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Budget execution

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Title: Budget execution


1
Budget execution
  • downstream
  • or up the creek?
  • Jim Brumby, FAD.

2
  • Much of the budgetary dislocations and the
    seeming planlessness, waste, and ineffectiveness
    of government ministries/agencies can be traced
    to the virtual failure of the processes for the
    release of funds
  • Professor Dotun Phillips, Nigeria, 2000

3
Budgetary allocations
  • Three levels pursued through harmonious use of
    institutions (information, rules and roles)
  • Budget formulation
  • Constrained approval process
  • Execution consistent with approved budget
  • Timely, audited reporting
  • Evaluation

4
Objectives of budget execution
  • Manage spending and revenues to budget (L1)
  • promote macrofiscal discipline
  • allow budget to be planning and steering tool
  • Enable program implementation (L2,3)
  • support choices of elected officials
  • assure resources flow to programs
  • allow budget to be aid to operational efficiency
    through spending unit advance planning, efficient
    administration
  • reduce opportunities for corruption
  • enable managers to achieve objective

5
Budget allocation
  • Poor countries
  • Pathologies of unrealistic budgeting hidden
    budgeting escapist budgeting repetitive
    budgeting cashbox budgeting deferred budgeting
  • Encourage enclave budgeting
  • Allocation becomes determined through execution
  • Formal budgets disappear

6
State of play
  • focus on the downstream, but a desire to link
    upstream
  • Many manual or stand alone systems
  • A controlling commitments and eliminating
    arrears
  • F strengthening accounting and cash management
    systems
  • HIPCs systems for poverty monitoring
  • BRO developing treasury systems

7
Recently emerging priorities
  • Continuing core program
  • HIPC relief monitoring
  • Fiscal data quality
  • ROSCs
  • Re-organization of delivery
  • Africa and non-African HIPCs
  • ROW

8
Some issues
  • Arrears
  • Fiscal data
  • HIPC tracking work

9
Arrears
  • Outstanding payment obligations not discharged
    within reasonable (contractual) time
  • Difficulty in measurement
  • May involve offsets

10
Arrears why a problem
  • Flow disguises size of govt and
    nonsustainability of current settings
  • Breakdown in contracting encourages informal
    ways to get paid
  • Reverberates through the economy, with more
    arrears

11
Arrears root causes
  • Unrealistic budget preparation (revenue
    over-estimated expenditure under-estimated)
  • Poor budget execution (pathologies)
  • Lack of political commitment to hard budget
  • Unanticipated negative events
  • Reporting system which does not reflect economic
    substance

12
Arrears - how serious a problem
  • 45 of all countries in programs 1993-99 had PC
    on domestic arrears at some point
  • AFR 77
  • EU2 64
  • More PCs over time
  • They stick
  • Many received TA

13
Arrears - what to do
  • Bolster preparation
  • Control commitments and verify arrears
  • Neutralize incentive to create arrears

14
Arrears - preparation
  • Relate to needs and availability
  • Bringing plans and budgets into alignment
  • Cost basis
  • Using contestability in forecasting
  • Prudence

15
Arrears execution
  • Registering commitments
  • Hard constraints, with no commitments above a
    given amount
  • Can reward good behavior
  • Differentiate commitments, liability and arrear
    but watch all
  • Focus on problem ministries
  • Quarterly verifications
  • Auditor general or external auditors
  • LT GFMIS

16
Arrears - neutralize
  • Capture hard arrears number in expenditure
    tracking
  • Pay to zero regularly
  • Migrate to accruals accounts payable and
    receivable

17
Fiscal data quality
  • National (and Fund) supported monitoring
  • Coverage (ggs) and central budget sector
  • Alignment of execution and preparation data
  • Realistic estimates on base of adequate costing
  • execution numbers accurate and timely
  • Economic and functional classification
  • Internal consistency bank accounts, ledgers,
    debt stock and flow
  • Contingent liabilities recorded
  • Parallel to ELRIC

18
Data quality missions
  • C1 inconsistency between levels, exclusions
  • C2 inconsistent coverage, stock-flows
  • C3 non-cash transactions
  • Fix data through exacting process
  • Reinforce good data with transparency (PETS)
    audit
  • LT GFMIS and need for consistent budgeting and
    accounting classification

19
GFMISs
  • Direct risks
  • High cost
  • User requirements uncertain
  • Technical competency of users
  • Lumpy
  • Soft budget constraint
  • Indirect risks
  • Sucks resources
  • Undermines current systems

20
Relative need for upgrading
21
HIPC execution findings
  • Internal Control
  • About two-thirds of HIPCs do not currently have
    serious payment arrears problems
  • Expenditure tracking surveys have been recently
    introduced in several HIPCs
  • About one-third of HIPCs are reported to have
    active internal audit systems, but
  • Reconciliation
  • About 40 of the countries now undertake regular
    reconciliation between fiscal and monetary
    accounts.
  • Management Reporting
  • Less than 20 of HIPCs provide in-year tracking
    reports within two weeks of the end-of-period,
    and two-thirds within two to four weeks.
  • About two-thirds of HIPCs surveyed provide a
    functional classification for the budget 40 not
    in year

22
Tracking lessons from field
  • What is planned
  • Important to know all that is going on
  • Medium term tends to focus on all PEM, not just
    poverty reducing programs
  • Realism about timing and implementation
    difficulties
  • What is neededparticularly before HIPC
    completion point
  • Short term to be consistent with medium term but
    focused on poverty reducing spending
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