August 31, 2018

The switch to a federal system of government should be carried out in five phases spanning 15 years to avoid disruption to the economy’s growth momentum, the National Economic and Development Authority (NEDA) said.

In a presentation at the cabinet-level Economic Development Cluster (EDC) meeting on Wednesday, NEDA Undersecretary for Policy and Planning Rosemarie G. Edillon detailed NEDA’s proposed transition roadmap, which has been earlier submitted to the Constitutional Review Committee.

“Government has been working hard to address regional inequality. And the national development agenda has always been about decentralizing growth and promoting sustainable development.,” Edillon said.

The first phase, or one year of the transition, should be devoted to doing spatial analysis of federated regions and their socioeconomic profiles, accounting of government workforce and functions, and mapping of existing laws, regulations, and policies. This can be accompanied by an extensive review and amendment of provisions of the 1987 Constitutions that have limited the country’s opportunities to achieve inclusive growth and development.

The second phase, or five years of laying the foundation for federalism, must include preparing the regions and rationalizing government structures and functions. This should include an extensive review and amendment, as necessary, of the Local Government Code and the Administrative Code.  During this period, a transitional period charter should be adopted and the federal transition commission must be established.

The transitional government can be activated in the third phase which spans three years. During this time, the government will be prepared for genuine devolution.

NEDA proposed that the operationalization of five pilot federated regions based on readiness and willingness be done in the fourth phase for five years.

During the last phase of the transition, the transition government should be deactivated along with the ratification of the amended constitution. The regional development councils may serve as interim regional governments.

“We need a forward-looking strategy to strengthen the capacities of the bureaucracy at both the regional and local levels to take on central office functions,” Edillon said.

Meanwhile, the EDC meeting on Wednesday fleshed out the costs and implications of the proposed shift to federalism to the country’s economy and fiscal administration. Chaired by the Department of Finance (DOF), the EDC is an executive body mandated to promote inclusive, sustainable, and rapid economic growth. It has 16 member agencies which include NEDA.

Also present at the meeting held at the Bangko Sentral ng Pilipinas were members of the Constitutional Review Committee led by former Chief Justice Reynato Puno.

Apart from Edillon, officials of the Department of Budget and Management and DOF likewise presented their positions on the draft Charter for the proposed shift to federalism.

“A major change that needs serious consideration is the relocation of the country’s capital outside Metro Manila,” Edillon noted

The NEDA official, however, presented the additional costs of running the proposed federal government based on two simulated scenarios. In the first scenario, half of the expenditures for personnel services (PS) and maintenance and other operating expenses (MOOE) are reallocated to the federated regions.

Under the second scenario, the reduced PS and MOOE budget to the federated regions were allocated, but the PS budget was increased twice on account of the additional responsibilities of the regional Cabinet and the additional personnel across the three branches – Executive, Legislative and Judiciary.

Initial estimates show that the cost of running the proposed federal government would potentially add Php156.6 billion under the first scenario and Php243.5 billion under the second scenario to the whole government budget.

Edillon said the given figures include the stipulated equalization fund, which is 3 percent of the annual General Appropriations Act, an equivalent of Php85.8 billion in terms of the 2018 national budget.

The NEDA official also pointed out funds and spending mismatch in the proposed federalism charter.

Estimates show that the split in the spending between the federal government and federated regions is not 50:50, but 60:40. If government obligations including subsidy, tax expenditures, interest payments, net lending, financial expense and capital outlay will be included, the split in spending would be around 80:20.

“The mismatch in funds and spending, especially for the federal government, will impede the delivery of goods and services under its jurisdiction,” Edillon said.

The NEDA presentation also pointed out concerns about uncertainty in the business environment and the cost of doing business, as implied by the proposed Federal Charter.

In reply to the EDC officials’ comments, Puno said all points were well taken and would be reviewed by Constitutional Review Committee.