The unforeseen consequences of unprogrammed appropriations
In the proposed P6.79-trillion 2026 national budget, P243 billion is placed under unprogrammed or loosely conditional items. These include large infrastructure allocations whose release depends on future revenue conditions or executive discretion.
While such appropriations are often justified as mechanisms for flexibility, their growing scale and routine use reveal a deeper structural problem. By postponing firm spending decisions until after the budget is enacted, unprogrammed funds soften fiscal constraints, highlight discretion and undermine the budget’s role as a binding economic and political commitment.
At the heart of the issue is the postponement of hard choices. A sound budget forces policymakers to prioritize ex ante within a fixed resource envelope, making scarcity explicit and trade-offs unavoidable. Unprogrammed funds defer these decisions.
Spending authority is granted in principle, but execution is conditional, selective and often opaque. This preserves discretion over large sums after enactment and weakens the credibility of the budget as a plan that binds future behavior.
Economic consequences
From an economic standpoint, this introduces a soft budget constraint. Agencies, legislators and local governments learn that allocations are not final and that additional resources may become available through later releases, realignments or reclassifications.
As a result, incentives to plan carefully, prioritize rigorously or stay within limits erode. Instead of optimizing within assigned budgets, actors rationally invest in securing access to discretionary pools. Scarcity—essential for discipline in both markets and governments—loses its force.
Soft budget constraints also create economic rents. Because release depends on discretion rather than automatic rules, access itself becomes valuable. Economic theory predicts that where such rents exist, behavior shifts from productivity to influence.
Time and resources are diverted toward lobbying, bargaining and coalition maintenance rather than service delivery or capacity building. Even without overt illegality, allocation decisions drift away from social returns and toward political advantage.
A particularly damaging consequence is the erosion of purpose-specific funding. When flexibility becomes routine, earmarked resources lose their credibility.
The transfer of excess funds from institutions such as PhilHealth to the national treasury sends a powerful signal: even funds assigned for health insurance and social protection are not fully protected. Once this signal is absorbed, agencies face weakened incentives to manage efficiently, knowing that surpluses may be swept away while deficits may later be accommodated.
These practices also have a direct and often overlooked effect on public debt dynamics. When large portions of spending are unprogrammed, fiscal shortfalls are more easily covered through additional borrowing rather than reprioritization.
Politically costly decisions—such as cutting low-value projects or enforcing hard ceilings—can be deferred. Debt rises not necessarily because priorities are too ambitious, but because budget discipline is diluted. Over time, borrowing sustains discretionary flexibility, while interest payments crowd out genuinely productive expenditures.
At the same time, priority programs suffer misappropriation by neglect. Resources intended for long-term investments in health, education, skills and infrastructure are redirected or underfunded as discretionary releases favor projects with higher short-term political returns.
The result is a double distortion: rising debt on one side and hollowed-out capacity-building programs on the other. Fiscal expansion thus does not translate into growth-enhancing outcomes.
Political consequences
These fiscal dynamics have profound political consequences, particularly for the development of political parties. When significant resources are held in unprogrammed form, political competition shifts away from platforms and toward access.
Influence over discretionary releases becomes more valuable than building party programs, internal discipline or long-term credibility with voters. Legislators and local officials are incentivized to pursue individual bargaining strategies rather than collective party action.
This helps explain why a nominally multiparty system repeatedly collapses into a single dominant coalition after elections. Parties mobilize voters during campaigns, but once elections end, politicians gravitate toward the ruling bloc to secure access to unprogrammed funds.
Party switching is rewarded, opposition weakens and programmatic competition disappears. Fiscal discretion thus reshapes political behavior, transforming parties into temporary electoral vehicles rather than durable institutions.
Accountability suffers as well. When outcomes depend on post-election bargaining rather than preelection commitments, voters cannot meaningfully reward or punish parties for performance.
Oversight institutions struggle to evaluate results when spending purposes shift after the fact. Auditing becomes procedural—focused on whether releases followed rules—rather than substantive—focused on whether objectives were achieved. Responsibility blurs and failure is easily displaced.
Institutional capacity
The damage extends to institutional learning and competition. Fixed, clearly specified budgets allow comparison across agencies and jurisdictions, rewarding competence and exposing failure.
Soft budgets distort this process. Poor performers may be rescued through additional releases, while efficient ones gain no advantage. Over time, incentives weaken, learning stalls and institutional capacity erodes.
Defenders of unprogrammed funds often argue that governments are not households and therefore require flexibility. This argument confuses macroeconomic capacity with institutional discipline.
While governments can tax and borrow, their internal units must operate under binding rules. Without such rules, flexibility at the center becomes indiscipline throughout the system, eventually forcing abrupt recentralization during crises.
None of this implies that contingency mechanisms should be eliminated entirely. Limited, clearly defined and genuinely conditional unprogrammed funds can play a role in responding to shocks.
The problem arises when they become large, routine and loosely specified—effectively functioning as a parallel budget that sustains discretion, weakens discipline and distorts political incentives.
While the Department of Budget and Management (DBM) may be constitutionally responsible for exercising better administrative judgment and safeguards in removing the unprogrammed funds to avoid future anomalies, it is constitutionally inaccurate to claim that the DBM alone had the authority or obligation to prevent a scandal from happening again.
The failure lies in a system-wide breakdown of appropriations, execution and oversight, not in a single agency’s constitutional mandate.
The unforeseen consequences are clear. Unprogrammed funds do more than weaken fiscal control. They encourage rising debt, undermine priority programs, hollow out political parties and replace programmatic competition with transactional politics.
Restoring the budget as a binding contract—through tighter limits on unprogrammed funds, protection of earmarked resources and hard budget constraints—is therefore not merely a technical reform. It is a necessary step toward fiscal sustainability, credible political competition and long-term economic growth.
