Budget execution

…downstream

…or up the creek?

Jim Brumby, FAD.

“Much of the budgetary dislocations and the

seeming planlessness, waste, and ineffectiveness of government ministries/agencies can be traced to the virtual failure of the processes for the release of funds”

Professor Dotun Phillips, Nigeria, 2000

Budgetary allocations• Three levels pursued through harmonious

use of institutions (information, rules and roles) – Budget formulation– Constrained approval process– Execution consistent with approved budget– Timely, audited reporting– Evaluation

Objectives of budget execution• Manage spending and revenues to budget (L1)

– promote macrofiscal discipline – allow budget to be planning and steering tool

– Enable program implementation (L2,3)– support choices of elected officials– assure resources flow to programs– allow budget to be aid to operational efficiency through

spending unit advance planning, efficient administration

– reduce opportunities for corruption– enable managers to achieve objective

Budget allocation

• Poor countries– Pathologies of: unrealistic budgeting; hidden

budgeting; escapist budgeting; repetitive budgeting; cashbox budgeting; deferred budgeting

– Encourage enclave budgeting

Allocation becomes determined through execution

Formal budgets disappear

State of playfocus on the downstream, but a desire to link

upstream • Many manual or stand alone systems• A: controlling commitments and eliminating

arrears• F: strengthening accounting and cash management

systems• HIPCs: systems for poverty monitoring• BRO: developing treasury systems

Recently emerging priorities

• Continuing core program

• HIPC relief monitoring

• Fiscal data quality

• ROSCs

• Re-organization of delivery– Africa and non-African HIPCs– ROW

Some issues

• Arrears

• Fiscal data

• HIPC tracking work

Arrears

• Outstanding payment obligations not discharged within reasonable (contractual) time

• Difficulty in measurement

• May involve offsets

Arrears – why a problem

• Flow disguises size of govt; and nonsustainability of current settings

• Breakdown in contracting; encourages informal ways to get paid

• Reverberates through the economy, with more arrears

Arrears – root causes

• Unrealistic budget preparation (revenue over-estimated ; expenditure under-estimated)

• Poor budget execution (pathologies)• Lack of political commitment to hard budget• Unanticipated negative events• Reporting system which does not reflect economic

substance

Arrears - how serious a problem

• 45% of all countries in programs 1993-99 had PC on domestic arrears at some point– AFR 77%– EU2 64%

• More PCs over time

• They stick

• Many received TA

Arrears - what to do

• Bolster preparation

• Control commitments and verify arrears

• Neutralize incentive to create arrears

Arrears - preparation

• Relate to needs and availability

• Bringing plans and budgets into alignment– Cost basis

• Using contestability in forecasting– Prudence

Arrears – execution• Registering commitments• Hard constraints, with no commitments above a

given amount– Can reward good behavior

• Differentiate commitments, liability and arrear – but watch all

• Focus on problem ministries• Quarterly verifications

– Auditor general or external auditors

• LT: GFMIS

Arrears - neutralize

• Capture ‘hard’ arrears number in expenditure tracking

• Pay to zero regularly

• Migrate to accruals – accounts payable and receivable

Fiscal data quality• National (and Fund) supported monitoring• Coverage (ggs) and central budget sector• Alignment of execution and preparation data• Realistic estimates on base of adequate costing• execution numbers – accurate and timely• Economic and functional classification• Internal consistency – bank accounts, ledgers, debt

stock and flow• Contingent liabilities recorded• Parallel to ELRIC

Data quality missions

• C1 – inconsistency between levels, exclusions• C2 – inconsistent coverage, stock-flows• C3 – non-cash transactions

• Fix data through exacting process• Reinforce good data with transparency (PETS) &

audit• LT: GFMIS and need for consistent budgeting and

accounting classification

GFMISs• Direct risks

– High cost– User requirements uncertain– Technical competency of users– Lumpy– Soft budget constraint

• Indirect risks– Sucks resources– Undermines current systems

Relative need for upgrading

0102030405060708090

100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Percentage of Countries Requiring Substantial Upgrading

Classi-fication

Projec-tion

Internal Control Recon-

ciliation

Reporting Final Audited Accounts

Formulation Execution Reporting

Comprehensiveness

Internal Control About two-thirds of HIPCs do not currently have serious payment arrears

problems Expenditure tracking surveys have been recently introduced in several HIPCs About one-third of HIPCs are reported to have active internal audit systems,

but…

Reconciliation About 40 % of the countries now undertake regular reconciliation between fiscal

and monetary accounts.

Management Reporting Less than 20 % of HIPCs provide in-year tracking reports within two weeks of

the end-of-period, and two-thirds within two to four weeks. About two-thirds of HIPCs surveyed provide a functional classification for the

budget; 40% not in year

HIPC execution findings

Tracking – lessons from field• What is planned • Important to know all that is going on;• Medium term tends to focus on all PEM, not just

poverty reducing programs• Realism about timing and implementation

difficulties• What is needed—particularly before HIPC

completion pointShort term to be consistent with medium term but

focused on poverty reducing spending