Budget Execution: Overview Bill Dorotinsky, PRMPS Budget Execution Course November 3, 2003

Outline What is budget execution? Expenditure Management Cycle What are the objectives? Why is budget execution important? Organization of the course

What is budget execution? Definition: Processes and institutions to implement the budget manage resources, assets (and policies) report on resource use audit reports and resource use Fundamentally concerned with Compliance – processes, rules, policies Incentives – principle-agent problem Outcomes – financial, programmatic Reflects that budget is NOT only an accounting document also a political document potentially, a planning/steering device

Expenditure Management Cycle Planning system Medium term plans, e.g. three year rolling plans Annual budgets Development, recurrent and revenue Fund release procedure, e.g... warranting Accounting for revenue and expenditure Public expenditure review Institutions Reports and financial statements Audit system Project monitoring Project appraisal Resource allocation Liquidity management Expenditure control Monitoring & controlling Post event Accountability Financial management system boundaries Formulation covers ‘expenditure review’ insofar as this is a step in preparation of future plans, and goes through to “annual budgets..” -- need for good budget -- Brazil roads, congress, MoF -- linking budget to cash management -- dc grants management Execution covers from ‘liquidity management’ through to PER’s, insofar as PER’s are part of the ex poste accountability system. Half of cycle (2) Hardware and software do not solve problems in human systems. Must know source of problem, and seriously assess whether computerization will solve the core problem. (DC Example) Underlying all of this is good recording of transactions and reporting! Source: Adapted from Integrated Financial Management. Michael Parry, International Management Consultants Limited. Training Workshop on Government Budgeting in Developing Countries. THE UNITED NATIONS. December 1997.

Objectives of budget execution Manage Spending and Revenues to budget support choices of elected officials allow budget to be planning and steering tool promote macrofiscal discipline Reduce opportunities for corruption Enable program implementation (service delivery) Assure resources flow to programs allow budget to be aid to operational efficiency through spending unit advance planning, efficient administration enable program managers to achieve objective governance

Why is budget execution important? Credibility of the Honduran Budget – In-year Deviations by Agency (percent of the executed over the approved budget) Matching Plan to Implementation Good Macrofiscal But, look at sectoral allocations. Who gets harmed? 3-level framework Cash, accrual, commitment

Why else important? Every country spends money; done well or poorly, it is an existing set of institutions in countries upon which to build reform Important role in anti-corruption Critical for direct budget support

Five PEM Principles Comprehensiveness – include all revenue and expenditure, and all government agencies Accuracy – record actual transactions and flows Annuality – cover a defined period of time (e.g. one year) Authoritativeness – only spend as authorized by law Transparency – information on spending should be publicly available, on a timely basis, in an understandable or common format

Organization of the course Topic versus chronology Institutions and terms Incentives and dynamics Time for questions and discussion Case study Course Evaluation – please fill-out as we go along