bureau of the Treasury, the Bureau of Internal
Revenue and the Bureau of Customs supportthe DBCC in defining the sources of
financing. They project the revenues that will be generated for the budget year as well as
the borrowings that may have to be tapped.
The DBCC determines the overall economic targets, expenditure levels, the revenue
projection, deficit levels and the financing plan that will be submitted to the President and
the Cabinet for approval.
Once these are approved, the DBM will then issue Budget Call. This requires agencies
to prepare their budgets in accordance with the said guidelines, macro-economic
assumptions, and ceilings. The DBM spells out guidelines, procedures, and timetables.
Agencies commence their own internal conferences. They classifyprograms, projects

and activities using the capital budgeting approach. Then they present their budget
estimates, according to their priorities and those of the national government under the
Medium term Public Investment Program (MTPIP).
Then, the DBM will conducttechnical budget hearings whereinagencies defend and
justify their proposals. Organizational and budgetary issues are clarified. The proposed
expenditure programs are confirmed by the agency heads. The DBM consolidates the
budget proposals and then submits them to the Cabinet where the budget is discussed
with the President.

Once it has been approved by the President and the Cabinet, the President submits
it to the Congress. This must be done not more than thirty days after the opening of its
regular session, as required under the Constitution. The budget preparation stage is
guided by budget calendar.
ii. Budget Legislation
The President submits to Congress the National ExpenditureProgram (NEP), the

Budget of Expenditures and Sources ofFinancing (BESF), and the President's Budget
Message. The BESF is the document which reflects the annual budget and the estimates
and sources of financing. The document is presented by the Executive branch to the
Legislative branch.
The proposed budget is first reviewed by the Committee on Appropriations of the

House of Representatives. The Committee summons the agencies to justify their budgets,
with the DBM assisting and providing technical inputs. The Appropriations Committee
then presents to the House body the proposed budget and passes it at the Third Reading.
This then goes to the Senate Finance Committee for another round of hearings and
deliberations. The Committee presents the proposed amendments to the House Budget
Bill to the Senate for approval.
Then a Bicameral Conference Committee, composed of members of both Houses, is

convened to resolve differences. The committee arrives at a common version, and it is
then submitted to the President. If there are items which he/she disagrees with, then the
President can exercise line-item veto power. The President then signs it into law as the
General Appropriations Act.
The law contains the new appropriations in terms of specific amounts: for salaries,
wages and other personnel benefits; for maintenance and other operating expenses; for
capital outlays, all authorized to be spent by the government for a given year. The

approved budget becomes effective on the first day of the budget year concerned, or
when it is signed by the President, whichever comes later.
iii. Budget Execution
It is at the budget execution stage that the expenditure program is implemented.

Allotments are issued, chargeable against the regular agency budgets. It is also at this
stage where agencies may submit requests to avail from SPFs. Agencies are often
required to submit additional reports and documents to support their requests.
Sample In 2001, the Congress failed to pass the FY 2001 budget, thus the FY 2000
GAA was automatically reenacted.
Cash releases are made to agencies to cover obligations that are current or carried
over from the previous year. However, not all allotment releases require the issuance of
Notice of Cash Allocation releases or NCAs. Examples of these are debt service, customs
duties and taxes, the conversion of liability to equity, or the subsidy to government
corporations. The Cash Release Program is also based on actual obligations of an
agency, as reported in the quarterly trial balance submitted to DBM. Hence, it will not
issue NCAs for unobligated balances of allotments.
Budget implementation
Budget implementation starts with the release of funds to the agencies. To

accelerate the implementation of government programs and projects, and to ensure the
judicious use of budgeted government funds, the government adopted the Simplified
Fund Release System (SFRS) starting 1995.
In contrast to the previous system of releasing funds based on individual agency

requests, the SFRS standardized the release of funds across agencies which are similarly
situated in line with specific policy initiatives.

Following the SFRS, DBM requires the submission of individual agency budget
matrix (ABM) at the beginning of each budget year, upon approval of the annual General
Appropriations Act. The ABM is a disaggregation of all the programmed appropriations
for each agency into various expenditure categories. As such, the ABM serves as a
blueprint which provides the basis for determining the timing, composition and magnitude
of the release of the budget.
Based on updated resources and economic development thrusts, and consistent

with the cash budget program, the Allotment Release Program (ARP) is prepared. It
prescribes the guidelines in the prioritization of fund releases.
In previous years, the ARP serves as basis for the issuance of either a General
Allotment Release Order (GARO), or a Special Allotment Release Order (SARO). Both
authorize agencies to incur obligations. The GARO was subsequently replaced by the
_what you see is what you get_ policy or WYSIWYG. Currently, DBM no longer adopts
the WYSIWYG instead authorizes the incurrence of obligations through the approval of
the different ABM.
Subsequently, DBM releases the Notice of Cash Allocation (NCA) on a monthly or

quarterly basis. The NCA specifies the maximum amount of withdrawal that an agency
can make from a government bank for the period indicated. The Bureau of the Treasury
replenishes daily the government servicing banks. The replenished funds are equivalent
to the amount of negotiated checks presented to the said banks by implementing
agencies.
The release of NCAs by DBM is based on:

1) the financial requirements of agencies as indicated in their ABMs, cash plans, and
reports, such as the Summary List of Checks Issued (SLCI); and
2) the cash budget program of government and updates on projected resources.

Agencies utilize the released NCAs following the _Common Fund_ concept. Under this,
agencies are given maximum flexibility in the use of their cash allocations. The proviso is
that the authorized allotment for a specific purpose is not exceeded. Projects thus run
faster.
iv. Budget Accountability
The accountability phase is the final phase of the budget process. This is when the
agencies report their actual physical and financial performance. The assessment of the
physical achievements of an agency is aided by performance indicators. These are
yardsticks for determining how well an agency has accomplished its objectives.They
measure outcome, output, process efficiency and client satisfaction. They may be
quantitative or qualitative in nature.
At this phase, the Commission on Audit (COA) figures prominently in the assessment
of agency performance. The COA is the government body tasked with looking at the
legality, propriety and accuracy of government financial transactions. The COA has
auditors assigned to each government agency and it has regional offices to review these
transactions. Those that are considered excessive, inappropriate or illegal are not passed
in audit. COA can recommend means for setting them right, if such is still possible.
Trial balances of agencies, which are submitted to DBM and COA on a quarterly and
annual basis, report how agencies use up their allotments and cash allocations.

BUDGET FLOW OF DEPARTMENT OF AGRARIAN REFROM
SULTAN KUDARAT
Reporter: Joseph Alvin C. Constantinopla and Charles Jacon J. Geneza
Brief History of the Department and the Provincial Office
The land reform in the Philippines had its beginnings in 1963, when Section 49 of
Republic Act (RA) 3844, or the Agricultural Land Reform Code was enacted, more
specifically on August 8, 1963. This necessitated the creation of the Land Authority. This
was considered to be the most comprehensive piece of agrarian reform legislation ever
enacted in the country that time. The RA No. 3844 was considered as such because this
Act declares share tenancy unlawful in the Philippines. It prescribed a program converting
the tenant farmers to lessees and eventually into owner-cultivators. Moreover, it aimed to
free tenants from the bondage of tenancy and gave hope to poor Filipino farmers to own
the piece of land they are tilling.
On September 10, 1971, Ferdinand E. Marcos signed RA 6389, otherwise known

as the Code of Agrarian Reform of the Philippines into law. Section 49 of this Act
mandated the establishment of a new self-contained department, the Department of
Agrarian Reform, and this effectively replaced the Land Authority. In 1978, under the
parliamentary form of government, the DAR was renamed the Ministry of Agrarian
Reform. On July 26, 1987, the Department was re-organized structurally and functionally
through Executive Order (EO) No. 129 and 129-A. In 1988, in answer to the call that the
previous agrarian law does not cover all agricultural farmworkers, Republic Act No. 6657,
otherwise known as Comprehensive Agrarian Reform Law (CARL) was signed into law
covering all agricultural lands under the coverage of Comprehensive Agrarian Reform
Program (CARP). It is an Act instituting a CARP to promote social justice by equitably
redistributing agricultural lands and industrialization. RA 6657 also provided the
mechanism for its implementation. It was signed into law by President Corazon C. Aquino
on June 10, 1986.

On September 27, 2004, President Gloria Macapagal-Arroyo, signed Executive
Order No. 364, and the Department of Agrarian Reform was renamed to Department of
Land Reform. This EO also broadened the scope of the Department, making it
responsible for all land reform in the country. It also placed the ownership of ancestral
domain by indigenous peoples also became the responsibility of this new department.
On August 23, 2005, President Arroyo signed Executive Order No. 456 and
renamed the Department of Land Reform back to Department of Agrarian Reform, since
“the Comprehensive Agrarian Reform Law goes beyond just land reform but includes the
totality of all factors and support services designed to uplift the economic status of the
beneficiaries”.
The present administration of President Rodrigo R. Duterte, the DAR being the
lead agency for CARP implementation is bent on sustaining the gains of agrarian reform
through its major components- Land Tenure Improvement (LTI), Program Beneficiaries
Development (PBD) and Agrarian Justice Delivery (AJD).
Together with the efforts to fight graft and corruption by the President, it is
imperative to have institutional reforms within DAR structure as a complement to the
above-mentioned DAR components, giving credence, transparency and accountability at
all sectors of the DAR bureaucracy.
DAR with a Provincial Office at Impao, Isulan, Sultan Kudarat serves 11

municipalities and two cities with a total LAD scope of 186,183.2711 hectares. From 1988
to present, PARO-Sultan Kudarat delivers and sustains its programs and services through
the leaderships of the following: Mangorangca D. Mangumpara in the year 1986,
distributed an area of 7, 875.8127 hectares, next is PARO Kamar M. Mindalano in year
1987-1989 with an area of 4,745.6277 hectares, PARO Everard F. Lilangan in the year
1990-1993 with an area of 31,945.1544 hectares followed by PARO Marion Y. Abella in
the year 1994-1998 accomplished and distributed an area of 43,191.3454 hectares. On
the year 1998-2001, it distributed 16,610.2515 hectares under then PARO Ismael
Laguindab. A total of 41, 213.2715 hectares of land was distributed in the year 2002-

2012 under PARO Aaron D. Arumpac. In January 2013 to present, it distributed
28,414.6169 hectares under the leadership of PARO Rodolfo T. Alburo.
In spite of the various CARP balance validations made through MASTERLISTING,

LISTASAKA, CARP Scope Validation, Inventory of CARP Scope, and the establishment
of CARPER LAD Balance Database, the areas of the balances to be covered were not
yet firmed up, DAR Sultan Kudarat management recognized the urgency to lay down
operational plans and strategies to achieve the target expected by the Department. To
date, DAR Sultan Kudarat has distributed a total of 172,542.9654 hectares constituting
92.67 % of the total target.
At present, DAR Sultan Kudarat continuously strives to work for the remaining 7.33
% of its target, having in mind the administration’s thrust and policy direction, to protect
the rights and welfare of the farmers, ensuring their security of tenure without depriving
the landowners of their right to due process of law and to just compensation.
More than just achieving the numerical target, however, it is also the desire of DAR
Sultan Kudarat to extend quality services to the clients and other stakeholders. To make
sure that same desire is achieved, DAR Sultan Kudarat applied for ISO 9001:2015.
DAR LOGO AND MEANING
The Philippines' Department of Agrarian Reform (Filipino:

Kagawaran ng Repormang Pansakahan, abbreviated asDAR or
KRP) is the executive department of the Philippine Government
responsible for the redistribution of agrarianland in the Philippines.

ORGANIZATIONAL CHART
USEC
REGIONAL AGRARIAN
REGIONAL DIRECTOR REFORM ADJUDICATOR
(RARAD)
PROVINCIAL AGRARIAN PROVINCIAL AGRARIAN

REFROM PROGRAM REFORM ADJUDICATOR
OFFICER II (PARAD)
(PARPO II)
PROVINCIAL AGRARIAN
REFROM PROGRAM
OFFICER I
(PARPO I)
CARPO CARPO PCAO LEGAL CHIEF DARAB

PBD LTS STOD ALS
MARPO MARPO
MARPO MARPO MARPO MARPO MARPO MARPO MARPO MARPO MARPO MARPO MARPO
TACURONG SEN. NINOY
KALAMANSIG COTABATO ISULAN PRES. QUIRINO LAMBAYONG ESPERANZA COLUMBIO BAGUMBAYAN LEBAK LUTAYAN PALIMBANG
AQUINO
PROVINCIAL OFFICE
SUPPORT TO PROGRAM LAND TENURE LEGAL DIVISION

BENEFECIARIES
OPERATIONS SERVICES DIVISION
DEVELOPMENT
DIVISION DIVSION
PERSONNEL
SECTION

RECORDS SECTION
GENERAL SERVICES
SECTION
PLANNING
SECTION
BUDGETING
SECTION
ACCOUNTING
SECTION
CASHIRING
SECTION
BUDGET PROCESS
MDS 101 (MODIFIED DISBURSEMENT SYSTEM)
SERVICING OF GOVERNMENT'S MODIFIED DISBURSEMENT SCHEME (MDS)
Sub-accounts maintained by different government agencies the funding for which
comes from the Department of Budget and Management (DBM) in the form of Notice of
Cash Allocation (NCA). Withdrawals there from are government disbursements made by
agencies thru issuance of MDS checks accompanied by Advice of Checks Issued and
Cancelled (ACIC). These are replenished by the Bureau of the Treasury (BTr) on a day
to day basis.

MDS 101
MOOE
PS (MAINTENANCE AND OTHER
(PERSONEL SERVICES) OPERATING EXPENSES)
SALARIES AND PERA, RATA,

WAGES CLOTHING, BONUSES GAS
(GENERAL ADMINISTRATION
AND SUPPORT)
FIXED PERSONNEL HDMF, PHIC,
EXPENDITURE ECC, GSIS
OTHER PERSONNEL LUMP-SUM ARIE (AGRARIAN REFORM

BENEFIT INCREMENT INFORMATION AND
EDUCATION)
HRD(HUMAN RESOURCE
DEVELOPMENT)
MFO 1
(AGRARIAN POLICY ADVISORY SERVICES)
MFO 2
(LAND TENURE SERVICES)
MFO 3
(AGRARIAN LEGAL SERVICES)
MFO 4
(TECHNICAL ADVISORY
SERVICES)

MFO1: AGRARIAN POLICY
ADVISORY SERVICES
- Policy Research
- Formulation and PARCCOM
MFO 2: LAND TENURE SERVICES
- Land Acquisition and Distribution (LAD)

- Claim Folder Preparation and Documentation
- Survey Expense
- Land Valuation
- EP/CLOA Registration
- Leasehold Operations
- Land Tenure Sustainability Program
- Subdivision of Collective CLOA
- Documentation of DNYD and DNYP Ladis
- Preparation of Land Acquisition and Distribution Information System
MFO 3: AGRARIAN LEGAL SERVICES
- Adjudication of Legal Services

- Resolution of Agrarian Law
- Implementation Cases (ALS)
- Provision of Agrarian Legal Assistance
MFO 4: TECHNICAL ADVISORY SERVICES
- Programming and Development of AR Beneficiaries, Organization.

- Support Services for Agrarian Reform Beneficiaries.
- Social Infrastructure and Local Capacity Building (SILCAB)

- Access Facilitation and Access Enhancement Services (AFAES)
- Partnership Development
 Agrarian Production Credit Program (APCP)
 Social Entrepreneurship
 Agrarian Community Connectivity and Economic Support System
(ACCESS)
 DAR-CDA
- Support Services for Rural Women
- Support Services for Landowners
- PAMANA-ARA Payapa at Masaganang Pamayanan-Agrarian Reform
NATIONAL ASSESSMENT
BUDGET FORMULATION
N.E.P. (NATIONAL EXPENDITURE PROGRAM)
B.E.D. 1 B.E.D. 2 B.E.D. 3

MONTHLY OBLIGATION WORK AND FINANCIAL MONTHLY
GROSS PLAN DISBURSEMENT (NET)
ENCODED TO URS
(DBM WEBSITE)
GAA (GENERAL
APPROPRIATE ACT)
DAR-CO ISSUES S.A.R.O.

(SUB ALLOTMENT
RELEASEORDER)
DAR-RO XII SERVES THE

ALLOTMENT

Major Sources of Revenue of the Municipality of Isulan,
Sultan Kudarat
Reporter: Kristine Ivy D. Pensader & Annalou S. Durana
Isulan, officially the Municipality of Isulan
 is a 1st class municipality in the province of Sultan Kudarat, Philippines.

 It is the provincial capital of Sultan Kudarat.
 According to the 2015 census, it has a population of 90,682 people
 Mayor: Marites Pallasigue
 Total Area: 541.25 km2 (208.98 sq mi)/ 54,125 hectares (133,750 acres)
 Electorate: 47,941 voters as of 2016
 Average Annual Income: P 55 M or more
Geography
Isulan is centrally located and is accessible to all neighboring towns not only within the
province of Sultan Kudarat but also in some municipalities of the province
of Maguindanao, South Cotabato and even that of Davao del Sur. It is bounded on the
north by the municipality of Esperanza, north-east by the municipality of Lambayong; on
the east by Tacurong; on the south by the municipalities of Bagumbayan and Sen. Ninoy
Aquino; on the southeast by the municipality of Norala, South Cotabato, and Santo Niño,
South Cotabato; and on the west by the Municipalities of Lebak and Kalamansig.
Barangays
Isulan is politically subdivided into 17 barangays.

 Bambad  Kenram (Kansai)  Tayugo
 Bual  Kolambog
 D'Lotilla  Kudanding
 Dansuli  Lagandang
 Impao  Laguilayan
 Kalawag I (Urban)  Mapantig
 Kalawag II (Urban)  New Pangasinan
 Kalawag III (Urban)  Sampao

Retail stores
• Isulan Central Plaza
• Novo
• MGM Commercial
• Valencia Dry Good Store
• Sky Commercial
• Happy Commercial
• CityMall (Under construction)
Banking institutions
• Land Band
• Philippine National Bank
• Metro Bank
• One Network Band
• BDO
• RCBC
• Pen Bank
Tourism
• Sultan Kudarat Provincial Capitol
• Lagandang Hot Spring/Sulphur Spring
• Kamanga Cave and Falls
• Barangay Bual [Baton Falls] more or less 1 hour from barangay proper
• Daguma Mountain range
• LandMark of The Royalty
Economy
 Major Products/Crops: Rice, banana & oil palm; Coconut Plantation

 OTOP (One Town, One Product): Banana - Fresh and Processed
 Product Background: Processed Banana: made from banana fruit abundantly grown
in the municipality.
 Product Description: Processed Banana product from Isulan, Sultan Kudarat are
products using banana fruit as the primary raw material.
 Product Lines: Banana Chips, Pastillas, Banana Catsup, Vinegar
 Product History: Processed banana in Isulan, Sultan Kudarat started in October 2007
when a group of banana growers and housewives attended training on Banana
Processing held in Isulan. The said training was facilitated by a trainer from
Department of Science and Technology Regional Office. It was conducted in
101 | PA 241 Introduction to Public Administration/ 1 st Year-MPA 2nd Semester

cooperation with the Local Government of Isulan, Department of Trade and Industry-
Sultan Kudarat and Department of Science and Technology-Sultan Kudarat
 Performance: Sales Since the product is less than a year in the market, average sales
is P10,000. per month. This is based on the monthly report monitored by DTI. Sales
on months with trade fairs and product exhibit could reach up to P20,000.
 Market: Processed banana are mostly sold locally. An upgrading training specifically
on product quality for a more competitive product in the market had been conducted
recently.
 Annual Production volume: All banana processors in Isulan was organized to one firm
which is now the Banana Processors of Isulan. Support group who supplies the raw
material (banana fruit) are yet to be institutionalized.
 Potentials of OTOP: Income generation for the people of Isulan; Improve product
quality and packaging and labeling design of the product to capture wider market.
 OTOP SMEs (Small and Medium Enterprises) in the town: There is one association
in the municipality of Isulan, the Banana Processors of Isulan which is yet to be
institutionalized. It is composed of 25 members/processors.
Retail stores
 Isulan Central Plaza
 Novo
 MGM Commercial
 Valencia Dry Good Store
 Sky Commercial
 Happy Commercial
 CityMall (Under construction)
Banking institutions
 Land Band
 Philippine National Bank
 Metro Bank
 One Network Band
 BDO
 RCBC
 Pen Bank
Festival
Every month of August 30, the municipality of Isulan is conducting the HAMUNGAYA
FESTIVAL to celebrate its Foundation Anniversary. ISULANONS believe that the wealth
of arts and culture is expressed in many forms and in so many kinds. The HAMUNGAYA
Festival showcases the skills and talents in literary, musical and cultural aspects of the
constituents both the young and the old. It is not only unique but is reflective of a special
talent in the person as well.
The HAMUNGAYA also depicts the thanksgiving festival of its residents who are mostly
engaged in agriculture. This includes rice and corn farming, vegetables and crops
production including the famous African palm which has contributed a lot to the utilization
of its by-products as construction materials – the uniquely woven ”kalakat” known all over
Mindanao.
The festival is divided into two parts: the first part shows the different activities being done
in the farm. After which a thanksgiving is performed for their good harvest. The second
part shows the merrymaking in the form of dance using different properties and materials
that make it very festive.
As a whole, the HAMUNGAYA Festival actually expresses life itself or deep-seated

emotion communicated by the emotions of the human body blending with the music. The
flow of body movements, the sound of the music and the grace with which the dance is
executed all build up the story or emotions being communicated.
No doubt, this is a unique form of art, and along with other activities or talent being
displayed during festivities, it is a contribution to the dreams of establishing solidarity
among the peoples in the province of Sultan Kudara
Tourism
 Sultan Kudarat Provincial Capitol

 Lagandang Hot Spring/Sulphur Spring
 Kamanga Cave and Falls
 Barangay Bual [Baton Falls] more or less 1 hour from barangay proper
 Daguma Mountain range
 LandMark of The Royalty
Healthcare facilities
 Isulan Doctor's Specialist Center

 Holy Nazarene Clinic and Hospital
 Galinato Hospital

 Sultan Kudarat Provincial Hospital
Education
Privately run academic schools
 Castillo Technological Development Academy, Inc. (CTDAI)

 Green Valley College Foundation, Inc. (Isulan Campus)
 The Notre Dame of Isulan, Inc. High School Department- Day Class
 The Notre Dame of Isulan, Inc. High School Department- Night Class
 Isulan Community School formerly Isulan Baptist Learning Center
 Montessori Learning Center Inc.(Isulan Campus)
 Diadem Christian School
 Precious Ones Learning Center
 King's College of Isulan - formerly Kalawag Institute
 King David Academy
 Zion Learning Institute
Government-run schools
East Isulan District Elementary School
 Kalawag Central Elementary Schooltary School

 Kalawag III Elementary School
 Villa Clara Elementary School
 Bonita Elementary School
 Arsenio Elementary School
Central Isulan District Elementary Schools
 Isulan Central Elementary School

 P.C. Bayanihan Elementary School
 Don Juan P. Garcia Memorial Elementary School
 Dansuli Elementary School
 Impao Elementary School
 Datu Talipasan Memorial Elementary School
 Mapantig Elementary School
South Isulan District Elementary Schools
 Maremco Elementary School

 Bambad Central School

 Genzola Elementary School
 Kolambog Elementary School
 Kudanding Elementary School
 San Martin Elementary School
West Isulan District Elementary Schools
 Laguiyalan Central School

 Kamanga Elementary School
 New Egana Elementary School
 D. Lotilla Elementary School
 Tayugo Elementary School
 New Pangasinan Elementary School
 Bual Elementary School
 Lagandang Elementary School
 Mantisao Elementary School
Public Secondary Schools
 Isulan National High School

 Bambad National High School
 Laguilayan National High School
 New Pangasinan High School
 Sultan Ali Akbar Sinenggayan High School
Government Owned Tertiary Institution
 Sultan Kudarat State University (formerly Sultan Kudarat Polytechnic State College)
– Isulan Campus
 Mindanao State University - Sultan Kudarat (Graduate School only)
Income Classification for Provinces, Cities and Municipalities
(Based on Department of Finance Department Order No.23-08 Effective July 29, 2008)
Provinces
Class Average Annual Income
First P 450 M or more

Second P 360 M or more but less than P 450 M
Third P 270 M or more but less than P 360 M
Fourth P 180 M or more but less than P 270 M
Fifth P 90 M or more but less than P 180 M
Sixth Below P 90 M
Cities
Below P 80 M
Sixth
Municipalities
Sixth Below P 15 M
Urban/Rural Classification
In the Philippines, urban areas fall under the following categories:
1. In their entirety, all municipal jurisdictions which, whether designated chartered cities,
provincial capital or not, have a population density of at least 1,000 persons per square
kilometer: all barangays;

2. Poblaciones or central districts of municipalities and cities which have a population
density of at least 500 persons square kilometer;
3. Poblaciones or central districts not included in (1) and (2) regardless of the
population size which have the following:
 street pattern or network of streets in either parallel or right angel orientation;

 at least six establishments (commercial, manufacturing, recreational and/or
personal services);
 at least three of the following:
o a town hall, church or chapel with religious service at least once a month;
o a public plaza, park or cemetery;
o a market place, or building, where trading activities are carried on at least once a
week;
o a public building, like a school, hospital, puericulture and health center or library.
4. Barangays having at least 1,000 inhabitants which meet the conditions set forth in (3)
above and where the occupation of the inhabitants is predominantly non-farming or
fishing.
RURAL AREAS
All poblaciones or central districts and all barrios that do not meet the
requirements for classification of urban.
The Philippines is administratively divided into 81 provinces (Filipino: lalawigan). These,

together with the National Capital Region, are further subdivided
into cities (Filipino: lungsod) and municipalities (Filipino: bayan).
Cities are classified under the Local Government Code of 1991 (Republic Act No. 7160)
into three categories: highly urbanized cities, independent component cities, and
component cities. Cities are governed by their own municipal charters in addition to the
Local Government Code of 1991, which specifies their administrative structure and
powers. They are given a bigger share of the Internal Revenue Allotment (IRA) compared
to regular municipalities.
As of June 2016, there are 145 cities (35 highly urbanized, 5 independent
component, 105 component) and 1,489 municipalities encompassing the entire nation.
Cities and Municipalities Competitiveness Index
National Competitiveness Council | PhilippinesINDICATORS
Economic Dynamism

1. Size of the Local Economy (as measured through business registrations, capital,
revenue, and permits)
2. Growth of the Local Economy (as measured through business registrations,
capital, revenue, and permits)
3. Capacity to Generate Employment
4. Cost of Living
5. Cost of Doing Business
6. Financial Deepening
7. Productivity
8. Presence of Business and Professional Organizations
Government efficiency refers to the quality and reliability of government services and
government support for effective and sustainable productive expansion.
1. Capacity of Health Services

2. Capacity of Schools
3. Security
4. Business Registration Efficiency
5. Compliance to BPLS standards
6. Presence of Investment Promotions Unit
7. Compliance to National Directives for LGUs
8. Ratio of LGU collected tax to LGU revenues
9. Most Competitive LGU awardee
10. Social Protection
Infrastructure refers to the physical building blocks that connect, expand, and sustain a
locality and its surroundings to enable the provision of goods and services. This
represents the idea of making productivity sustainable over time.
1. Existing Road Network

2. Distance from City/Municipality Center to Major Ports
3. DOT-Accredited Accommodations
4. Availability of Basic Utilities
5. Annual Investments in Infrastructure
6. Connection of ICT
7. Number of Public Transportation Vehicles
8. Health Infrastructure
9. Education Infrastructure
10. 10. Number of ATMs
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Business Cycle: Characteristics and Causes of Fluctuation

Reporter: Dessa Marie L. Fale, CE

• Shows the periodic up and down movements in economic activities

1 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

2 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

• Peak: the highest point of growth; referred to as “boom”.

 Stage beyond which no further expansion is possible,

 Sees the downward turning point.

3 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

4 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

5 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

6 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

7 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

1. Providing government provide a clear and predictable legal framework for

2. Providing a stable Environment for business.

The Economic Role of Government

Failure of Market Economy Government intervention Current Example of

8 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

Anti trust laws,

Unacceptable inequalities of Redistribute income Progressive taxation of

Macroeconomic Problems Monetary policies (e.g.

Improve efficiency of tax

Raise national savings rate

9 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

Economic Planning and Policy

The National Economic and Development Authority Medium-Term Development

10 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

11 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

The Philippine government has undertaken to provide incentives to firms, both

Historically, the government has taken a rather conservative stance on fiscal

12 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

Over time, the apportionment of government spending has changed considerably.

13 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

The consolidated public sector deficit--the combined deficit of national

Negotiations between the Aquino administration and Congress on the

14 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

From 1975 to 1982, domestic saving (including capital consumption allowance)

15 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

At the start of the 1980s, the government introduced a number of monetary

16 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

In addition to large intermediation margins, Philippine banks offered significantly

17 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

18 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

In the mid-nineteenth century, a Filipino landowning elite developed on the basis

At the time of independence in 1946, and in the aftermath of a destructive

Import restrictions stimulated the manufacturing sector. Manufacturing net

19 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

20 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

Budget preparation phase involves activities linked to the formulation and

Generally, the major activities in this phase are:

1. Setting of overall budget policy

Setting of overall budget policy.

21 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

Agency-level budget formulation.

Executive review, deliberation and approval.

22 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

Preparation of budget documents and submission to Congress. The budget

The President's Budget Message

Budget of Expenditures and Sources of Financing

National Expenditures Program

Details of Selected Programs/Projects

23 | Introduction to Public Fiscal Administration/ 1st Year-MPA, 2nd Semester

In the course of Congressional deliberations and approval, legislators can make

Aside from these Constitutional restrictions, the existence of automatic appropriations