Pubic Financial Management Financial Management in Sub national government Rajendra Prasad Nepal

Course Outline PFM – Introduction Primary objectives PFM Core Dimensions Of PFM System PFM reform Area GoN Focus Financial management in Sub national government Budget Formulation Process In Nepal

PFM - Introduction PFM has become one of the key reform areas in developing countries in recent years. There has been a growing consensus about the importance of PFM for both developed and developing countries. PFM system is crucial for improving service delivery across all sectors as well as to promote principles of good governance.

PFM - Introduction The narrowest definition confines PFM to the downstream activities of budget execution, control, accounting, reporting, monitoring and evaluation (Allen et al 2004). An alternative definition describes PFM as the taxing, spending and debt management of government, which influences resource allocation and income distribution. The spending portion covers the budget cycle, including budget preparation, internal controls, accounting, internal and external audit, procurement, and monitoring and reporting arrangements (Rosen 2002

Primary objectives PFM Fiscal discipline, Efficiency in the allocation of resources (allocation efficiency), (Allocate resources to Strategic Priority). Efficient services delivery (operational efficiency) or ‘value for money’. (Ensure value of money in Service Delivery) Transparency and Accountability

Core Dimensions Of PFM System Creditability of Budget Policy-based Budgeting Comprehensiveness and Transparency Predictability and Control in budget Execution Accounting, Recording and Reporting External scrutiny and Audit

PFM reform Area Policy Reform Legal Framework Budget Reform Public Expenditure Planning Reform Accounting Reform Internal Audit Reform External Audit Reform Integrated FIM Accounting and Auditing Profession

GoN Focus GoN is engaged in reforming public sectors with the aim of improving efficiency and effectiveness across all stages of budget cycle- revenue generation, budget planning , budget execution, accounting, reporting and external control.

Financial management in Sub national government Three tiers of Government: Federal State Local Financial Resources: Federal: Tax Revenue (Direct Tax, Indirect Tax, Excise, Fees, Commercial Operation, Royalty, Loans (Public Debts, Foreign Loans, Foreign Grants) State: Tax Revenue, Fees, Commercial Operation, Grants, Loan Local: Tax Revenue, Fees, Commercial Operation, Grants, Loan ( The consitution Of Nepal: Annex 5 (Federal), 6 (State), 7(F n S), 8 (Local), 9(FSL)).

Financial management in Sub national government Budget Formulation Budget Presentation (Income and Expenditure Source and Area) and Approval Budget Execution (3ERP), Control Recording and Reporting Monitoring and Evaluation Internal and Final Audit. Final Audit Report Public Accounting Committee

Budget Formulation Process In Nepal Normally, the process of budget formulation in Nepal would begin in January and end in July, when the fiscal year starts. The first step in formulation of the budget is forecasting, wherein the sources of revenues and tentative areas of expenditures are identified. The process of forecasting is led by a Resource Committee, which is chaired by the Vice Chairperson of NPC, and includes other members from NPC, members from the MoF,  FCGO and NRB

Budget Formulation Process In Nepal Once the forecast has been prepared, it is presented to the budget committee comprising of the members of the NPC and the MoF. The committee, after thorough discussion sets the budget ceiling, which limits the budget expenditure based on sectors and availability of resources. The committee also prepares the working guidelines for budget formulation.

Budget Formulation Process In Nepal Then, each of the line ministries is asked to submit their programs and budget estimates (both capital and recurrent) in accordance to the guidelines and sectoral budget ceilings. The line ministries then forward the guideline along with the budget ceiling and priorities to respective departments and agencies functioning under it, either at the district level or at the central level.

Budget Formulation Process In Nepal Based on the guidelines, these agencies prepare the forthcoming year’s programs and budget and send it back to the concerned departments. The departments compile the programs and budget of all agencies under them and submit it to the respective line Ministries. Some negotiations can take place between the Ministries and the departments before it is revise and consolidated by the Ministries and forwarded to the MoF and NPC for finalization.

Budget Formulation Process In Nepal Once the MoF receives the budget from all line ministries, inter-ministerial meetings are held to revise and finalize the national budget. Similarly, the NPC discusses all the programs submitted by the Ministries, and finalizes those programs in consideration of the relevancy, budget allocation, and budget handling capacity of the Ministry.

Budget Formulation Process In Nepal The budget is presented by the government only after the ministry level budget discussion ends. If the majority agrees with the budget then it is approved and is presented to the national Parliament in the form of a Budget Speech by the Minister of Finance on 15th Jestha (May 28). So, the formulation of the national budget is a combination of the top-down and bottom-up approach, which brings about a synergy between the national level plans and local level needs; and ensures that the budget fulfills the demands of both the state and the locals.