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The “Upstream Stages”: Preparing the Budget. Training for Support PAC Staff Hilton Hotel, Windhoek, Namibia 10-12 May 2012. Timeframe of the Budget Cycle. T he full budget cycle overlaps at least three budget years.

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The upstream stages preparing the budget

The “Upstream Stages”: Preparing the Budget

Training for Support PAC Staff

Hilton Hotel,

Windhoek, Namibia

10-12 May 2012

Timeframe of the budget cycle
Timeframe of the Budget Cycle

  • The full budget cycle overlaps at least three budget years.

  • So the budget cycle for fiscal year Y starts off in Y-1 and continues until Y+1.

    • The strategic planning and budget preparation phases take place in the year prior to the year of budget execution.

    • The external audit and policy review phases take place in the year after the budget is executed.

Timeframe of the budget cycle1
Timeframe of the Budget Cycle

  • Therefore during calendar year, a government is engaged in three budget cycles:

    • the external audit and policy review phases of the budget cycle for fiscal year Y-1

    • the budget execution and accounting phases of the budget cycle for fiscal year Y

    • the strategic planning and budget preparation phases of the budget cycle for fiscal year Y+1.

Group questions
Group questions

  • Assuming that the external audit phase of the budget for 2010 was completed on time and generated some useful recommendations.

    • Which fiscal year’s budget cycle can deal with recommendations?

  • Assume that the budget year for 2011 is currently being implemented. Which other activities related to the budget cycle should be undertaken in the same year?

Pre budget report
Pre-Budget Report

  • The OECD Best Practices for Budget Transparency advocate a prebudget report to “encourage debate on the budget aggregates and how they interact with the economy [including] the government’s long-term economic and fiscal policy objectives and intentions …Parliament must have] the opportunity and the resources to effectively examine any fiscal report that it deems necessary” (OECD 2001: 37).

Characteristics of good budget preparation
Characteristics of Good Budget Preparation

  • Technical Requirements:

    • Accuracy of revenue forecasts

    • A multiyear fiscal perspective

    • Budget choices should be made as early as possible in the process

    • Availability rather than wishes or “needs”

  • Political and Social Requirements

    • Consultation between the executive and legislature on the vision and economic scenarios underpinning the budget.

    • Appropriate participation of the major stakeholder groups.

    • Not a PR exercise

Stages of budget preparation
Stages of Budget Preparation

1. Preliminary Stage

  • The macroeconomic and fiscal framework needs to be prepared and discussed with the legislature.

  • Medium-Term public investment program and MTEF should be updated.

  • Top-Down Stage

  • MoF defines the aggregate government expenditure consistent with the MTEF and the macroeconomic and fiscal framework.

  • Budget circular issued to Ministries containing the relevant expenditure ceilings.

  • Bottom-Up Stage

  • Ministries and Agencies are fully responsible for preparing their budget requests within the parameters of the circular.

  • If feasible, should make a distinction between new and current activities.

    4. Review and Negotiations Stage

Case study zimbabwe
Case Study: Zimbabwe

  • In Zimbabwe the enactment of the PFMA has brought about a new dimension in the role of Parliament in the budget process.

    • “the Minister may through the appropriate Portfolio Committee of Parliament, seek the views of Parliament in the preparation and formulation of the Annual Budget, for which purpose the appropriate Portfolio Committee shall conduct public hearings to elicit the opinions of as many stakeholders in the national budget as possible”.

  • Ministries are invited to present their bids and explain and justify to the Committee their activities, in particular expenditure priorities for the forthcoming year. After the budget is presented, Committees meet again with their line Ministries and present a report in Parliament on areas of concern for the Minister of Finance to review.

    • A Budget Strategy Paper forms the basis for parliament to participate in the budget preparation stage by debating the government priorities in the budget. Apre-budget seminar held by Parliament before the budget statement is presented also gives an opportunity to participate in the preparation stage.

Budget presentation and the role of the legislature
Budget Presentation and the Role of the Legislature

  • Vision of development, the medium-term scenarios and the main policy choices must be presented to, debated by, and endorsed by the legislature.

  • Best done at the time of and through the MTEF.

  • MTEF should be generally endorsed with any reservations triggering a reformulation of the macroeconomic framework.

  • Usually, only the first year of an MTEF is approved by the legislature as the annual budget, whereas the outer years are nonbinding projections of the future cost of existing policy.

Medium term expenditure programming
Medium-Term Expenditure Programming

  • The budget process needs to allow for medium term planning – there are medium term cost implications of expenditure decisions made today and government strategies are medium term. The MTEF is the tool to operationalize government objectives by properly linking plans to expenditures.

  • A tool to translate strategic objectives into a budget framework.

  • A time horizon of three to five years.

  • It offers institutional mechanisms which manage the tension between “what is needed” and “what is affordable” to come up with a realistic and sustainable medium term budget.

Mtef and pfm

  • MTEF contributes to Aggregate Fiscal Discipline by introducing aggregate and sector ceilings that put limits on the total and sector expenditure levels.

  • MTEF contributes to Allocative Efficiency by providing an institutional mechanism to decide on the optimal allocation of resources between and within the different sectors.

  • MTEF contributes to Operational Efficiency by giving programme managers predictability of funding which allows them to better plan their activities.

Mtef and parliament
MTEF and Parliament

  • To enhance debate on public spending MTEFs should be tabled and discussed in parliament.

    • In Rwanda, the Finance Law covers the budget year on which the Chamber of Deputies may vote ; the Budget Framework Paper as well as the expenditure projections for the next two years, i.e. the national and agency MTEFs, constitute accompanying information to the Finance Law project, but are not submitted to a vote.

  • During the process, spending agencies should brief respective sector committees on their proposed and forward budgets which should be in tandem with their strategic plan and linked to the overall national development plan.

Mtef and parliament1
MTEF and Parliament

  • A requirement for submission for the MTEF to Parliament was introduced in Uganda under the 2001 Budget Act.

    • Experience shows that it can increase stake holder participation in the budget process (including greater political participation)

    • Criticism that it has reduced the potential for parliament to lobby for additional resources for certain sectors as the legislature only receives sector ceiling already determined by the MTEF and therefore can only alter sector priorities and policies. 

The upstream stages preparing the budget

  • Negative Aspects

    • Limited govt ownership; unconnected to the budget process

    • Difficulties of some early MTEF

      • No political buy-in

      • No emphasis on choice

      • No link to budgets

      • No link to budget process

      • Too technical

    • Heavy strain on limited capacity

    • Absorbing policymakers’ attention to the detriment of basic PFM problem.

    • Role of Parliament is often limited

The upstream stages preparing the budget

  • Positive Aspects

    • Awareness of the need to think beyond the current budget

    • Greater recognition of resource constraints

    • Reprioritisation

    • Encouragement of coordination/co-operative governance

    • Greater attention to efficiency – with the implicit results of public spending rather than the manner of it.

    • Disciplined policy-making

    • Better analysis

Mtef and parliament2
MTEF and Parliament

  • Another ingredient of success is to clearly link medium term spending and revenue figures to government policy, for instance by linking the MTEF with a medium term budget policy statement/strategy.

  • It is only with narrative information on the content and direction of budget policy that the medium-term figures can be adequately interpreted and assessed by parliament.

  • The legislature should approves each year an updated budget strategy covering at least 3 years (including the budget year).

  • Many legislatures are only informed of the government’s medium-term strategy although they may be subject to debate.

The upstream stages preparing the budget


What is affordable?

Linking both pillars

What is needed?

Costing disaggregated

Medium Term Costing

All sectors and govt levels included

Integrate Capital/recurrent expenditure?

Process to bring

the pillars


Part of annual

budget process?

Submitted to

cabinet and


Made public?

Aggregate ceilings?

Sustainable sector ceilings?

Budget presentation and the role of the legislature1
Budget Presentation and the Role of the Legislature

  • Budget documentation must be reader-friendly and provide clear and simple summaries of the key issues and decisions.

  • The powers of the legislature:

    • De facto no power to amend (equivalent to a motion of no-confidence).

    • Restricted amendment power (specified limits on the changes in expenditures and revenues)

    • Unrestricted amendment power (usually subject to the veto of the President)

    • Balanced amendment power (must maintain the overall fiscal balance)

  • Actual powers of the legislature depend on its capacity and the political climate.

  • Key question: Is the budget timetable compatible with, and support, the basic view of relative responsibilities between the legislature and the Executive?

    • Time constraints are a double-edged sword... they can pressure participants into making necessary compromises to achieve a responsible budget, but they can also limit scrutiny and the ability of the legislature to make fully informed decisions.

Oecd best practices for budget transparency
OECD Best Practices for Budget Transparency

  • A comprehensive budget includes performance data and medium term projections.

  • A pre-budget report states explicitly the government’s long-term economic and fiscal policy objectives, and its economic assumptions and fiscal policy intentions for the medium term.

  • Monthly reports show progress in implementing the budget, including explanations of any differences between actual and forecast amounts.

  • A mid-year report provides a comprehensive update on the implementation of the budget, including an updated forecast of the budget outcome for the medium term.

  • A year-end report should be audited by the supreme audit institution and released within six months of the end of the fiscal year.

  • A pre-election report illuminates the general state of government finances immediately before an election.

  • A long-term report assesses the long-term sustainability of current government policies.

Case study zimbabwe1
Case Study: Zimbabwe

  • According to the PFMA, monthly reports should be prepared by spending departments and presented to the Accountant General within 14 days of the end of the respective month and also to the relevant portfolio committees within 30 days of the respective month.

  • The monthly consolidated financial statements are always gazetted.

  • The mid-year and year-end reports are also presented in Parliament

  • Although this is a requirement, most ministries are defaulting when it comes to submitting their reports to parliament.

How to scrutinize budget proposals
How to Scrutinize Budget Proposals?

  • Parliaments with three sets of specialised committees i.e. a budget or finance committee, sectoral or departmental committees (which have actual authority of departmental budgets) and an audit committee received the highest possible score in an index of legislative budget institutions.

    • See J. Wehner (2006) “Assessing the Power of the Purse: An Index of Legislative Budget Institutions”, Political Studies, Vol 54, Issue 4, pp767-785.

  • Whether functional or sectoral, committees must be strong, well resourced and trained to ensure they can process the technical information presented to them.