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Main players in budget execution Allister Moon Budget execution course, Jan 16 Perspectives on the roles in budget execution • Positive / normative • Law,regulations/ practice • ‘normal’budget implementation/ fiscal crisis Legal Framework for Public Expenditure Management Constitution Fiscal Responsibility Acts Local Government Laws Budget System Laws Public Debt Laws Annual Budget Law Regulations Central agencies functions in budget execution (1) • • • • • Administering release of funds Monitoring expenditure flows Reporting Cash management Managing central payments Central agencies functions (2) • Monitoring macro/fiscal performance • Review progress in sector programs • Coordinating budget revisions as required Varying configurations of central agencies • Separate Treasury ministry • Role of Office of President/Prime Minister /State Chancellry • Ministry of Economy/Planning – monitoring macro, sector programs • Public Service ministry – wagebill Spending agencies functions • Allocating funds to spending units • Procurement ; commitment, purchase, verification • Payments/prepare request for payments • Progress reports, performance monitoring • Review program implementation • Reallocation within approved ceilings Rules of the game in budget execution • What kind of flexibility do spending agencies have : budget classification, appropriations, virement provisions • Aggregate fiscal discipline, predictability and frequency of releases • Quality of control systems: treasury function, commitment controls Other players • • • • Central bank, banking system Legislature Revenue agencies External audit Formal/informal practices • Budget deviation : a useful indicator of informal allocations through budget execution • Stable patterns of excess allocations to ‘power ministries’ • Unrealistic budgets creating discretionary powers • Evading aggregate discipline : exploiting weaknesses in commitment control Armenia. Budget Deviation, % Total Budget 1997 Broad Functional Classification 15.3 By Sub Group 17.7 By Category within Sub Group Source: Ministry of Finance 1998 9.2 15.8 33.2 Out turn as % Budget for selected Ministries Recurrent expenditures, 1987/8-1994/95, Uganda Out turn % approved budget 200 150 100 50 0 President's office Foreign Agriculture Education Affairs 1987-93 average Health 1994-95 Works & Transport Defence State House Case study : developing the Russian Treasury • Background : esw on overall budgetary system, review of draft budget legislation, • Treasury established, but major gaps in coverage, classification system, commitment control, inadequate information systems • High budget deviation, low credibility • Strong commitment to Treasury reform, little interest in broader budget management reform Problem : establishing an appropriate role for the Treasury through defining the interface with other players Defining the role of Treasury with other players • Central bank, the banking system: transferring to the Treasury single account • Revenue agencies • Line ministries • Sub national government • Chamber of Accounts • Treasury staff Case study : Uganda cash management • Background : early 1990s macro crisis, inflation 100%, major fiscal imbalance • Facing persistent revenue instability, external shocks • High priority for stabilisation objectives, but need to maximise predictability for spending agencies • Adapting budgetary institutions to context Frequency Distribution of One Year Errors as a Percentage of GDP, 1980-2000 8 7 Frequency 6 5 4 3 2 1 0 -3 to -2 -2 to -1 -1 to 0 0 to 1 Errors as a Percentage of GDP 1 to 2 2 to 3 Revenue instability Grouping Index Developed market economies Asia Latin America Africa of which SSA 1.2 1.65 2.23 2.97 3.31 Index = standard deviation of year to year changes in tax revenue and grants as percentage trend GDP Design issues in cash management • timetable : long planning horizon, short review & intervention horizon • scope of analysis : review all stabilisation instruments • institutional issues: broad inclusion, joint commitment, accountability for forecasting, close coordination with central bank • decision rules : feedback from macro outturn, protected expenditure Dimensions of a cash management system planning horizon Uganda Tanzania 12 months 1 month intervention horizon 1 month 1 month scope fiscal + monetary fiscal institutions Finance (macro+budget), Central Bank, Public service, others Finance(macro) decision rule macro outturn + protected exp monthly fiscal balance