Budget Preparation and IFMIS
Duncan Last
Public expenditure Management Advisor
East AFRITAC (IMF)
Dar es Salaam, Tanzania
IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya
Typical Budget Preparation Cycle
• Preparation of a medium term expenditure framework (MTEF)
• Setting of expenditure ceilings and budget call circular with
guidelines
• Preparation of budget submissions
• Collection, consolidation, and analysis of budget submissions
• Finalization of budget, including negotiations and final
adjustments
• Preparation of budget documents
• Managing Cabinet and Parliamentary changes
• Publication of adopted budget
IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya
Budget Function – Preparation
Preparing/updating the MTEF (1)
• Establishing macro-economic forecasts
–
–
–
–
Usually the job of the Macro Department
GDP, exchange rate, inflation, interest rate, wage rates, …
Likely impact on revenues and expenditures
Identification of macro-economic risks
• Establishing resource envelopes
– Tax and customs revenue forecasts, including impact resulting from
actual or planned changes in the taxation regime, from changes in the
macro-economic environment, and from changes in the tax base
– Other revenue forecasts: fees, cost sharing, dividends, asset sales,
receipts from lending, local government revenues
– External resources: budget support, basket funds, project financing –
grants, loans - , and debt relief
– Identification of fiscal risks
IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya
Budget Function – Preparation
Preparing/updating the MTEF (2)
•
Recognizing fixed costs or costs established by Law
–
–
–
–
–
–
•
Identifying the ‘flexible’ part of the budget
–
–
•
Possible savings in fixed costs (rationalization, containment measures, elimination)
Flexible part = resources minus fixed costs (adjusted by savings), divided between internal
and external resources
Identification of government policy priorities
–
–
–
–
•
Wages, social welfare, and pensions
Part of operating costs, including maintenance (utilities, buildings upkeep)
Membership fees and dues
Debt service
Statutory transfers (to local governments, agencies and extra-budgetary funds)
Lending and on-lending agreements
Poverty reduction strategy
Millenium Development Goals
Sector specific plans
On-going vs new policy initiatives
Defining major programs to meet these priorities
–
–
–
Outputs/outcomes
Broad Costs
How they are to be financed (internal or external resources)
IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya
Budget Function – Preparation
MTEF and IFMIS
Can/should MTEF be a module of IFMIS?
Or is MTEF a standalone system which uses data from
IFMIS, among other sources?
• MTEF is a forecasting model used mainly by Budget
Department
• The MTEF process is iterative, with maybe 2-3 scenarios
developed for Cabinet consideration
• However, in the region MTEF has been developed well
beyond its original scope, down to detailed activity plans.
Such approaches should be more appropriately named
Detailed medium term activity plans.
IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya
Budget Function – Preparation
Ceilings and the budget call circular
•
Results of agreed MTEF
– MTEF negociations should result in the establishment of Cabinet agreed expenditure
ceilings by budget user (line ministry)
– These should be set for fixed costs, as well as on-going and new programs
– Expected outputs/outcomes should accompany the budget ceilings
– Specific cost saving measures, as well as departmental revenue collection targets, which
were used to determine the ceilings should be spelt out in the budget call guidelines
•
Ceilings are central to the budget call circular
– In principle they force budget users to work within limits
– For this to happen, requests over the ceilings should be submitted separately, and
considered only during final negociations
– This safety valve may be necessary to cater for policy changes that have arisen since
setting the original ceilings
•
Guidelines
– These should clearly indicate how specific costs should be calculated (wages, inflation
adjustment for goods and services, per diem and travel costs, formula based transfers, …)
– Many countries have developed cost calculation forms to facilitate costing by budget
users and to allow efficient and consistent checking by Budget Department staff. The
development of standardized budget preparation forms facilitates computerization.
IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya
Budget Function – Preparation
Preparing the budget submissions
•Typical process in budget users
– Budget user’s planning and budgeting unit (with accounting unit) prepares
wages budget and quite often the other ‘fixed’ costs as well
– Unit managers are asked to identify the ativities/projects they intend to
undertake to meet the program outputs/outcomes assigned to them, which
are then costed by the planning and budgeting, and accounting
departments
– Key stakeholders in the budget user meet to ajudicate between the
competing demands limited by the budget call ceilings
– Budget submission is completed and sent to the Budget Department
In many countries, however, there is little discussion and budget
submission decisions are made by a few senior staff within the
budget user. Often the capacity to do proper costing is limited,
resulting in major changes during execution.
IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya
Budget Function – Preparation
Computerizing the budget
submissions preparation process (1)
•Ideal solution
– Networked or web-based submission system designed around standard forms
which are pre-filled with historical and expected outturn data, primed with the
ceilings (at budget user and program levels), and which can be downloaded at
the budget user end to facilitate data entry at the level of each unit, consolidated
and reviewed, given final adjustments and then returned to the Budget
Department.
•Alternative, simpler, solutions
– Use of pre-prepared spreadsheets: problem is that budget users change them!
Manual preparation and collection of budget submission has become
a major burden, given the volume of data involved. Inadequate
computerization limits the analysis that Budget Department can
reasonable undertake, undermining the quality of the final budget.
IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya
Budget Function – Preparation
Computerizing the budget
submissions preparation process (2)
•Design considerations
– Budget preparation is an iterative process
– Many units are involved in budget preparation
– The process required access to significant volumes of financial and nonfinancial data, including historical data
– The data needs to be analyzed from a wide range of perspectives
– There are several levels of budget negociations
– The process must be kept confidential until the budget is submitted to
Parliament
– Budget Department is usually working under severe pressure, both time
and competing interests for budgetary resources
IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya
Budget Function – Preparation
Computerizing the budget
submissions preparation process (3)
•Bringing order to the process through version control
– There are a number of key tracking stages:
• Ceilings, submissions, adjustments (maybe up to 5), Cabinet, Parliament,
Appropriation
– At each stage senior management in MoF needs to take stock
– Absence of tracking stages will lead to uncertainty over what has
already been done (i.e. a record and explanation of changes), and
the remaining gap to reach the desired budget
– Tracking stages will help to improve the discipline, and help to
avoid last minute across the board and meaningless cuts to ‘fit’
expenditures to resources
IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya
Budget Function – Preparation
Conclusions
•Budget Department must be in full control of any
computerization of the budget preparation process
•Budget preparation NEEDS to be computerized if the quality of
budgets is to improve
•Budget preparation is a negociation process between competing
demands, and therefore needs to have structure in the form of key
tracking stages if MoF is to stay on top of the process
•Badly prepared budgets rarely produce good results in
execution
•Computerization will not deliver expected results if budget staff
do not have the right skills/capacities to critically analyze budget
submissions
IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya
Thank you for your attention!
Any questions or comments?
Duncan Last
Public expenditure Management Advisor
East AFRITAC (IMF)
Dar es Salaam, Tanzania
IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya