ADB Grant 0133-CAM: Public Financial
Management in Rural Development
Ministries (Component 1)
Program Budgeting, April 5 - 8, 2010
Day 2: April 6, 2010
Process and Development Technique of Program Budget
Session 2
Process and Development Technique of
Program Budget
Content
1.
2.
3.
4.
Cash budget system presentation
Inputs of budget preparation
Steps of budget preparation
RGC budgeting process
ADB Grant No.0133-CAM/Component 1:
PFMRD
2
1. Cash Budget System Presentation
Basis of the Budget System
Presentation of the cash budget
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Basis of the Budget System
Budget systems can be classified as:
i-Cash budget,
ii-Obligation based budget,
iii-Accrual based budget and
iv-Output budgeting.
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Cash budget
When is cash budgeting appropriate?
Cash budget system is used for budgeting
where most of the appropriations are on a cash
basis
In a cash-based budget, appropriations define
limits for payment and annual commitment,
that is, financial obligations met within the
fiscal year and the annual tranche of multiyear
commitments (e.g. MTEF, Program Budgeting).
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Cash budget (continued)
When is cash budgeting appropriate?:
A cash budget fits well the need for
compliance and expenditure control.
Commitments and payments are controlled on
the basis of the authorizations of the
Parliament.
Macroeconomic objectives, such as the cash
deficit, are directly linked to the appropriations
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Presentation of the cash budget
Cash budget presentation needs to
have:
i. Major requirement of the budget
ii. Budget annexes and other
documents
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Presentation of the cash budget
i. Major requirement of the budget
The budget submitted to the legislature should include
all elements needed to assess budgetary and fiscal
policy and present the appropriations according to
the needs for legislative control by the Parliament.
Revenues, expenditures, and the fiscal outturn should
be presented together.
 Concerning the expenditure side, one may distinguish:
(i) a “main” presentation, on the basis of which
appropriations are voted; and (ii) annexes that give
additional information.
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Presentation of the cash budget
“Main” presentation of the budget
includes estimates that show appropriations; may or
may not include sub-items for information only. Some
countries present thousands of line items in the budget
while others have very few.
Some countries limit the number of appropriations to
20 or even less. However, most of these countries also
have a detailed annual expenditure plan by
organization, program, and economic category, which
is either internal to the executive (as in China and
Vietnam) or presented through various annexes to the
budget.
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Presentation of the cash budget
“Main” presentation of the budget (continue)
Two distinct situations may be found:
the presentation of the budget to Parliament is a pure formality.
Where the executive has all the power, many of the issues
discussed are not relevant, notably, the nature of appropriations,
the comparison of cash controls with accrual-based controls,
accountability rules, financial reporting, etc.
elements of the annual expenditure plan are discussed in
Parliament committees. Line ministries go to the committees to
negotiate items in expenditure plan prepared by the Ministry of
Finance (e.g. some FSU countries, before the current reforms).
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Presentation of the cash budget
“Main” presentation of the budget (continued)
The budget should clearly identify responsibilities in budget
management.
The appropriations should be presented by line ministry and
independent agency, and by their major subdivisions. In
several FSU countries, the budget is or was presented by
program instead by line ministry or agency. Reforms are
currently under way to remedy this problem (e.g., Ukraine for
instance, reformed its budget classification system in 1997).
In several developing countries, the recurrent budget is
presented by line ministry but the development budget is
presented by broad function, program, and project.
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Presentation of the cash budget
“Main” presentation of the budget (continued)
 Projects financed by donors are often of composite nature,
and may include both current and capital expenditures,
particularly in the social sectors.
Nevertheless they have a single project manager and are
often submitted to special reporting requirements from
donors. Thus, although the distinction between “recurrent”
and “development” expenditures is artificial and
questionable, for accountability and management purposes
aid-dependent countries are obliged to follow it in the
presentation of the budget.
“Development” projects must be separated from other
expenditures. However, presented together.
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Presentation of the cash budget
“Main” presentation of the budget (continued)
Present development expenditures together with recurrent
expenditures under the same administrative headings (but
under separate appropriations) is required in order to assess
the overall budget of a line ministry or an independent
agency.
In countries with dual budgeting, such unified presentation
will not eliminate all the negative effects of dual budgeting
processes, but will facilitate scrutiny of sector budgets.
Within the “main” presentation of the budget, development
projects should be seen as an administrative category, and
classified according to line ministries or agencies.
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Presentation of the cash budget
“Main” presentation of the budget (continued)
In aid-dependent countries or in countries that have a dual
budgeting system, the presentation could differ from the
one mentioned earlier, as follows:
Ministry (or agency)
Directorate (or other major administrative subdivision)
Program (if any)
Current expenditures
Capital expenditures (items not included in the
“development” expenditures)
“Development” expenditures (domestic/external resources)
Capital
Current
Memo: Total current expenditure
Total capital expenditure
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Presentation of the cash budget
Budget annexes and other documents
Annexes to the budget presented to Parliament are
needed to give other presentations of appropriations
needed to analyze the budget. e.g. the following could be
attached to the budget:
(I) an annex by function;
(ii) an annex by program, especially if there are multi
sectoral programs;
(iii) if the main presentation, shows the breakdown
between current and capital expenditures, an annex by
development project/program (development budget);
(iv) if the main presentation already includes the
“development” budget, an annex to show the true
investment component; etc.
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Presentation of the cash budget
Budget annexes and other document
 Appropriations should be compared with the
appropriations of the previous year. An annex by
function should show the growth of expenditures over
several years (on the basis of actual budget execution).
Other documents can include:
(i) narrative statements on each sector budget policy, presented by
programs;
(ii) performance indicators;
(iii) the presentation of the forward costs of multiyear projects;
and
(iv) if appropriate, multi-year estimates or a Public Investment
Program (PIP).
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2. Inputs of budget preparation
Strategic development plan
Priority program/policy
• Program with indicators
• Sub-program with indicators
• Activities and target areas
Achievement of priority
program/policy
• Satisfactory/unsatisfactory on activity,
sub-program and program
Component of budgets
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2. Inputs of budget preparation
Other strategic development
plan/policy
Economic classification items
Revenue
 Revenue policy (proprietary &
government)
 Historical revenue by economic
classification item; Ch. 70, 71, 72,
73, 74, 75, 76,......
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2. Inputs of budget preparation
Other strategic development
plan/policy
Economic classification items
Historical expenditure
 Capital expenditure: Ch. 13, 21
 Recurrent expenditure: Ch. 60, 61,
62, 63, 64, 65, 66......
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3. Steps of budget preparation
Basic steps in a standard budget preparation system comprise
the following:
•
•
First step: macroeconomic framework for the budget year (and
ideally at least the next two years). This allows the budget
department within the ministry of finance to determine the global
level of expenditure that can be afforded without adverse
macroeconomic implications, given expected revenues and the
level of deficit that can be safely financed.
Second step: the allocation of this global total among line
ministries, leaving room for reserves (a separate planning and a
contingency reserve) to be managed by the ministry of finance.
Source: IMF, guide for public expenditure management
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3. Steps of budget preparation
Basic steps in a standard budget preparation system
comprise the following: (continue)
•
Third step: the budget department to prepare a budget
circular to give instructions to line ministries, with the
indicative aggregate spending ceiling for each ministry, on
how to prepare their estimates in a way that will be
consistent with macro objectives. This circular will include
information on the economic assumptions to be adopted on
wage levels, the exchange rate and price levels (and
preferably differentiated price levels for different economic
categories of goods and services).
Source: IMF, guide for public expenditure management
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3. Steps of budget preparation
Basic steps in a standard budget preparation system
comprise the following: (continued)
•
•
•
Fourth step: the submission of bids by line ministries to the
budget department. Once received there needs to be an
effective "challenge" capacity within the budget department
to test the costing of existing and any new policy proposals.
Fifth step: comprises the negotiations, usually at official and
then bilateral or collective ministerial level, leading finally to
agreement.
Finally, step six is Cabinet endorsement of the proposals for
inclusion in the budget that will go to parliament.
Source: IMF, guide for public expenditure management
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4. RGC budgeting process
•
•
General
The fiscal year for all government ministries
and public institutions starts with the first day
of January and ends of December of each
calendar year.
The budgeting process will be starting in March
in order to provide more time for the budget
preparation and deliberation.
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4. RGC budgeting process
General
• The general budgeting process is
described in the following stages.
1. Macroeconomic framework development and
preparation of Budget Strategic Plan (MarMay)
2. Budget Preparation (Jun-Sep)
3. Approval the National Budget (Oct-Dec)
Source: Law on Public Finance System, Chapter 3 and 4, Krom No. 0508/016, Royal
Palace and Royal Signature and Seal May 13, 2008.
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Macroeconomic Framework Development
(Mar-May)
Step
1
Date
Process
Responsibility
1st week
of March
Develop National Macroeconomic & Public
Financial Policy for submission to the Council of
Ministers for review and approval.
MEF
Review and approve National Macroeconomic &
Public Financial Policy
Council of Ministers
2
3
1st week
of April
Issue Circular to the ministries, public institutions
and the sub-national administration on the
preparation of budget strategic plan.
MEF
4
Before
15th of
May
Submit budget strategic plan to the MEF
Line ministries, public
institutions & subnational
administration
Source: RGC, Law on Public Finance System, Chapter 3, section 1, article 39
Development of Macroeconomic Framework
Diagram
Institution
Week 1
Council of
Ministers
Ministry of
Economy and
Finance (MEF)
Ministry/Institution
MARCH
Week 2
Week 3
APRIL
Week 4
Week 1
Week 2
MAY
Week 3
Week 4
Week 1
Week 2
Week 3
Review & Approve
National Macro Economic &
Public Financial Policy
Develop
National MacroEconomic &
Public Financial
Policy for
submission to
Council of
Ministers for
aproval
Approved
National Macro
Economic &
Public Financial
Policy
Issue Circulars
to ministries,
institutions &
sub-national
gvts on the
preparation of
strategic budget
planning
Strategic Budget Plan
Prepare strategic budget plan and
submit to the MEF before 15 May
and Provincial/
Municipality
Source: RGC, Law on Public Finance System, Chapter 3, section 1, article 39
Week 4
Budget Preparation (Jun-Sep)
Step
Date
Process
Responsibility
1st week of
June
Draft Circular on the budget preparation technique with the
formats and procedures and other related documents for
submission to the Council of Ministers for review and
approval.
MEF
2
Review and approve the Circular on the budget preparation
technique
Council of Ministers
3
Send the Circular to the ministries and public institutions for
preparation revenue, expenditure budget plan.
MEF
1
4
Before 15th
of July
Submit budget plan and priority policy to the MEF
Line ministries, public
institutions & subnational administration
5
August
Once the ministries have submitted their budgets, discussion
with the Budget Department of MEF begins around the
month of August.
MEF
Line ministries, public
institutions & subnational administration
6
September
• Add up the government revenue-expenditure budget for
rebalancing the government budget.
• Draft Financial Law and prepare the memo of them.
MEF
Budget Preparation Diagram
Institution
Week 1
Council of
Ministers
Ministry of
Economy and
Finance (MEF)
Ministry/Institution
and Provincial/
Municipality
JUNE
Week 2
Week 3
Week 4
Week 1
JULY
Week 2
Week 3
Week 4
Week 1
AUGUST
Week 2
Week 3
Week 4
Week 1
SEPTEMBER
Week 2
Week 3
Week 4
Review &
Approve the
budget
preparation
technique
Prepare the
draft
Circular on
the budget
preparation
technique
for
submission
to the
Council of
Ministers for
review and
approval
Send circular
to ministries/
public
institution
requesting
them for the
preparation of
revenue and
expenditure
proposals
Circular on
the
preparation of
budget
proposal
Collect and add up
the budget
proposals
Discuss with line ministry/provincial/mucipality
on the revenue and expenditure budget proposals
Add up the government revenue and expenditure
budget for rebalancing of government budget
Prepare the draft of financial law
Prepare of detailed revenue & expenditure
proposals budget
and submit them to MEF before 15 July
Approval the National Budget (Oct-Dec)
Step
1
Date
Process
Responsibility
1st week of
October
Submit the draft of Financial Law to the Council of
Ministers for review and approval.
MEF
Council of Ministers
1st week of
November
• Review and endorse the draft of Financial Law
• Submit the endorsed the draft of Financial Law to
the National Assembly
National Assembly
1st week of
December
• Deliberate on and approve the Financial Law
• Submit the Financial Law to the Senate for
approval
2
3
4
Before 25th
Deliberate on and approve the Financial Law
of December
Senate
Budget Approval Diagram
OCTOBER
NOVEMBER
DECEMBER
Institution
Week 1
Week 2
Week 3
Week 4
Week 1
Week 2
Week 3
Week 4
Draft of
Financial
Law
Senate
Deliberate on & approve
Draft of the Financial Law and submit for final approval
Financial
Law
National
Assembly
Council of
Ministers
Ministry of
Economy and
Finance (MEF)
Ministry/Institution
and Provincial/
Municipality
Week 1
Review and Endorse the
Financial Law and submit to
the National Assembly for
deliberate on and approve
Draft
Financial
Law
Week 2
Week 3
Week 4
Deliberate on and approve
the Financial Law before 25 December