National Budgeting Process

1. National Budgeting Process

2. National Budget Process • Two stages: • Federal (Ministry of Finance) Level • Agency Level.

3. Budget at Federal Level • The responsible agency is the Treasury of MOF, specifically dealt by the Budget Management Division (BMD) of the Treasury. • The structure of BMD: • Headed by a Budget Director • 2 Deputy Directors • 6 Sr. Asst. Directors.

4. Budget Management Division • The roles : • to ensure that the allocation of resources to the respective government agencies are done fairly in accordance to the national policies and objectives; • to ensure that the financial resources of the country are provided and utilised in the most effective and efficient manner in consistence with the policies and objectives of the government. • to conform to national objectives through the preparation of annual budget for approval by parliament.

5. Budget at Agency Level • The government agencies are divided into 6 sectors for the purpose of budget : • General administration • Security • Primary resources • Social & Welfare services • Communication & Trade • Research & Coordination

6. Budget at Agency Level • The Controlling Officer at agency level is responsible for the budget; • The responsibilities include: • to examine budgets of all agencies under his control; • to consolidate the budgets for all agencies under his control; • to ensure that budget allocations are spent efficiently & effectively.

7. General Budget Process Cycle PLANNING EVALUATION BUDGET PROCESS CYCLE CONTROL

8. National Budget Formulation • Prior to 2002 • Budget is prepared and approved annually • 2002 and onwards • Budget preparation and examination are carried out once in two years • Reasons: • To increase the quality and efficiency of budget allocations • To assist the government in determining any borrowing requirement • To be effective and efficient in the deployment of resources • To enable the government in planning and implementing programs and projects (with certainty, discipline and transparency)

9. Budgetary Processes • Preparation and formulation • Submission and examination by central agencies (Federal) • Cabinet and legislative approval • Execution and implementation • Audit and review

11. Budget Formulation Process (Agency Level) • January: • Receive Call Circular from the Treasury; • Issue similar Call Circular to various agencies/dept under its responsibilities; • March: • Submission of budget proposals by agencies for operating expenditure; • April: • Submission of budget proposals by agencies for development expenditure.

12. Budget Formulation Process (Agency Level) • April: • Examine budget proposal by BMD • May-July: • Budget hearing - preliminary & Actual (Submission to the Treasury) • August-September • Approval by Cabinet • October • Parliamentary Approval

13. Call Circular • Issued by the Treasury to government agencies and contains: • budget policy on expenditure; • process & procedure to be followed; • the format of budget request to be used; and • dates of submission of budget proposals.

14. Budget Preparation – directive • The Treasury Circular of Budget Estimates Guide – 2006-2007 provides a Framework for government departments and agencies prepare budget proposal for 2006: “..Year 2006 will be the first year of 9th Malaysian Plan implementation, therefore, based on short term and medium term issues and objectives that need to be addressed, 2006-2007 Budget proposals should emphasis the main themes of 9th Malaysian Plan. In light of this, budget proposal should be prepared to achieve the following objectives:”

15. The Treasury Circular’s Budget Estimate Guide 2006-2007 – cont’d • Objectives of 9MP: • To further accelerate growth in service, agriculture and manufacturing sectors towards economy based on R&D, Innovation, and high value added activities; • To provide conducive environment in improving private investment in all potential sectors that contributing to sustainable economic growth by providing efficient public services; • To enhance competitiveness and efficiency through cost savings and improved productivity in value chains between industries

16. The Treasury Circular’s Budget Estimate Guide 2006-2007 – cont’d • To develop high skilled and innovative labor force with specialties in Science and Technology; • To improve effectiveness of public sector’s financial management, to increase governmental revenues towards balanced budget, and improving the effectiveness of public service programmes and activities, and • To ensure public welfare and their quality of lives, particularly through increased domestic income, and reducing gap between races, locations, and between people in urban and rural areas.

17. Preliminary Hearing • Process of checking budget proposals with policy directives; • The hearing is chaired by Budget Review Officer with representatives from Economic Planning Unit (EPU) and Public Services Department (PSD).

18. Actual Budget Hearing • Examine staff requested by PSD; • Ensure that annual budget proposals conform to the 5-year development plan; • Consider physical & financial performance for past years; • Examine the government financial position; and • Consider the NEP objectives.

19. Budget Staff Paper • On completion of budget hearing the Budget Review Officer (BRO) shall prepare a staff paper covering: • assessment on the budget proposals; • reasons for accepting/rejecting; • amount recommended for the new year with justifications; • Paper is sent to Minister of Finance for approval.

20. Budget Formulation Process (Federal Level) • January: • Treasury issues Call Circular to all Government • March-April: • Budget examination process • Officers of Budget Management Division have discussions with all government agencies to fix the expenditure allocation ceiling )operating and development expenditure) for the following year

21. Budget Formulation Process (Federal Level) • May – July: • Preliminary Budget Hearing and Actual Budget Hearing • July-August: • Finance Minister has dialogue sessions with every significant business & community groups including PEM, ISIS, MIER, consumers & bankers associations, chambers of commerce, & voluntary organisations.

22. Budget Formulation Process (Federal Level) • Treasury officials closely follow through the dialogues • taking note of the criticisms of existing policies & study proposals for new policies & tax changes; • Present at these dialogues are: • 2 Deputy Finance Ministers; • Bank Negara Governor & Deputy Governor; • Head of EPU; and • Secretary Generals of key economic agencies

23. Budget Formulation Process (Federal Level) • The Inter-Agency Planning Group (IAPG) consist of key agencies and Statistics Dept. that act as government think-tank for the formulation of all major economic policies. - In the budget preparation, IAPG provides all data & analysis on the economy & its prospective performance.

24. Budget Formulation Process (Federal Level) • Treasury officials then study all these economic & financial information & advise the budget committee chaired by the Finance Minister. • This committee plans the budget strategy, the budget policies & specific new tax proposals.

25. Budget Formulation Process (Federal Level) • September: • The Finance Minister, Bank Negara Governor, & their officials attend the annual meeting of the World Bank & the IMF annually in Washington. • This meeting is to get a good feel & feedback on the current state & outlook of the world economy. • This economic intelligence is fed back to the budget planners in the Treasury, who would be drafting the minister’s budget speech.

26. Budget Formulation Process (Federal Level) • End Sept/October: • Budget is presented to the Parliament • Note: • Budget Proposal for 2007 was presented on 1st September 2006 (Friday)

27. Budget Formulation Process (Federal Level) • Oct-Dec: • Budget proposals (Supply Bill) are debated in House of Parliament and House of Senate; • Once approve by these houses, the Bill is brought before the YD Agong for Royal Consent (Supply Act); • Upon consented by the YD Agong, the Parliament issue General Allocation Warrant to the Treasury authorizing the spending of public money as contained in the Supply Act.

28. Budget Speech • Contents of budget speech: • Budget theme • E.g. Budget 2007 – “Implementing the National Mission Towards Achieving the National Vision) • Current economic situations • achievements and shortfalls • Economic prospect of budget year • Budget strategies • Thrusts of the budgets • Budget on allocations

29. Budget Strategy (Budget 2007) • To move the economy up the value chain; • Private sector as the Engine of economic development • Commercializing agriculture • Promoting biotechnology • To raise the capacity for knowledge and innovation and nurture ‘first class mentality’; • Quality of education at all levels • To address persistent socio-economic inequalities constructively and productively; • Poverty eradication • To improve the standard and sustainability of quality of life; and • Housing for low income group • To strengthen the institutional and implementation capacity. • Enhancing public service delivery system

30. Budget Allocations (Appropriations) • Contain the budget amount & breakdowns of expected income & expenditure; • Amount appropriated for Operating & Development expenditure; and • The allocation is divided into various Vote (Heads of expenditure) • Refer to handout

31. Budget Execution • The implementation of approved budget: • The Accountant General Office; • All Self Accounting Departments; • Imprest (Panjar) Holders who are responsible for the Imprest Accounts; and • State Treasurers.

32. General Allocation Warrant • A legal document issued by the Finance Minister to the Accountant General Office upon approval of budget by the Parliament (YDA)eral, • This warrant serves as an authority for the AG office to utilise the Consolidated Funds required for expenditure. • The Warrant shall lapse & cease to have any effect at the close of one calendar month following the financial year (Section 13(6) Financial Procedure Act 1957).

33. Allocation Warrant • The Accountant General’s office will subsequently issue circular in the form of ALLOCATION WARRANT to all Controlling Officers in various government agencies; • This circular serves as an authority for the Controlling Officers to utilise the allocation as contained in the Supply Act.

34. VOTE BOOK • A VOTE BOOK is a financial record kept by various government agencies for the purposes of : • controlling & ensuring theexpenditure & liabilities do not exceed the approved allocations; • providing a source of information in preparing reports on expenditure, liabilities, & balance of allocations. • It is maintain by all government agencies in order to conform with the requirements of the Treasury Instruction no. 95 & the procedure set out in Treasury Circular no.8, 1987.

35. VOTE BOOK • Components: • Part I – Vote information • Part II – Increase/Decrease in allocation • Part III – Detail transactions

36. Vote Book • Transactions recorded are: • Allocation received by warrant; • Additional allocation • Reduction or utilization of allocation; • Virement/transfer of allocation; • Incurring/ Cancellation of liabilities • Credit expenditure • Adjustment entry • Closing entry

37. Government Accounting Operations Accountant Gen. Dept/ Auditor General Budget Management Division Accountant General Department Accounting Operations Expenditure Estimates Reporting & Auditing TI.7 – TI.52 TI.53– TI.140A TI.141 – TI.165