Transcript Budget Analysis 1 - Open Society Foundations (OSF)

Centre for Economic Governance and AIDS in Africa
(CEGAA)
Acknowledgements to IBP and IDASA.
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What can we learn by looking at a budget?
1. Adequacy: How much is budgeted?
 Nominal terms can tell us if the allocation is enough (compare to cost of
intervention)
 Real terms tell us if the allocation is keeping up with inflation.
2. Priority: How does the budget for this purpose compare to
resources spent in other areas?
 To determine what government’s priorities are as stated in budget
 To ask if stated policy priorities match priorities in budget
 To determine if government is keeping its promises (policy commitments)
3. Progress/ Trend: Is government’s response on this issue
improving?
 To monitor government commitment
4. Equity: Are resources being allocated fairly?
 Per capita spending across geographic regions
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What can we learn by looking at a budget?
5. Efficiency: Is the money being spent?
 Allocated vs. actual expenditure
 Comparing funding channels or mechanisms
6. Effectiveness: Is the money being spent on the
right things?
 Are the interventions which are funded the most
appropriate and cost effective?
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Budget documents structure
Federal / national budget
Federal budget
Regional Budget
Bureau Health
Regional / sub-national
budgets
Sector budget
Sector budget - Health
Sector/Programme budgets
Sub-programmes budget
Divided into separate line-items
Sector budget - Health
Sub-Programmes e.g Community Health
Centres
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Structure of national budget
The national budget should provide:
1. A budget overview, including:
 Highlights of the national macro-economic
framework, the outlook over the MTEF
 National total revenue: domestic, loans,
external assistance, multi-lateral payments
 National total expenditure, GDP, deficit,
inflation indices
 Summary tables of all national departments’
budgets, also by economic classification
 Explanatory notes – very useful!
2. Detailed estimates of expenditure by vote.
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Structure of department budgets
Each department has its own budget (vote), which
should have:
 Overview: core functions, vision, mission, main
services, constitutional / legal framework and
external events impacting on budget decisions of the
department.
 Review of the previous financial year: should
summarise the major achievements (for example
distilled from Annual Report).
 Outlook for the year: implications of challenges,
policies and strategies on the departmental budget
 Budget allocations
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When we study a department budget, we first
want to check:
 How are programmes organised/ divided?

Does each region’s welfare department have the same five
programmes?
 What is the level of disaggregation?
 Does each region and department provide the
same level of detail in their budgets?
 Is it understandable??

Is there text describing programmes, aims, past
achievements, next year’s plans, explanations for any major
changes, etc.?
 How many years of data are given?
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5 different starting points for your budget
analysis:
 1. By sector: health, welfare, education
 2. By population group: people with disabilities, people
living with HIV and AIDS, Roma children
 3. By government programme: harm reduction, random
street drug testing, palliative care
 4. By issue: mental health, HIV and AIDS,
immunization
 5. Using policy documents as a benchmark, including
Poverty Reduction Strategy Papers
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Example of years of data recorded on
budget documents
Available information differs from country to country. Country teams to open
their documents and check structure and years of budget data available
 2005/06 Actual Expenditure
 2006/07 Actual Expenditure
 2007/08 Estimated Actual Expenditure
 2008/09 Budget Estimate - Medium Term (Revenue
and) Expenditure Framework (MTREF)
 2009/10 Budget Estimate - MTREF
 2010/11 Budget Estimate - MTREF
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What determines the budget?
(national resource allocation)
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Previous budget
Policy priorities (political)
Constitutional obligations/legal framework
Rights/moral choices
Need (e.g. prevalence rates)
Cost of programmes
Cost effectiveness research
Equity
Capacity to spend
Available resources
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Budget Analysis and Practical Skills
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Doing budget analysis
 Become familiar with finding information in budget
documents
 Learn to calculate:
 Percentage of total budget
 Share of total increasing or decreasing
 Real and nominal amounts
 Real growth rate
 Average real growth rate over medium term
 Become familiar with different levels of disaggregation in
budgets
 Practice!
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How to do budget analysis
What are we analysing the budget for?
 Percentage share of the budget (priority)
 Nominal growth in the budget (progress)
 Adjusting for inflation (real budget figures)
 Real growth in the budget (progress in real terms
 Annual average growth (summary)
 Per capita budgets (equity & adequacy)
 Percentage difference from average (equity)
 Real growth in per capita budgets (progress after adjusting for inflation
and population growth)
 Comparing budgets to expenditure (expenditure as % of the budget efficiency)
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Calculating percent share (ratios)
 Terms to describe the status of the figures provided:
 The term share refers to the size of a slice of the pie in relation to the
entire pie. We express it in terms of a percent of the total.
 For example, if the total county budget is 10 million Forint and 4 million
is spent on health, we say health’s county share is 40%.
Formula (Section/Total = Share)
= F4mil x 100
F10mil
= 40%
 We use percentages to measure how much government prioritises a
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certain item in the budget.
We often use percent to express:
one national department as a share of the country’s budget
one programme as a share of the total department budget
one sub-programme as a share of the total programme budget
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Converting an allocation from nominal to real terms
We want to convert everything to 2004/5 Rand so we make 2004/5 the base year. The deflator
for the base year is = 1.
We divide each allocation by the deflator for that year to get a real amount.
The deflator represents the Consumer Price Index (CPIX) that tells us the real prices of goods and
services
HIV and AIDS Subprogrammes in 2005 National Budget
Nominal Amount
R'million
2003/4
2004/5
2005/6
2006/7
2007/8
EducLifeskills (CG only)
132
134
136
144
152
Social Dev CHBCS
69
79
186
191
195
Health Compr Plan for HIV & AIDS
686
1,235
1,531
2,001
2,102
TOTAL
887
1,448
1,853
2,336
2,449
Deflators
0.956938
1
1.051 1.104601 1.159831
Real Amounts
R'million 2003/04 2004/5
2005/6
2006/7
2007/8
EducLifeskills (CG only)
138
134
129
130
131
Social Dev CHBCS
72
79
177
173
168
Health Compr Plan for HIV & AIDS
717
1,235
1,457
1,812
1,812
Total REAL
927
1,448
1,763
2,115
2,112
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Calculating real growth and nominal growth rates
The growth rate describes how much the size of an allocation changes from one year to the next. It is
expressed as a percentage of the original allocation and is called the annual growth rate or year-to-year
change.
The basic formula is:
growth rate = (amount in year 2 – amount in year 1) x 100
amount in year 1
You can have a nominal growth rate or a real growth rate.
The nominal growth rate compares the nominal amount in year one to the nominal amount in year
two.
Nominal growth rate = (nominal amount in year 2 – nominal amount in year 1) x 100
nominal amount in year 1
The real growth rate compares the real amount in year one to the real amount in year two.
Real growth rate = (real amount in year 2 – real amount in year 1) x 100
real amount in year 1
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Calculating real growth
HIV and AIDS Subprogramme Allocations in the 2005 National Budget
Real Amounts
R'million 2003/04 2004/5
2005/6
2006/7
2007/8
Educ Lifeskills AIDS Grant
138
134
129
130
131
Social Dev AIDS Home/Community
72
79
177
173
168
Health Compr Plan for HIV & AIDS
717
1,235
1,457
1,812
1,812
Total REAL
927
1,448
1,763
2,115
2,112
Real Growth Rates
% 2004/5
Educ Lifeskills AIDS Grant
Social Dev AIDS Home/Community
Health Compr Plan for HIV & AIDS
2005/6
-3
10
72
-3
124
18
2006/7
2007/8
1
-2
24
1
-3
0.05
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Calculating annual average real growth rate
 Gives a big-picture view of what is happening over the medium term.
Educ Lifeskills (2005/6 – 2007/8) average annual real growth rate = average of the 3
annual real growth rates
= -3+ 1 + 1
3
= - 2%
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Per capita spending
 It is also important to adjust budget data on a per person or
per capita basis to allow comparisons between countries or
between states.
 Per capita spending is obtained with the ‘population’ and
‘amount-spent’ variables. The equation is as follow:
Spending/Population = Per Capita Spending
Dwala Lami spent D6 billion on health care and there are
about 12 million citizens (Lamicans), how much does each
person get for health care in Dwala Lami?
Shanghai Republic spent D2 billion on health care and there
are 3.5 million people living there. How much does each
person get for health care?
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