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