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GE04: Fundamental of Business Economics

Lecture 13 : Government Budget

Presented by
Dr. M. Anwar Ullah, FCMA

The Institute of Cost and Management Accountants of Bangladesh

ICMA Bhaban, Nilkhet, Dhaka – 1205
Email: anwar2023@yahoo.com.sg

05/12/24
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GOVERN BUDGETING
BANGLADESH
 What We Will Discuss…
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• Government and budget

• budget reform
• Traditional input-based budgeting
• MTBF in Bangladesh
• Linking policy, priority and budgeting
• Policy application and Government
priorities
• Implementation arrangements
 Government and Budget
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• Government budget, in general, is the estimates of revenue and expenditure

for a particular time period normally one year (in Bangladesh the fiscal year
runs through 1st July to 30th June of the following year usually written as FY
2011-12 or simply FY12)
• The Budget is much more than a funding plan containing numbers

• Budget, in general, is a financial mirror of society’s economic and social

choices/priorities–which find expression in Government’s policies and
programs (in a representative form of government) – let us elaborate on this a
bit further

• Budget tells us, for instance, on which sectors or programs, more money is
planned to be spent
 Government Expenditure in Bangladesh (FY
5
2003-2012)

Source: Finance Division, Ministry of Finance, Govt. of Bangladesh

 Objectives of Budget Reform
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• Medium Term Budget Framework (MTBF)

• Growth needs to be accelerated to reduce
poverty
• Development needs far exceed available
national resources
• Best use of available scarce resources
 What's Wrong With the Traditional Input-Based
Budgeting?
7 …Input-Based Budgeting

INPUTS TASKS PRODUCTS

• Input-based budgeting, at best, addresses two questions: how

much money will be spent and on what
• Resource allocations are at input level (for activities/tasks), often on
an annual & incremental basis
• Ministries/Divisions manage and control inputs at disaggregate input
level
• Ministries/Divisions report on uses of inputs and on whether tasks
are completed
• Bottom-up approach
 MTBF Concept: What It Is and What It Can Do?
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• What it is…
• MTMF to maintain macro-fiscal sustainability
• A tool for linking policy, planning & budgeting over a medium-term (5-year) at the
Government-wide level
• A top-down resource envelope & a bottom-up estimation of the current & medium-term costs
of existing policies
• Matching of the two in the context of the annual budget process
• Rolling over this exercise every year by incorporating policy changes
• Accountability for results
• What it can do…
• Aggregate fiscal discipline
• Allocative efficiency between and within sectors
• Efficiency and effectiveness in public spending
• Framework for accountability of results
 MTBF Concept: Why We Need It?
9 …Medium-Term Budget Framework

INPUTS TASKS PRODUCTS IMPACTS

• Recognize the Government’s strategic and policy priority

objectives in formulation of the budgets (multi-years)
• Identify outputs, and activities and projects to contribute to
the achievement of these priorities
• Identify where changes in performance can be expected
• Measure and report on results
 MTBF Concept: The Policy >><< Budget
Link
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National
Development
Strategies Plan/Strategy
Inter-Sector
and medium-
Resource
term
framework
objectives

MTBF

Intra-Sector Resources
resource linked to
allocation policy
priorities
Detailed
Annual Budget
 Key Strategic Differences
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MTB
F

Strategic Plan

Budget

Sectoral Goals
Strategic Budget
Plan

Input-Based Budget MTBF

Differences between MTBF and Traditional
Budget
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Traditional Budget
1. Budget is for only one year
2. Two budgets are prepared
separately
3. Receipts and expenditure
estimates are determined on
the actual for previous year
4. Expected results are not
provided in the budget
5. Ministry of Finance and
Planning play dominant role
MTBF
1. It consists of the estimates for
five years
2. Budget is prepared within a
single ceiling
3. Resources are allocated
considering the priorities of
programmes or projects
4. Indicates the expected output
from the input
5. Line Ministries/Divisions are
given additional authority and
responsibility
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The MTBF: Where We Are At In

Bangladesh
 MTBF in Bangladesh: Where We Are...
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Where we are…
• In 2004, the Government of Bangladesh introduced the Medium-Term Budget
Framework (MTBF) and the budgets for four ministries for FY2005-06 were
prepared under the MTBF

• MTBF rolled out to all 59 line ministries/divisions/other institutions and their

agencies by 2010, in a span of 6 years.

• Enactment of Public Money and Budget Management Act in 2009 provided

the legal backing for MTBF

• Financial management & accounting system (iBAS) was put in place

• Institutional mechanisms and processes were progressively put in place – each

ministry to have Budget Management Wings/Branches, Budget Management
Committees, Budget Working Groups
 The Phases in MTBF Formulating
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Process

• The MTBF process comprises four distinct

phases:
• Macro-economic modeling Phase

• Strategic Phase

• Budget Estimating/Preparation Phase

• Budget Approval Phase

 Strategic Phase of the MTBF
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Mission Statement of the Ministry/Division

• To develop a clear mission statement, the
ministry/Division/Institution must consider the following:
• What is the purpose of this ministry; what does it intend to
achieve,
• By what broad areas of operation will the ministry do this,
and
• Who are the intended beneficiaries?

• Mission Statement should be brief…people concerned

should be able to remember their mission!
 Strategic Phase: Mission Statement
An Example: Power Division
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• Purpose:
…ensure uninterrupted and quality power supply
• By:
…improvement in generation, transmission and distribution
systems)
• For whom:
…all (the people of Bangladesh)
Mission Statement of Power Division:
“Ensure uninterrupted and quality power supply for all
through improvement in generation, transmission and
distribution systems”
 Strategic Phase: Example: Medium-Term Strategic Objectives
and Key Activities
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Strategic Objectives Activities Concerned

Departments/Agencies
Literate society  Establishment of 1500  Directorate of
primary schools in the Primary Education
Outcome: villages without school (DPE)
Universal access to primary  Construction,
education reconstruction and
extension of classrooms
and routine repair and
maintenance of schools
Strategic Phase:
Ministry Output & Agency Output
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Resource Agency’s Ministry’s

Tasks
Inputs Output Output

Money School Classrooms:

Staff Numbers or
Construction
Materials, etc. Sqm
Activities

Staff Teachers’ Teachers: Education

Money Recruitment & Numbers Service
Process Training

Staff Numbers of
Procurement
Money text books, etc
Production
Procurement
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Linking Policy, Priority and

Budgeting
 Government Policies
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• How does the Government know that we have to spend around Taka 202.84 billion
(12.4% of total government expenditure) on Education and Technology sector?
• And if we do spend that amount, what will we achieve?

• The answers to these questions could be found in the government Policy on Education

• What is a Policy? By definition, a policy is described as a principle or rule to guide

decisions and achieve rational outcomes. In simple terms, a Policy tells us:
• What is to be done
• Why it should be done (Rationale)
 Government Policies
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• Policy is also considered as a “Statement of Intent” or a “Commitment” for which

Government is accountable

• Policy is also a process of making important organizational decisions including deciding

between alternatives spending priorities

• Going a step forward, senior government executives develop protocols and procedures
that tell us
• How it should be done (technique, methodology, resources)
• Where it should be done (geography, target group)
• When it should be done (time lines)

• These 3 elements together form the strategy to achieve policy objectives for the sector

• Costing a Policy or Resourcing (planning for resources – human, physical, financial) is

therefore a key element of a Policy/Strategy. Colloquially speaking, it tells us what it
takes to achieve the policy objectives
 Sources of Policies
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• Perspective Plan 2010-21 (Vision 2021)

• Sixth Five Year Plan 2011-15
• Millennium Development Goals (MDG)
• Sectoral Plans (National Agriculture Policy,
Education Policy, National Food Policy, etc.)
 Government Priorities
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• The next step is applying this resource constraint on the sector/ministry demands (as
articulated in sector policies and strategies) and prioritizing among competing demands
from different sectors/ministries
• Different countries have different institutional mechanisms in place to tackle this
extremely critical and sensitive segment of the budget preparation phase
• In Bangladesh, we have the Budget Monitoring and Resource Committee
(BMRC) that facilitates inter-sector/inter-ministry discussion with participation from
major stakeholders such as Finance Division, Planning Commission
• The BMRC is responsible for prioritization between sectors which is reflected in the
Sector/Ministry budget constraints subsequently communicated to ministries through
the Budget Circular. These decisions are guided by National priorities articulated in
National Development Plans (e.g. Sixth FYP) and sector/ministry policies and strategies
 Government Priorities
What does this snapshot of GoB Budget have to say about government
priorities?

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 Looking Beyond the Fiscal Year
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• Costing a Strategy or Resourcing does not guarantee that all the resources demanded would
be made available. Why?
• Constrained resources imply that activities need to be staggered beyond a fiscal year
• In many cases, the nature of the activity itself makes it necessary to stagger the
implementation beyond one year (e.g. construction of 1500 school buildings)
• Project implementation involves sequencing of activities which means Activity B has
dependency on Activity A and cannot be started until Activity A is complete (e.g. we
cannot begin constructing the bridge until land acquisition is complete). This takes the
project well beyond a year, maybe 3 or even 5 years of project life
• Further, especially for capital projects where assets are created, it is important to factor in
repair and maintenance cost implications for the asset in future years to capture the whole-
life cost of the asset accurately
 Planning Budgeting Interface: Linking
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Resources with Policies
• Budget Circular 1 (Strategy Phase)
• This phase requires the ministries to revisit their strategies and in light of
the budget constraint, prioritize their activities, programs and projects
• Ministries have adequate flexibility to decide on their priority areas and
the kind of projects/activities they want to undertake – as long as they are
in line with ministry strategic objectives
• Ministries then come up with broad resource estimates to meet the cost of
activities, projects planned (MBF)

• Budget Negotiations ((Tri-Partite)

• Following BC1 submissions by ministries, the Finance Division
scrutinizes the returns and calls in for a tri-partite discussion wherein the
ministry, FD and PC are represented.
• Tri-partite meeting enables the FD to finalize the budget ceilings which
pave the way for the next and final phase – Detailed estimation phase –
which is triggered by the Budget Circular 2
 Annual Roll Forward of the MTBF
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Year-1 Budget Forward Estimates

MTBF

Annual Roll
Forward

Year-2 Budget Forward Estimates

MTBF

Annual Roll
Forward

Budget
Year-3 Forward Estimates

MTBF
2011-12 2012-13 2013-14 2014-15 2015-16

Budget Year
 Time line for Budget Preparation under MTBF
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FD Initial Ceiling
BC 1
LM Final Ceiling

FD BC 2

LM Finalizing ADP

PC Budget Compilation and Approval

FD

March

April

June
Aug
July

Nov

May
Dec
Sep

Oct

Feb
Jan

LM = Line Ministry PC = Planning Commission

FD = Finance Division
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Implementation
Arrangements
 Organizational Arrangements (1)
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 Three key organizational units responsible for the MTBF

implementation in ascending order of hierarchy:
• Budget Wing/Branch to prepare drafts of MBF with budget
allocations
• Budget Working Group (BWG) to support the Budget
Management Committee (BMC) for decision making on MBF
o Consists of representatives of organizational units of the
Ministry and of Finance Division and Planning Commission
• BMC - the budget approval authority within the line ministry
o Led by the Secretary, and
o Consists of Additional and Joint Secretaries, Organizational
Heads, and representatives of FD, PC, IMED & CAO
 Organizational Arrangements (2)
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Budget Management Committee

(Decision-making Body)

Budget Working
Group
(Secretariat)

Budget Management
Wing/Branch
(Preparation of budget drafts, budget
execution, monitoring & report)
 Composition of the BMC
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 Secretary/PAO Chairman
• All Additional Secretaries Member
• All Joint Secretaries Member
• Chief, Planning Cell Member
• Heads of Department/Agencies Member
• Concerned Deputy Secretary, FD Member
• Concerned Deputy Chief, PC Member
• Director, IMED Member
• Head of BM Wing of Branch Member
• Chief Accounts Officer (CAO) Member
• Chief, BWG Member Secretary
 Composition of the BWG
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 Additional/Joint Secretary Chief

• Head of BMW/B Member
• Chief, Planning Cell Member
• Heads of Budget/Accounts section of
The Department/Agencies Member
• Concerned Sr. Asst. Secretary, FD Member
• Rep. of Sector Division PC Member
• Chief Accounts Officer (CAO) Member
• SAS/SAC of BMB/Wing Member Secretary
 Departmental-BMC
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• To be constituted by the Ministry/Division with

competent officers of the Department or Agency
• Terms of reference to be determined by the
Ministry/Division which will include (but not
limited) the followings:
• To prepare Part-B of the MBF
• To prepare budget estimates and projections within
resource ceiling given by the BMC
• To prepare projects and programmes
• To monitor budget execution
• To monitor Output Indicators