A Risk Analysis on the implementation of E.O. No. 138, s. 2021 and its IRR

Leo Manuel O. Leaño
Yvonnie G. Ramos
Hilda B. Ceñido
Maria Cristina L. Patalinjug
Jesus P. Gaddi
Eden P. Delfino

House of Representatives
Appropriations and Finance – Managers Track
Course on Risk Management in Public Finance
2024

Abstract

The implementation of E.O. No. 138, s. 2021 and its IRR, pursuant to the Supreme Court ruling on the Mandanas-Garcia case, poses a significant impact on the Philippines’ fiscal landscape. The full devolution of functions, services, and facilities also entails delegating substantial resources and fiscal accountability from the National Government (NG) to local government units (LGUs).

This transition introduces a certain potential fiscal strain to government finance. For one, the expanded share in the national taxes comes with more fiscal responsibilities transferred to LGUs as they assume the programs and services. The absence of actual valuation of devolved services may lead to an imbalance between the actual resources needed and the funds made available to LGUs and opens additional risk for use against existing financial obligations. There is also the question of the adequacy of the Growth Equity Fund (GEF) provision in the GAA for qualified LGUs.

The definite occurrence and high perceived impact in this risk analysis sets the risk level at extremely high. As implementation is imminent, this paper identifies urgent risk management strategies. To start, the provision for GEF in the GAA is a must. Considering the risks, a 3-year suspension may be needed while the full impact of the devolution of services is reevaluated and the EO and LGC amended. Lastly, there should be a clear delineation of functions and responsibilities, necessitating a partnership between the NG and LGUs.