Budget

execution
Role of the government
budget
A government budget is an It establishes a legal means of
allocation of financial
resources made in
advance, which relates
spending needs to
available funds.
authorizing and controlling
expenditures and revenues
by directing specific sums to
specific uses and it provides a
system of accountability and
a standard against which
results can be measured and
assessed.
The budget can be assessed
according to its impact in three
major areas:
1
Macroeconomic:
The level of government expenditures and taxation, the
availability of loans at reasonable interest rates, the expected
level of deficit/surplus and the impact on the economy of
various levels of expenditure, taxation, deficit/surplus and
borrowing.
2
Allocation:
the choices regarding the raising and spending of
money as regards competing programs and interests
and the process of allocating resources to uses of the
highest priority.
3
Pertaining to efficiency :
the success with which budget resources are usefully
applied in individual cases; whether money has been
raised and spent wisely and to good effect.
 
 Implicit in this characterization is a key point: the budget
is not merely an accounting document, but also a policy
document, embedding the social and political choices at a
given point in time. Assuring the budget is implemented as

“
enacted is an important aspect of government accountability
to society and to elected officials. In this vein, the budget is
a critical management tool in well-functioning public
expenditure systems: it allows elected officials to steer the
ship of state, and policy officials and program managers to
know and manage to their role in the over-all directions.
Legal framework
￮ A fundamental principle of public finance is that
expenditure and revenue proposals must be
legally authorized in order to be fully effective.
Generally the government’s budget follows the
same legal processes as other laws: they are
proposed, debated, modified, approved and
enacted. Sometimes the rules for legislating on
financial matters are more stringent than for
other laws.
It is unnecessary for everything to be approved annually to be in
compliance with this principle. Certain sums may be spent
under permanent rather than annual legislation. Examples are
payments to international organizations such as the UN, the
salaries of judges and the auditor-general, interest on the
national debt. These items are sometimes described as “charges
on the consolidated fund”. Except for such charges, all
taxation and all expenditure must be voted annually.
A related aspect is that the undertakings of individual programs
or Ministries also be legally authorized. That is, in some
systems, not only must the annual revenue and expenditure be
authorized by law, but the individual programs that are funded
must also have a legal basis, such that approved funds are not
used for unauthorized purposes, or unauthorized undertakings
not be pursued with public funds
 The following division of
function exists:
- The executive asks form money
from the legislature, spends it,
accounts for it and reports to the
legislature on how it has been
used.
￮   the specific purposes approved by
- The legislature approves revenue
and expenditure proposals and
establishes the specific purposes of
the latter. It requires reports from
the executive showing that the
money provided has been used for
the legislature.
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￮ To provide accountability, the budget proposals (and the
budget execution accounts) have to be sub-divided by
entity/purpose. This is achieved by appropriations. An
appropriation is defined as a sub-division of a government
budget established for accountability purposes, which shows
amounts legally authorized to be spent for specific purposes
in a specific time period. In many countries each
appropriation is the subject of a separate vote.
In principle, the executive is made dependent in matters of public
finance, on the legislature. But countries have travelled different
distances in achieving a separation of powers. In some, members of
the legislature are unable to propose increases in expenditure
without at the same time indicating the source of the necessary
funds.
￮ Major principles of public finance are usually
embodied in permanent legislation (e.g. the
organic budget law, the public finance act).
 
They include:

- No use of funds without legislative authorization

- Budgets proposed by the executive and authorized by the legislature in a series of
votes
- Use of a consolidated fund
- Accountability via appropriations, accounting and reporting to the legislature
- Independent government audits and audit reports available to the legislature and the
public
- All uses of funds governed by financial regulations
 Phases of the budget
cycle
Government budgets are highly regulated processes, governed by law and usually
documented in a budget manual. A law on public finance (or organic budget law)
establishes basic institutional relationships and processes.

The budget itself is incorporated in an annual (or periodic) budget law.

The budget involves several government institutions: the Ministry of Finance; the
taxation authorities; the planning commission (or planning ministry); the Central
Bank; and line ministries.
It has several phases:
- Setting parameters (setting policies, reassigning priorities, ensuring
macroeconomic affordability)
- Formulation (submission of information, aggregation, examination,
negotiation)
- Authorisation (final formulation, presentation to legislature, debate,
enactment)
- Execution (release of funds, spending, mid-term review, revision)
- Accountability (accounting, reporting, auditing and follow-up)
 SETTING
POLICIES

BUDGET
CYCLE EVALUATIO
N
PLANNING

FORMULATIO
EXECUTIO N
N
The execution phase
This is the active phase of the budget cycle.
During this phase public money is raised and spent
for the welfare of the people and the economic and
social development of the country.
For the following reasons, it is an appropriate focus:

- The budget as enacted may not resemble the budget as implemented. Minor
changes may be due to new circumstances emerging during the budget year
(e.g. environmental or economic emergencies) All budgets need the
flexibility to deal with such circumstances. Executive over-rides, diversion
of funds, corruption and administrative bottlenecks can lead to waste and
loss of control.
- Large differences between the enacted and implemented budget imply missed
budget objectives and opportunities. Some of the possible results are larger
deficits, under-funded programs and overspent funds. Social programs are
often at risk as funds are shifted to law and order, internal security and
defense.
- The literature on budgeting focuses to a large extent on budget formulation.
Formulation is an area where technical solutions are clean-cut. The real
world of budget execution is infinitely more complex. The best formulated
budget becomes meaningless, if to a large extent it is disregarded during
execution. Even less significant variations from the enacted budget may
have serious economic and social impacts.
objectives of the budget execution
phase
- to implement the budget as formulated and authorized with as little distortion as
possible, but to adjust to changing circumstances (e.g. genuinely unexpected events)
by modifying the budget as necessary during the year
- to ensure that budget modifications during the year are done with due regard to legal
process, after careful consideration of the facts, transparently and in a way that
promotes government’s chosen objectives
- to provide an environment for spending agencies which is conducive to smooth budget
execution, ensuring that there is an appropriate balance of controls between spending
agencies and central agencies
objectives of the budget execution
phase
- to ensure that the budget is executed according to the principles
of due care, economy and effectiveness
- to provide a means of achieving the macroeconomic goals of
fiscal policy (e.g. to achieve a target deficit and level of
borrowing)
- to contribute to the achievement of government economic and
social objectives in the sectors of the economy benefiting from
budget funding
Major systems
involved in budget
execution
The success of budget execution
depends upon related systems:
 
1 Prior activities:

planning, budget formulation,

budget authorization
2 Concurrent activities:

release of funds, disbursement, recording

of transactions, operation of budget
controls, monitoring of implementation
(including any necessary remedial action)
and systems to pay wages, manage
contracts, measure performance, supervise
programs, etc.
 
3
subsequent activities:

financial statements, review and

evaluation, public accountability
and audit.
Conditions for success include adequate staff and
physical capacity, capable management,
predictable funding, good co-ordination, adequate
accountability and an enabling environment. In
particular five key systems are essential for good
budget execution: effective system-wide controls,
adequate management involvement, good score-
keeping, adequate reporting and good follow-up. 
 AUTHORIZATION
OF BUDGET

PROCESSES
OF BUDGET REPORTING
FUND
RELEASE

EXECUTION
ACCOUNTING
AUDITING
The dysfunctional budget
Sometimes the conditions for good
budget execution are fulfilled. In
other cases they are not. The enacted
budget may be largely theoretical.
In the following areas, there may be significant
variations between authorized and actual figures:

distribution of spending between debt

1 total spending of major spending units 4
service and non-debt service

2 functional distribution of total expenditure, total revenue and

expenditure 5
resultant surplus/deficit

distribution of spending between line

3
items
 With insufficient accounting systems, theoretical budgets are a
natural partner. An inadequate accounting system:
￮ - contains significant inaccuracies; accounting
records of the various sub-units cannot be
successfully reconciled; budget and cash flows
cannot be reconciled; nor can bank accounts with
cash books. In very bad cases, sources of
inaccuracy have been flourishing and multiplying
over several years.
- is not based on sound,
accessible documentation and is
therefore difficult to interrogate
and verify
- cannot provide timely data; annual
financial statements are significantly
delayed; within-year financial reports are
also delayed and their usefulness for
budget execution significantly reduced.
- fails to support decisions. Those who need to
take decisions on the basis of accounting
information do not receive the information
required or it is unreliable/too late in
coming/irrelevant to their decisions.
￮  
 An unfavorable setting is the most damaging opponent of budget
execution. The following are some of the most common scenarios:

- an over-powerful executive branch of government capable of imposing its own

priorities on expenditure at variance with the enacted budget
- a civil service elite with personal financial interests which its members exercise at the
expense of budget priorities set by government  
- top decision makers representing entrenched vested interests who have the influence
necessary to remake the budget during its execution
- the existence of traditional recipients of budgetary funds who have the power to enforce
their "entitlements" (power ministries)
THANK YOU!!