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Case Study – Cash budgeting, strengths, weaknesses and prospects Budget execution course November 3-5, 2003 Presented by: Joel Turkewitz, WBI Nicola Smithers, PEFA Page 1 Overview of the budgetary system Budget system Issues •Legal basis in Constitution •Urgent expenditures and supplementary estimates •Controlling Officer responsible •Enforcement •Budget classification •Transparency of grants to government entities •Budget heads •Virement •Expenditure categories •Aid flows outside the budget •Staffing and accounting systems •Lack of skilled staff and computerization Page 2 Cash budget system •Cash budget introduced in response to economic crisis •Cash release to ministries limited to funds in Treasury bank accounts •Treasury prevented from borrowing from Central Bank •Strong support from Cabinet and public at the beginning •Joint Data Monitoring Committee (MOF and Central Bank) monitored aggregate position daily (and later monthly) and reported to political leadership. •Small committee in MoF decided monthly allocations Page 3 Cash budget process Resources estimated for the month MoF committee allocates to 51 budget heads Releases made to line ministries during month based on priorities Controlling officers submit list of checks to Central Bank and Accountant General Funds equivalent to approved list transferred by Central Bank to ministry bank account Ministries submit monthly expenditure statements to Acc Gen Acc Gen (rather than Controlling Officers) prepares financial statements based on ministry statements Incomplete reconciliation with Acc Gen statements by ministry accountants Financial statements, prepared by Acc Gene, audited by Auditor General Page 4 Impact Impact of the adjustment program on the overall budget situation 1992 1992 1993 1994 1995 1996 1997 1998 K billion at 1998 prices: Personnel emoluments RDC Subsidies etc. Other non-debt(grants and capital) Total (non-debt) 644 354 528 292 605 283 47 504 363 255 66 287 351 193 404 272 343 213 404 183 327 161 567 421 293 283 354 1,818 1,439 971 1,110 1,097 849 870 842 % of GDP total domestic revenues Total recurrent expenditure Balance 18.7 29.3 -10.6 18.4 27.2 -8.8 15.9 26.3 -10.4 20.1 27.9 -7.8 19.9 24.2 -4.3 20.6 18.5 +2.1 19.8 17.5 +2.3 18.1 16.7 +1.4 100.0 165.1 183.7 54.6 34.9 43.1 24.5 24.4 Inflation per cent (period average) Page 5 Composition of the budget deficit in % of GDP Quasi-fiscal activities and the budget deficit 1995 1996 Central government budget Pension funds Public enterprises Local governments and others Central Bank (implicit deficit) TOTAL 4.6 1.0 0.3 3.4 9.1 18.4 1997 2.5 0.9 6.2 2.0 6.2 17.8 2.3 0.9 4.9 2.1 3.4 13.6 Page 6 Unexpected results •Revenue forecasting improved but expenditures fluctuated •Monthly deficits and expenditure arrears •Meeting quarterly ESAF targetsconcentrated adjustment on last month •Extra-budgetary expenditures •Major month-to-month fluctuations for ministries Page 7 Impact on resource allocation Reallocation occurred within the year compared to budget •General public service ministries received more than budget •Economic services lost most •Social services had modest gains •Personnel emoluments higher •General service ministries overspent non-salary current expenditure •Long term development expenditure suffered •Deliberate under-budgeting of high priorities Cash budget replaced the enacted budget Page 8 Questions 1. Key features of cash budget system? Effect of cash budget system on • Macroeconomic/Aggregate Fiscal Discipline • Resource Allocation • Efficiency in Service Delivery • Accountability, transparency and control • Effectiveness of annual budget as resource management tool 2. Impact on relative roles and responsibilities 3. Why were expenditures less predictable than revenues 4. Could it have been implemented differently? 5. What should the government do? Page 9