High court questions ‘artificial’ fiscal space in budget

By Mark Joseph M. Sanchez

THE SUPREME COURT on Tuesday questioned whether transferring already funded foreign-assisted projects to unprogrammed appropriations merely creates an “artificial” fiscal space in the national budget, casting doubt on the government’s argument that such appropriations are deficit-neutral.

During the continuation of oral arguments on consolidated petitions challenging the unprogrammed appropriations and special accounts in the 2024, 2025, and 2026 General Appropriations Acts, Associate Justice Amy C. Lazaro-Javier cited a paper she said was written by Budget Secretary Kim Robert C. de Leon in 2025 when he was still a University of the Philippines assistant professor.

Quoting from the paper, Ms. Lazaro-Javier said moving the loan-funded portion of foreign-assisted projects to unprogrammed appropriations while replacing them with local projects in the programmed budget could ultimately require additional government borrowing.

“In reality, the transfer covers not only the project but also the transfer of the fund itself,” she said. “So whatever space in the programmed appropriation that seems to have been created by the transfer is merely artificial.”

She added that because the funding tied to the foreign-assisted project moves with it, there is no remaining fund to finance the project inserted into the programmed budget.

Asked whether she agreed with that assessment, Solicitor General Darlene Marie B. Berberabe replied: “Yes, theoretically, that could happen.”

Ms. Berberabe said the government’s position is that when a foreign-assisted project is transferred to the unprogrammed appropriations, both the project and its funding source should be transferred, meaning any fiscal space created in the programmed budget would still require a corresponding source of financing.

But Ms. Lazaro-Javier insisted that the fiscal space was only apparent because the loan funding attached to the transferred project had already been secured and did not require any release trigger.

Budget Assistant Secretary Romeo Matthew T. Balanquit agreed that the loan funding follows the project once it is transferred to the unprogrammed appropriations.

“It’s true that once you transfer an ongoing foreign-assisted project to the unprogrammed appropriations… the corresponding funding source, which is the loan, [goes with it],” Mr. Balanquit said.

He added that there is “no more technically a need for trigger” because the loan financing had been approved.

Mr. Balanquit said discussions in Congress indicated that some projects were moved because of slow agency use rates, although Ms. Lazaro-Javier described the explanation as speculative.

The magistrate later questioned how the unprogrammed appropriations could still be considered deficit-neutral if the government would eventually have to finance projects inserted into the programmed budget after funded foreign-assisted projects were transferred out.

Ms. Berberabe said unprogrammed budgets are generally intended to be “not deficit-inducing” and “deficit-neutral,” while acknowledging the concerns raised by the court regarding foreign-assisted projects.

The court hearing stems from consolidated lawsuits questioning the constitutionality of provisions on unprogrammed appropriations and special accounts in the 2024, 2025, and 2026 national budgets.

The next round of oral arguments is scheduled for July 14.