Budgetting - Staff college

Budgetting - Staff college

Nepal Administrative Staff College Public Service Training Department Training Programme on Management Development for Class III Officers of the Government of Nepal (PACT) (February 09-March 18, 2015) Module III: Managing Office Resources Session on Budgeting Yuba Raj Bhusal February 20, 2015 Table of Contents 1. 2.

3. 4. 5. 6. 7. 8. Budget Concept Main Objectives Budget Types Budget Classification Principles of Budgeting Budgeting Framework: Policy, Program, Legal Budget Cycle: Formulation, Execution, Evaluation Recent Trends: Gender, Pro-poor, Climate Change, Nutrition Sensitive Budgeting.

9. Challenges and Way Forward 1. Budget Concept Introduced in England in 1773 from a French word bougette that means a leather bag, while opening it by the Chancellor of Exchequer in the Parliament to present governments financial plan for approval. A financial plan and a major policy instrument to establish macro economic stability, allocative efficiency and fair distribution of income/resources. A policy making tool used to translate strategic objectives into programs and services to meet the socioeconomic needs of the people. Contains overview of the economy; annual revenue and expenditure plan; information on assets and liabilities; and appropriations.

2. Main objectives of budget: enhance economic growth; establish a sustainable fiscal framework; allocate resources to programs on the basis of governmental priorities and program effectiveness; operate and deliver public services efficiently; ensure that the budget reflects citizens preferences; ensure that spending units are well equipped and are accountable for their actions; maintain balance between socio-economic and spatial (geographic) development; and make socio-economic transformation of the country. 3. Budget Types Line item budget or incremental, where certain amount is added to the last years figures, a traditional way of estimating the

expenditures. Zero-base budget calls for an activity to be started from scratch i.e., zero-base. A thorough analysis, re-examination, review & justification needed. Program budget is a result-oriented budgeting system that specifies the programs/activities and seeks to relate costs to outputs. Performance budget focuses to improve the efficiency of programs and functions. It quantifies the entire result-based chain as inputs, outputs, outcomes, and impacts to the common people. Voted and non-voted: Non-voted expenditures reflect the salaries of the heads of State, Government, judiciary, interest payment etc. All expenses need to be voted in the Parliament except the non-voted ones. Discretionary and non-discretionary: used in ones own discretion in a more flexible manner is called discretionary and opposite is

non-discretionary; Capital and operating/recurrent; Development and ordinary; Participatory and non-participatory: If the beneficiaries are involved in the process of budgeting it is participatory and opposite is non-participatory. Core and external: Core budget is the expense to be made by the government treasury. The donors execute different programs directly through their budget is external one. Central, provincial and local budget: Central budget is allocated to and spent by the central government institutions. Provincial budget is the budget of the sub-national entities allocated to and spent by the local governments within their territorial jurisdictions. 4. Budget Classification

Government expenditure needs to be classified for budgeting, accounting and financial reporting. Bases of classification: Classification byExamples Organization Ministry of Finance, Ministry of Agriculture, Ministry of Education Objective Wages and salaries, Travel Allowances, purchases of materials and equipment Economic Expenditure on goods and services, transfer payments, subsidies, interest payment, social security benefits. Functional Defence, education, health, irrigation, public Health, social services, economic services etc. Program Vocational Education, Malaria eradication, Agricultural extension. Location Central, Provincial, District, Municipal.

5. Principles of Budgeting A sound budgeting and financial management system is needed for maintaining macro economic stability (maintaining fiscal discipline; ensuring efficiency of public resources; maintaining monetary stability; strengthening financial system; and enhancing private sector in economic activities). a) Annuality: the budget is prepared for and executed over one year. Unutilized grants lapse at the end of the fiscal year. b) Universality: all the resources should be directed to a common pool or fund to be allocated and used for expenditures according to the priorities. c) Accuracy and timeliness: formulation, approval, execution, accounting, monitoring, reporting and auditing. d) Comprehensiveness: covering several years and all the fiscal operations (revenues/expenditures & the full accounting of

transactions). e) Fiscal discipline coupled with economy implies that the budget absorbs only the resources required to implement the policies/ programs. f) Legitimacy calls for the greater involvement of the stakeholders in the budgetary processes. Wider participation deepens debate and makes greater social consensus possible even on difficult trade-offs. g) Flexibility intends to provide authority to the managers over the managerial decisions accompanied by transparency and accountability. h) Predictability ensures the timely flow of funds to programs/ projects formulated and approved. i) Contestability is the quid pro quo for greater predictability in policy development and service provision. It ensures that existing policy is subject to review and evaluation and that line ministries

performance is subject to continuous improvement. j) Information underpins honesty, sound decision-making, and accurate and timely information of costs, outputs and outcomes. k) Honesty denotes a budget derived from technically & politically unbiased projections. Optimistic projections soften the budget constraint on setting strategic priorities. l) Transparency and accountability entail that the decisions, together with their basis and the results and the costs, should be accessible, clear and communicated to the wider community. Decision makers need information on all issues before making decisions and would be held responsible for the exercise of their authority thereafter.

m) Fine processes and methods imply outward looking fiscal framework, focus on service outputs/ outcomes, and a classification linking the expenses to spending units/ purposes. n) Allocative efficiency calls for the allocation of resources and consequently the expenditures based on established priorities and program effectiveness. o) Operational and managerial efficiency means delivery of public goods and services should be cost efficient and of high quality. It should be supported by accountability for service levels and outputs and discretion in the relative use of inputs. p) Accountability/ control calls for reinforcements by comprehensiveness, prioritization and systematic budget and expenditure reviews, execution controls and post execution reporting and auditing. 6. Budgeting Framework

6.1 Policy framework: Meeting the goals and targets such as of the SDGs, MDGs, SAARCDGs, LDC Graduation strategies, Plan Objectives, Medium Term Expenditure Framework; Meeting Sectoral Policies and Targets; Reducing poverty; Better Public Service Delivery etc. 6.2 Legal framework: The Constitution; Public Finance and Expenditure Management Law; Public Procurement Law; Intl Monetary Funds guidelines. 6.3 Other documents of legal importance such as multilateral and bilateral agreements, commitments. 7. Budget Cycle: Formulation, Execution, Evaluation a) Formulation and Approval Budgeting is a continuous process and involves the interplay of several stakeholders. dealing with institutional factors, recognition of

economic environment, formulation of relevant policies and implementation strategies, patterns of legal accountability and responsiveness of the central, provincial and all spending agencies. MOF is responsible to formulate the budget (Part IV, Arthik Karyabidhi Niyamawali, 2064). It mobilizes revenue and manages government finances; supports economic management promoting socioeconomic growth; manages public wealth; promotes good governance; and attempts to be the best practice leader within the public sector. The size of the budget is determined on the basis of revenue + foreign aid + permissible levels of deficit = total expenditure. The MOF performs the above duties in consultation with the NPC & Sectoral Ministries/ Agencies. b) Budget Execution: i) The allotment process: After the Budget Speech by the Finance Minister, the entire budget is submitted to the Legislative Body of the

State. As soon as the legislative approval the Appropriation Bill becomes a Law ready to implement by concerned agencies. MOF issues and authorizes the primary budgetary units allotting and disbursing funds periodically (monthly, quarterly) right from the beginning of the fiscal year. The allotment process at the MOF is adopted to adjust expenditure plans, policies and priorities; controlling expenditures; coping with unforeseen changes in the economy; promoting economy, efficiency and effectiveness of the programs/ projects; funding new and untied programs/projects. ii) Getting funds to service delivery units: The primary budgetary units correspondingly need to release funds to their central and field agencies i.e. departments, provinces and the districts. iii) Procuring goods and services: The Procurement Law regulates the procurement of goods, services and coordination of works. iv) Accounting of transactions:

Accounting of financial transactions is the major task in financial management. The Accountants are responsible for the performance of accounting controls, processing transactions, record keeping, custody of the documents supporting the accounting entries, and the information produced on the financial status and transactions they have made. The treasury function is more sensitive that ranges from the commitment of expenditures to recording, payment and accounting. Nepal's New Public Sector Accounting Standard, 2069 at work. v) Internal audit: Provisions for internal audit are made for an independent, objective, assurance and consulting activity, designed to value and improve an organizations financial operations. It may provide valuable feedbacks in order to foster improvements in public expenditure management.

vi) Progress reporting: As the MOF has to submit quarterly and final progress report to the Government and the President, all the spending units report (monthly, quarterly, half-yearly and annual) to their primary budgetary units and MOF on their financial transactions. vii) Periodic review on execution: Periodic review of budget execution is often justified to make the process more effective. The objectives and targets of the budget are compared with timeline and on-going progress both physical and financial. c) Evaluation (Control and External Audit) The Financial Regulations have made all the budgetary units responsible for establishing good financial control framework in order to prevent loses and illegal action resulting from misuse, waste, inefficiencies, delays and irregularities, fraud, error, imperfect records, unreliable information, and non-adherence to the laws.

External auditing is an independent appraisal activity, traditionally concerned with the evaluation of financial statements and the accounting records on which they are based, leading to the expression of an expert and independent opinion on the truth, accuracy, reliability and compliance with rules, financial records and statements. Besides, the matters of economy, efficiency and effectiveness have been added for performance audit. The Auditor Generals Office prepares an independent audit report within six months from the end of a fiscal year. The auditors have the right to acquire all information and explanations deemed necessary for auditing. The audit report is submitted to the President followed by the Parliament's Public Accounts Committee for detailed discussion and making needful correction.

Finally, budget performance is evaluated from control as well as management perspectives. With a control lens one may ask how much was authorized to be spent; what was it to be spent on; who was authorized to spend it (organization and official); how much was spent; and was any left over? Similarly, one concerning management may raise issues like what objectives/ targets were set and how much achieved; were the staff and other logistics provided satisfactorily; were the procedures observed while achieving the results; what were the constraints/ bottlenecks in achieving the results, if any; is the project completed satisfactorily; and would it be possible to achieve the same results with lower costs. Based on the budget execution progress (after mid-year or final evaluation) new budgeting process begins for the next fiscal year with better ideas to improve the system.

8. Recent Trends 8.1 Gender Budgeting: Male and female distinct from actual biological sex while gender is a social construct. Attributing to their reproductive power, women play multiple roles in the households and thus deeply entangle in domestic chorus. Men predominantly grabbed the opportunities in the society lagging women far behind. With the growing human consciousness, gender equality has been largely advocated and gender budgeting is a part of it. Main thrust of gender budgeting is to transform financial and budgetary policies towards achieving gender equality. Gender responsive budget was first introduced in Australia in 1984 as the gender mainstreaming strategy and later expanded to other countries including South Asia. Allocation: benefiting direct: 21.93+indirect 45.04 (2014-15).

For updates on Nepals status please visit: http://www.mof.gov.np/en/gender-responsive-budget-76.html 8.2 Pro-poor Budgeting: budget that focuses on reducing poverty to the targeted level. Allocation: 49.8 percent (2014-15). 8.3 Climate Change Budgeting: addressing the concerns of climate change across the sectors Allocation: direct 5.66, indirect 5.07 percent (2014-15). 8.4 Nutrition Sensitive Budgeting: addressing to practice balanced diet through different sectors. It is in progress in the NPC. 8.5 LDC consistent budgeting: a thrust for graduating Nepal from the LDC category to DC status by 2022. In progress in the NPC. 8.6 Priority-wise allocation (in percentage/2014):

Projects of National Pride: 21 P1: 85.3 P2: 11.5 P3 : 3.2 9. Challenges and Way Forward 1. Maintaining macro-economic stability (maintaining fiscal discipline; ensuring efficiency of public resources; maintaining monetary stability; strengthening financial system; and enhancing private sector in economic activities) and allocative efficiency; (scattered resources, issues of common virement) 2. Balancing allocation between capital and recurrent expenditure

(capital: 18.9, regular: 64.5, financing: 16.6 percent); 3. Streamlining resources to MDGs, SDGs, SAARCDGs, 13th Plan/LDC graduation strategies/ programs, ad hoc/political project demands; 4. Balancing spatial distribution(ecological zones, development regions; rural/urban): physical connectivity and Electrification; 5. Balancing allocation across targeted areas (targeted districts, social groups); 6. Ensuring budget for the projects of national pride (irrigation 4, roads 7, power 3, airports 3, culture 2, driking water 1, forestry 1=21) 7. Dependency on external sources (19.9 %);

8. Low level of spending (surplus budget!); 9. Distribution oriented (social security, growth in salary and facilities, constituency development programs, relief package for conflict affected people, redressing the concerns of the people affected by natural disasters; and to the farmers in terms of loan and subsidies); 10. Imbalance of payment in foreign trade (1:8); 11. Remittance oriented economy often unsustainable; 12. Ignoring industrial sector development (overlooking the issues of sick industries); 13. Unsustainable social security allocation (pension, security benefit age); 14. New generation economic reforms in

doldrums; and 15. Addressing the consumerist behavior of the ever ambitious public sentiments! THANK YOU

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