Introduction to Understanding Public Budget Process

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Introduction to Budget Process andunderstanding public budgeting

David Adama InakuGovernance Coordinator

ActionAid Nigeria


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Objectives of the session

At the end of this session, artici ants should be able

to :Understand what public budget isIdentify the key elements and components of the

budgetUnderstand the principles of budget


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Linking the macro & micro..at our own level

What is Public Budget?

budget?

Public Budget & Governance. Any relationship?


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Introduction

good of the citizens

ow can e governmen mee e ever compe ngneeds and expectations of citizens?

The budget is a tool which provides financialimpetus to government plans and policies.


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Defining the Budget A budget is a statement

French word bou ette

expenditure of ahousehold/government/o

which means little bag

rganization within aspecific period of time.

estimated revenue and

proposed expenditure

Public budgetinginvolves the selection of

A financial plan showingproposed expenditures

en an t e se ect on om eans to reach thoseends. (Robert Lee &

an propose means ofinancing

Ronald Johnson)


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..... An action plan A key instrument for macroeconomic

management

A B U D G E T I S M U C H M O R E T H A N

A C O L L E C T I O N O F N U M B E R S .A B U D G E T I S A R E F L E C T I O N O F

A N AT I O N S P R I O R I T I E S , I T S N E E D S ,

A N D I T S P R O M I S E N D I T S P R O M I S E .A L E X A N D E R H A M I L T O N


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Plenary

Recall our rou work on famil bud et.

From that experience, why do you think it isimportant to prepare a budget?


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Importance of the BudgetIt helps us decide how, when and on what we spend ourmoney on

It helps individuals, households, communities andgovernment decide how and from where to get their money from

It helps individuals, households, communities and

government to plan on how to satisfy their needs t ena es us see ow erent groups ene t or are

disadvantaged from the way resources are distributed orallocated

It gives people information on how government plans tospend money on goods and services.It shows how overnment uses u lic mone to influenceand control the world (private sector) of business and thelives of people.


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F n i n f h B


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Traditional Functions

Plannin Tool:

It helps us lay out what activities and programmes weintend to undertake within a specific time.

Political Instrument:

Spells out policies, interventions and priorities of . It involves conflicting interests, attempting to use

public money (Budget) for their own interest and

purpose

Administrative Management Tool: It funds the activities of government and its agencies


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Traditional Functions contd.

Social Tool:

It serves as a tool to satisfy the need/welfare of thepeople such as health, education, transportation, e.t.c.

conom c oo : It uses the budget to promote or discourage growth of

certain sections of the economy The budget guides or serves as a guide in production,

distribution and delivery of goods and services.

resources

Le al Tool: It allows government to raise and spend money.


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re t ere mens ons to t eB


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Economic DimensionThe budget is the annual estimates of expenditures andrevenue projections of the government

It is the fiscal representation of government developmentalplans and goals

Th e e co n o m ic d i m e n s io n o f t h e b u d g e t is t h a t i t is a

t o o l t h r o u gh w h ich t h e go ve r n m e n t s ee k s t o

The budget is the most important economic document and

Every other economic policy or goal is dependent on the

The budget authorises government spending.


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o t ca mens on

The budget is seen here as a key instrument in

s a so seen as an ns rumen o a m n s ra vecontrol as it allocates money to the various

through which the various arms and agencies of overnment are ener ised so as to meet u with

their political obligations to the people.


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MAJOR COMPONENTS OF BUDGET

Incom e (Revenue): This refers to the funds comin

into the coffers of government from varioussources.

Expenditure: this is the amount of money spent ongoo s an serv ces a me at meet ng ent eneeds and goals of the budget.


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What are the different sources of income orrevenue of the Federal Govt. , state governmentand local government?

What are the different kinds of expenditure of theFederal, State and Local Govt. ?


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Revenue :

xp ora on an sa es o na ura m nera s:- suc as cru e o

Direct taxes:- these are income taxes such as; personal income(salaries) and company profit taxes

n rec axes:- ese nc u e , mpor an expor u esGrants

Loans

Expenditure:Recurrent: This is an ongoing expenditure, example- personal and

overhead cost (Salaries)Capital Expenditure: This is an expenditure of fixed assets that arenot easily consumed (infrastructure)


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Budget OutputsSurplus budget:

Here budget expenditure is less than the. , c ange

which can be deployed into savings and some other ventures.

Deficit budget:

Here the expenditure exceeds the income. In this case, .might have been due to poor revenue generation , wasteful spending or some unforeseen situations.

Balanced budget:Here, the income equals the expenditure. This shows

.depends on a lot of variables.


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Budget Stages

Identify priority areas for development and sources of FORMULATION OR PREPARATION

revenue; money a oca e o pr or y areas.

APPROVAL OR ENACTMENET

from sources identified and to spend money on identified

priority areas.

Mone is enerated and s ent as a roved.

IMPLEMENTATION OR EXECUTION

MONITORING OR AUDIT/EVALUATION

money was generated and spent.


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B u d ge t Ap p r o va l

u ge t r ep a r a t o n

The Budget Cyclehe Budget Cycle

B u d g e t M o n it o r in ga n d E va l u a t i o n

Bu d ge t I m p le m e n t a t i on

Hilary Ogbonna (2007)


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State Level Budget Process

Step 1Development of

Step 2Issuance of Budget Callcircular to MDAs

Step 3Set up of Sector Planning Team,Development of Medium Term

,Fiscal Strategy Paper,

Set Resource Envelop

ec or ra egy

Step 4Submission of draft MDA

estimates to Budget Office,Consolidation of draft

Step 9Budget monitoring

and evaluation

estimates, Executive Scrutiny of Draft Budget

Step 9Budget

Step 6

Step 5Presentation Budget by theGovernor to State House of

Assembly (Parliament)

mp ementat on

Budget defense hearingin Parliament

Budget Approval by parliament

Governors Assent


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Basic Objectiveso u c xpen ure anagemen

Level 1: Allocative Efficiency (Expenditure according to government priorities and

Level 2: Operational Efficiency es va ue or money on e spen ng nc u e n eBudget)

Leve 3:Aggregate F sca D sc p ne(Budget totals as the result of explicit, enforceddecisions)


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C o m p r e h e n s i v e n e s s

and provides for all the interest groups? Are estimates gross or does netting take place?

Tr a n s a r e n cIs the state budget classified?How useful is the budget classification?Is it eas to connect olicies and ex enditures throu ha program structure?How are spending priorities determined and agreedunder the budget process?

o are t ose nvo ve n t e u get process Are budget documents available to the public? Are people aware of the budget timelines?


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Rea l i t y

framework? Are estimates based on reasonable revenueprojections? How are these made, and by whom? Are the financing provisions realistic?Is there a realistic costing of policies and programsand hence expenditures (e.g., assumptions about, , .How are future cost implications taken into account?Is there a clear departure from previous and new

What is the effect?How far ahead are spending priorities determinedand a reed under the bud et rocess?


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Characteristics of Sound Public

Co m m it m e n t , ca p a cit y & w i llin gn e s s t o :

priorities and (b) that can realistically beimplemented within the revenue available

Execute budget as passed by the legislature

Account for results achievedEvaluate impact of policies and programs and takeresults into account in budget preparation.


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Weak links between policy, resource limits, and budgets

nnua ocus ea s o su op ma c o cesSeparation between capital and recurrent budgetsNon-comprehensive budgetFailure to think strategically about tools andobjectivesNot learnin from ex erienceNot harnessing energies of all actors in system;mismatch of roles and responsibilities

- all effectThe common pool problem deficit bias


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Myths and Illusions about Budget

Public budgeting is the exclusive preserve of the Executive

Budgets must be formulated in secret or they can upsetfinancial markets

Non-govt intervention can destroy the integrity of the budget

envelop

Legislators and CSO have a greater interest in advancing theinterests of their constituents as o osed to the interests of the country as a whole

ov s man a e s o pro uce e u ge n erna y n aclosed process and have it rubber-stamped by the legislature


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WHAT IS THE WAY FORWARD?


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THE WAY FORWARD

2. Promote Participatory Budgeting

3. Engage the process of budgeting

4. Strengthening of Institutions: the Executive,Implementing agencies, Legislature and Civil

Society


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Documents

Introduction to Understanding Public Budget Process