Transcript Document 7326529

Public Expenditure
Management:
Budget Formulation
Bill Dorotinsky,
PREM public sector group
The World Bank
PEAM Course
March 21, 2005
Outline
• What is Public Expenditure Management?
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What institutions matter?
Process: Expenditure Management Cycle
Functions
Organizations, Systems
Three- objectives
• Applications
– Rules
– Roles
– Information
• Performance Measurement
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Expenditure Management Cycle
Financial management system boundaries
Planning
system
Project
appraisal
Medium term
plans, e.g. three
year rolling plans
Resource
allocation
Annual budgets
Development,
recurrent and
revenue
Expenditure
review
Public expenditure
review
Institutions
Fund release
procedure, e.g...
warranting
Accountability
Audit system
Reports and
financial statements
Accounting for
revenue and
expenditure
Source: Adapted from Integrated Financial Management. Michael Parry, International Management Consultants Limited.
Training Workshop on Government Budgeting in Developing Countries. THE UNITED NATIONS. December 1997.
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Scenario 1
• You are the minister of a line ministry
– The half-life of a minister is 18 months
• Your predecessor lost their position for proposing sector
restructuring based on a foreign advisor recommendation
– The fiscal year begins January 1
– The MoF issues a budget circular June 15, asking for budget
submissions by August 1
• The circular includes inflation estimates and forms
– The Ministry of Planning issues a July 15 call for capital budget
submissions by August 15
• The circular includes forms
– You are not sure of your current on-board employment, and
‘current’ fiscal information is incomplete and 45 days late
• On what basis do you prepare your budget request?
• What is your budget bid strategy?
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Scenario 2
• The Cabinet has convened to consider the budget
– The aggregate bids exceed likely recurrent revenue by 19
percent, and capital resources by 157 percent
– The MoF has provided a table summarizing bids, and showing
estimated total recurrent and capital resources
• The MoF has noted a fall in customs revenue, and donor funds
are shifting to other geographic priorities, suggesting budget
reductions are needed
– The prior government fell from not meeting public expectations
for greater capital investment and better services
• On what basis should Cabinet make budget choices?
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Common PEM problems
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Weak links between policy, resource limits, and budgets
– failure to achieve strategic objectives
– abstract planning, unrelated to ways and means
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Annual focus leads to suboptimal choices
– Digging a hole; inability to climb out
– Complacency today, unaware of crisis tomorrow
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Separation between capital and recurrent budgets
– Lower than expected returns to capital
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Non-comprehensive budget
– Using other means to support favored programs
– Revenues not captured in budget
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Taking piecemeal decisions without reference to over-all effect
Rigid budget
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Common Reforms
• MTEF
• Performance Budgeting
• New Public Management
– Separate policy and administration
– Accrual accounting
• ‘Fragmentation’
– Procurement, Debt
• Deconcentration, decentralization
• Administrative & Civil Service
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Process Issues
• “Due process”
• Fair hearing for proposals, requests within government
• Coherence
– Budget process is planning process
• Planning within resource constraints
– Indicative ceilings for budget offered early in the process
– ‘hard budget constraint’
» Changing incentives
– Comprehensiveness
• Capital, all revenues and expenses
• Civil society participation
• ‘decentralized’ impact analysis
• Legislative stage
• In executive via white papers
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Process (continued)
• Proper decision sequence for coherent process
• Macrofiscal, revenues, expenditures
• Sectoral
• Administrative/program/project
– Accountability: Link resources with management responsibility
• Schedule
• Budget calendar issued
• Sufficient time for sound proposals
– Ministries
– Budget office analysis
– Legislative review
» Two stage process
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Quality Issues
(improving process outcome)
• Multi-year perspective
• Setting multi-year policy objectives
• Conservative economic, revenue forecast
– Likely versus ‘hoped for’
– Benchmarked against non-governmental forecasts
• Realistic expenditure forecast
– Provision for recurring ‘unanticipated’ events
» Contingency reserves – with clear rules for use
– Indicative ceilings linked to second-year of prior budget forecast
(policy)
– Requests reconciled to prior year actuals, current year estimates
• Two aggregate forecasts (advanced)
– Proposed policy
– Current services/policy
• Capital and recurrent
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Quality (continued)
• Budget ownership
– Early, frequent engagement of policy officials on
structured decisions
– Fiscal policy paper to kick-off process
• Distinguish policy from recurrent revenue
– Proposed revenue sources versus historical trends
• No spending allowed against proposed unless they
materialize (grants, tax revenue)
• Communication
– Clear signals of direction, markets and agencies
– Prepare public for change – sustainable adjustment
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Quality (continued)
• Budget Information
– Prior year actual, current year estimate, budget year +2, Staffing,
Outputs
– Classification: economic, administrative, functional, program
– Requests distinguish between on-going, new spending; mandatory,
discretionary
• Decision papers
– Basis for Minister of Finance, Gov’t decision
– Pulls together academic, audit, performance, evaluation of prior
years financial performance, other information
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Core elements of an MTEF
Changing rules to promote different outcomes
• Multi-year fiscal framework
– Setting broad policy priorities (sectors)
• Multi-year Budget Framework
– sector ceilings, sector budgets prepared under constraints
– Strategy, policy and objectives under constraints
• Multi-year expenditure framework
– Costing programs, policies within sectors
• Delivering resources as budgeted
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