Public Expenditure Management:

Joseph wachira

March 21, 2011

Outline
What is Public Expenditure Management?

What institutions matter? Process: Expenditure Management Cycle Functions Organizations, Systems Three- objectives

Applications Rules Roles

Expenditure Management Cycle

Financial management system boundaries Project appraisal Medium term plans, e.g. three year rolling plans Resource allocation Annual budgets Development, recurrent and revenue
man ty uidi t Li q men age

Planning system

Expenditure review Public expenditure review

Institutions
j Pro

Fund release procedure, e.g... warranting

re itu d en rol xp ont E c

Accountability

t ec mo nit

Audit system

ori

Pos t ev revi ent ew

Reports and financial statements

ng

g itorin Mon g ol l i n cont r &

Accounting for revenue and expenditure

Scenario 1
You are the minister of a line ministry
The half-life of a minister is 18 months

Your predecessor lost their position for proposing sector restructuring based on a foreign advisor recommendation

The fiscal year begins January 1 The MoF issues a budget circular June 15, asking for budget submissions by August 1

The circular includes inflation estimates and forms

The Ministry of Planning issues a July 15 call for capital budget submissions by August 15

The circular includes forms

You are not sure of your current on-board employment, and current fiscal information is incomplete and 45 days late

Scenario 2
The Cabinet has convened to consider the budget
The aggregate bids exceed likely recurrent revenue by 19 percent, and capital resources by 157 percent The MoF has provided a table summarizing bids, and showing estimated total recurrent and capital resources

The MoF has noted a fall in customs revenue, and donor funds are shifting to other geographic priorities, suggesting budget reductions are needed

The prior government fell from not meeting public expectations for greater capital investment and better services

On what basis should Cabinet make budget choices?

Common PEM problems

Weak links between policy, resource limits, and budgets
failure to achieve strategic objectives abstract planning, unrelated to ways and means

Annual focus leads to suboptimal choices

Digging a hole; inability to climb out Complacency today, unaware of crisis tomorrow

Separation between capital and recurrent budgets

Lower than expected returns to capital

Non-comprehensive budget
Using other means to support favored programs Revenues not captured in budget

Taking piecemeal decisions without reference to over-all effect Rigid budget

Common Reforms
MTEF Performance Budgeting New Public Management Separate policy and administration Accrual accounting Fragmentation Procurement, Debt Deconcentration, decentralization

Process Issues
Due process

Fair hearing for proposals, requests within government

Coherence
Budget process is planning process

Planning within resource constraints

Indicative ceilings for budget offered early in the process hard budget constraint

Changing incentives

Comprehensiveness

Capital, all revenues and expenses decentralized impact analysis Legislative stage In executive via white papers

Civil society participation

Process (continued)
Proper decision sequence for coherent process

Macrofiscal, revenues, expenditures Sectoral Administrative/program/project

Accountability: Link resources with management responsibility

Schedule

Budget calendar issued Sufficient time for sound proposals

Ministries Budget office analysis Legislative review

Two stage process

Quality Issues
Multi-year perspective

(improving process outcome)

Setting multi-year policy objectives Conservative economic, revenue forecast

Likely versus hoped for Benchmarked against non-governmental forecasts Provision for recurring unanticipated events Contingency reserves with clear rules for use Indicative ceilings linked to second-year of prior budget forecast (policy)

Realistic expenditure forecast

Requests reconciled to prior year actuals, current year estimates Proposed policy Current services/policy

Two aggregate forecasts (advanced)

Capital and recurrent

Quality (continued)
Budget ownership
Early, frequent engagement of policy officials on structured decisions Fiscal policy paper to kick-off process

Distinguish policy from recurrent revenue

Proposed revenue sources versus historical trends

No spending allowed against proposed unless they materialize (grants, tax revenue)

Communication
Clear signals of direction, markets and agencies Prepare public for change sustainable adjustment

Quality (continued)
Budget Information

Prior year actual, current year estimate, budget year +2, Staffing, Outputs Classification: economic, administrative, functional, program Requests distinguish between on-going, new spending; mandatory, discretionary

Decision papers

Basis for Minister of Finance, Govt decision Pulls together academic, audit, performance, evaluation of prior years financial performance, other information

Core elements of an MTEF

Changing rules to promote different outcomes Multi-year fiscal framework
Setting broad policy priorities (sectors)

Multi-year Budget Framework

sector ceilings, sector budgets prepared under constraints Strategy, policy and objectives under constraints

Multi-year expenditure framework

Costing programs, policies within sectors

Delivering resources as budgeted