Transcript Budget cycle and policy based budgeting

Budget Cycle and Policy Based
Budgeting and Its Indicators in
Nepal
Pushpa L. Shakya
Joint Secretary
NPC Secretariat
Outline of Presentation
1.
2.
3.
4.
5.
Introduction
Public Financial Management (PFM)
Medium Term Expenditure Framework (MTEF)
Annual Budgets
Linkages Between MDGs, TYP, MTEF and
Annual Budget
6. PFM Indicators
7. Issues
8. Way Forward
1. Introduction
• Most of the LDCs endowed with limited resources.
• They need to use these resources in priority
sectors effectively.
• Planning system was introduced in the then
Soviet Union since 1928.
• Adopted and spread after 1940’s in the
developing world.
• Adopted mixed economy.
• Nepal introduced economic plan more than five
decades ago.
Formulation of macroeconomic framework
and policies for the Periodic plan.
• GDP Targets
• Total investment requirements : public and
private
• Estimate of required resources
• Revenue
• Public expenditures
• External sources : grants and loan
• Domestic borrowings
2. Public Financial Management (PFM)
• Public Financial Management (PFM) is very
crucial for any government.
PFM includes:
• sound planning system,
• good management of government budget
(government revenue, expenditure and debt
management, reimbursement),
• procurement and accounting, recording, financial
reporting and auditing etc.
Objective of PFM
The main objective of PFM system is :
• To improve efficiency in fiscal operations
and enhance government accountability
and transparency.
• To improve control over public expenditure
It helps to reduce fiduciary risk and ensure
effective utilisation of domestic as well as
foreign financial resources .
Public Expenditure Management (PEM)
• Public expenditure is a crucial instrument in
promoting growth, reducing poverty and income
inequality, and enhancing human development.
• Pro-poor public budget should ensure:
- access to public resources, employment
opportunities, education, health, safe drinking
water and a safe environment to live.
.
But, Public expenditure backed by insufficient
resources and high borrowings can:
- bring macro economic instability
and high inflation
– reduces the purchasing power of the people
and erodes competitive advantages
PEM is the way in which public resources are allocated
and managed in pursuit of:
• Fiscal discipline
• Strategic allocation of resources consistent with policy
priorities
• Efficient and effective use of resources
Objectives of Public Expenditure Management
Improving budgetary outcomes at three levels:
1. Aggregate fiscal discipline, through maintaining a hard budget
constraint (through expenditure control)
2. Allocation of resources consistent with policy priorities (strategic
allocation)
3. Efficient and effective use of resources
-Input
-Output
-Outcomes
3. Why MTEF?
To address the weaknesses in the Public
Expenditure
Management
systems
in
developing countries the MTEF approach has
been developed.
• To link annual programs and budget with
Medium-Term Plan
• To prioritize program and budget according
objectives and policies.
• To select sectoral programs within the budget
ceiling
• To ensure allocation of resources for
prioritized program.
The MTEF Approach
•
•
•
The MTEF is a three-year framework of
public expenditure within which available
domestic as well as foreign resources are
allocated between various economic sectors.
It can also be described as:
A process for matching limited resources
with unlimited needs.
An integrated system through which all
resources (government and donor) are
allocated on the basis of policy priorities.
• A medium term focus into resource
planning, so as to plan ahead for
changes in policy and expenditure
reallocations.
• Enhancing predictability in the flow
of resources, nationally, sect orally
and at the ministerial/departmental
levels.
Main objectives of the MTEF
Fiscal Discipline:
• Fiscal discipline is maintained by
developing a consistent Macroeconomic
Framework
that
prescribes
a
comprehensive and realistic hard budget
constraint, within a stable macro
economy;
.
Strategic Allocation of Resources:
• development of three year integrated sect oral
and/or ministerial allocations cognizant of
strategic
plans
developed
by
each
Sector/Ministry
Efficiency and Effectiveness in Resource
use:
• definition of clear objectives, outputs and
costed
activities
which
reflect
sectoral/ministerial objectives, and ways of
improving efficiency so as to achieve better
results with limited resources.
MTEF worked as:
• Linking annual programs and budget with
sectoral and periodic plan
• Prioritizing programs along with costing, outputs
and expenditures in accordance with the plan’s
objectives and targets
• Adjusting annual expenditure programs of the
Plan to a level consistent with resources
availability while maintaining macro economic
stability
• Ensure resource availability
MTEF in Nepal
• MTEF initiated in 2002/03 along with the Tenth Plan
• Introduce prioritization criteria (regular /current and
development/capital)
• Unit costing
• Performance based budget release system
• Able to eliminate or merge more than 200 projects
initially
• Per project budget increased
• Budget for P1 projects increased
• Pro-poor and pro-gender budget initiated
• Budget deficit contained at desired level
• Macroeconomic stability achieved
The implementation of the MTEFs has helped the
Government to:
• maintain fiscal discipline,
• prioritize programs/projects within the framework
of realistic resources, and
• bring them to manageable size with a strategic
orientation towards key sectors and activities.
The MTEF has in fact become a key instrument for
the Government to :
• operationalize the Plan by prioritizing the
plan/program/project according to the changing
resource situation and
• strongly linking the annual programs and budget
with the plan objectives and strategies.
Through the MTEF, government expenditure has
been brought within a more realistic budgetary
framework:
• by prioritizing projects/programs,
• by focusing on implementation and monitoring of
expenditures, and
• by introducing performance-based budget
releases.
The MTEF has facilitated donors:
• to design their assistance strategies and make
funding decisions for new projects, as the
framework is based on clear vision/mission,
objectives, output, activities, with the focus on
prioritized areas to attain national objectives.
The MTEF has become credible guide to resources
planning, programming and monitoring both for
the Government and the development partners.
Deficiencies in the Formulation of MTEF:
• MTEF also needs review and refinement to make it more
realistic, credible and successful.
• Some deficiencies has been seen in the MTEF process
can be spelt out as below:
• Delays in the formulation of MTEF on Time
• Not legally binding document
• Political commitment is important for effective use of
MTEF, however it seems lacking.
• Not been developed sector specific criteria
• Resource gap not properly reflected by the MTEFs.
• Budget allocation is not tied up with performance result
• Lack of proper monitoring of the performances.
Annual Budgets
Approval of Programs and Projects
• Proposals forwarded to National Planning
Commission by LM in a prescribed format (33
points form).
• Logical Framework
• Project screening criteria
• Foreign aid policy
• Approved projects are included in the after annual
budget for implementation budget discussion.
• Annual work plans have to be forwarded to NPC
for approval with monitorable indicators.
Budgetary Process
• District Budget ceiling and guidelines send to the
DDCs by NPC– before end of Kartik.
• Resource Committee meeting (chaired by VC of
NPC)– By last week of Mangsir.
• Budget call circulars with budget ceilings,
guidelines and format send to LMs by NPC – By
Poush second week.
• LMs send budget proposal to NPC and MoF- By
Chaitra first week.
• Program discussion in NPC- Start from Chaitra
third week
• Budget discussion in MoF- Start from Baishak
third week.
• Approval of Annual Development Program by NPC
chaired by the PM- third week of Ashad.
• Approval of the Budget by the Cabinet- Third week
of Ashad
• Finalisation of budget and presentation in the
parliament by Finance Minister – third week of
Ashad
• Publication of Annual Development Program Part
Two by NPC – last week of Ashad.
• Approval of annual program by NPC- by second
week of Shrawan.
Linkage between MDGs, TYP, MTEF and Annual
Plan/Programs
MTEFs
:
Business
Plans
TYP &
Implementation
Annual Program
with Quarterly
Breakdown
National Human
Development Report
MDGs
New Periodic
Plans
Problems
• Lack of ownership and sustainability
• Poor peoples participation
• Time overrun / Cost overrun
• Lack of proper Quality- at- Entry
• Inadequate Supervision Mechanism
• Frequent transfer of project staff
• Procurement delays / inadequate control
• Lack of financial accountability
• No proper devolution/ delegation to local self
government units.
Issues and challenges
• Not all stakeholders are involved in project
cycle
• Policies,
annual
budget
and
their
implementation are not fully consistent with
each other
• Non-budgetary expenses are significant
and increasing
• Programs are not approved on time
• Current budget size is in increasing trend.
• Dependency on foreign resources is still
high.
• Over demand of budget than given budget
ceiling
• Allocation of insufficient budget for projects
(mainly in infrastructure related projects).
• Continuation of unsustainable and cost
ineffective projects.
PUBLIC FINANCIAL MANAGEMENT
PERFORMANCE INDICATORS
Policy- based Budgeting
PEFA Indicator 11 : Orderliness and participation
it the annual budget process
• NPC used to initiate the annual budget-and
MTEF formulation process.
• Assessment of impacts of the budget on
the macro-economic, fiscal and sector
policies is required
• Active and effective participation by other
M/D/As as well as the political leadership in
the budget formulation process,
• Full participation requires an integrated
top-down
and
bottom-up
budgeting
process, involving all parties in an orderly
and timely manner, in accordance with a
pre-determined budget formulation
calendar is required.
• The calendar should allow for passing of
the budget law before the start of the
fiscal year as well as for sufficient time for
the M/D/As to realistically prepare their
detailed budget proposals as per the
guidance.
• Delays in passing the budget may create
uncertainty and delays in some government
activities, including major contracts.
• Clear guidance should be provided in the
budget circular and the budget formulation
manual,
including
budget
ceilings
for
ministries and agencies.
• the political leadership should actively
involved in the setting of aggregate
allocations , particularly for sectors, from an
early stage of the budget preparation process.
• Budget should be linked with plan,policies and
priorities of the government
Assessment :
• Existence of an adherence to fixed
budget calendar.
• Clarity/comprehensiveness of political
involvement in the guidance of the
preparation of budget submissions
(budget circular or equivalent).
• Timely
budget
approval
by
the
legislature or similarly mandate body
(within the last three years).
• Rating PI-11: C+
• A clear annual budget calendar exists
but some delays are often experienced in its
implementation. The calendar allows M/D/As
reasonable time (at least two months from
receipt of the budget circular). (B)
• A comprehensive and clear budget circular is
issued to M/D/As by the NPC, which reflects
ceilings
approved
by
the
Resource
Committee. This approval takes place after
the circular distribution to M/D/As but before
MDAs have completed their submission. (B)
• The budget has been approved with more
than two months delay in two of the last
three years. (D)
Indicator 12 : Multi-year perspective in fiscal
planning, expenditure policy and budgeting
• Expenditure policy decisions must be
aligned with the availability of resources in
the medium-term perspective because it
has multi-year implications.
• Multi-year fiscal forecasts of revenue,
expenditure
and
deficit
financing
(including reviews of debt sustainability
involving both external and domestic
debt) must be the foundation for policy
changes.
• Expenditure policy decisions should be described
in sector strategy documents which are fully
costed in terms of estimates of forward
expenditures to determine whether the new
policies are affordable within aggregate
fiscal targets.
• policy choices should be made and indicative,
medium-term sector allocations be established.
• Estimation of explicit costing of the implication of
new policy initiatives,
• clear, strategy linked selection criteria for
investments and integrated into the annual
budget-formulation
process
give
complete
budget policy link.
Assessment :
• Preparation of multi-year fiscal forecast
and functional allocations.
• Scope and frequency of debt sustainability
analysis (DSA).
• Existence of sector strategies with multiyear costing of recurrent and investment
expenditure.
• Linkages between investment budget and
forward expenditure estimates.
• Rating PI-12: C+
• Forecasts of fiscal aggregates (on the basis
of main categories of economic and
functional/sector
classifications)
are
prepared for at least two years on a rolling
annual basis. Links between multi-year
estimates and subsequent setting of annual
budget ceilings are clear and differences are
explained. (B)
• A DSA for at least for external debt
undertaken once during last three years. (C)
• Statements of sector strategies exist for
major sectors but are only substantially
costed for sectors representing up to 25%
of
primary
expenditure
or
costed
strategies cover more sectors but are
inconsistent
with
aggregate
fiscal
forecasts. (C)
• Many investment decisions have weak
links to sector strategies and their
recurrent cost implications are included in
forward budget estimates only in a few
(but major) cases. (C )
Government’s Reform Initiatives:
• The Government of Nepal has been initiating to
improve pubic financial management
• Since the Tenth Plan strategic planning documents
has been started to produced.
• MTEF has been introduced since the Tenth Plan.
Similarly, MTBF has been prepared
• Treasury Single Account (TSA) has been
implemented
in 60 districts and under
consideration to implement it in additional 15
districts coming days.
• Public Expenditure and Financial Accountability
(PEFA )initiatives has been taken
• Committed
for
standard
accounting
system, auditing and timely reporting
• Improving overall project management
• Project
prioritisation
criteria
were
developed for both Current and capital
budgets
• Ensure multiyear contract
• Ensure budget release for P1 projects.
• Some progress has been achieved in the
area of policy-based budget.
• Formulation of Medium Term Expenditure
Framework (MTEF) and business plans for
some sectors has helped to forecast the
budget and its intended results.
• However there are some problems in the
preparation of MTEF:
1. lack of political commitment on the MTEF
and budget preparation;
2. Problem
of
internalisation
and
institutionalisation
3.
inadequate
engagement
or
understanding of the MTEF among
middle and lower-level government
officials;
4.uneven linkages between annual
budgets and MTEFs; and
5. incomplete sectoral “business
plans”
(in
need
of
stronger
monitoring of outputs).
Way Forward
For Planning
• Plan should be based on more realistic resource
forecast.
• Formulation of realistic and implementable plan
is required.
• Ensure inter-sectoral linkages and consistency
while formulating plan.
• Political commitment should be ensured for
effective implementation of plan.
• District level planning mechanism should be
strengthened.
For Budgeting
• Ensure political stability
• Political commitment on budgetary process and
MTEF
• Provision of budget announcement day or week in
the constitution.
• Develop project screening mechanism and sector
specific screening approach in the NPC.
• Budget allocation has to be made in line
with the MTEF priorities.
• Internalization/institutionalization of MTEF
process should be strengthened.
• Detailed
trimester
work
plan
for
projects/programs should be prepared by
implementing agencies to facilitate the
tracking of project performance.
• Unit
cost
of
outputs
and
programs/projects of all sectors prepared
by the concerned ministries for annual
plan and the MTEF has to be updated and
revised and use it in the budgeting..
• Capacity building is required.
• Need to prioritize the programs and
projects before approval and budgeting
• Fitting costs within sector ceilings in line
with priorities identified.
For Implementation and Monitoring
• Implementation
mechanism
need
to
be
strengthened by establishing quality-at-entry
committee.
• Necessary guidelines pertaining to effective
project implementation have to be prepared
and strictly followed by the line ministries.
• M&E should be strengthened and quality of
supervision should be improved.
Thank You