1. GBS ANNUAL REVIEW, 2009 Key Issue # 4: Budget Execution Budget Execution November 24, 2009 1

2. Outline  Introduction  Achievements  Key Challenges  Measures to address challenges 2

3. Introduction  Budget execution is measured as percentage of release and spending in relation to the original approved estimates  The gap between original budget and release is called release gap  The gap between release and spending is called spending/absorption capacity gap  Most often spending/absorption gap is reinforced by release gap, when releases are late. 3

4. Achievements in budget execution  Execution of recurrent budget has performed well over recent years  About 90% of budgeted recurrent funds are released and spent every year.  The release of both PE and OC is on monthly basis. And, some of institutions receive their OC funds on quarterly basis  Establishment of functioning cash management unit at the Treasury 4

5. Achievements in budget execution cont..  Release and spending of local development funds in road sector is more than 90%  Use of IFMS has also accelerated budget execution, through spending agencies accessing exchequer release as soon as they are posted in ACCGEN’s office in DSM, and effect spending 5

6. Challenges  Despite the achievements in budget execution some challenges remains, especially in development budget. This proves to be a major hurdle limiting the ability of the public expenditure to deliver public service and obtain required results/outcomes  In 2007/08 only about 45 percent of the MDAs’ budget development funds were spent.  Preliminary outturn data for 2008/09 indicates that about 52 percent of budgeted development funds were spent. 6

7. Challenges cont..  The size of the execution problem also differs according to the nature of spending and source of financing. Development budget tends to experience higher execution gaps than recurrent budget.  The source of funding matters in development budget execution.  Execution of the locally funded component of the development budget performs better than the foreign funded component.  Regardless of the source of funding, sectors with higher share of capital investment spending in their development budgets experience major execution problems than the sectors with higher current spending component 7

8. Challenges cont..  Inadequaces in cash flow and procurement plans; and late submission of cash flow plans to MoFEA by spending agencies  Limited capacity to plan and physically execute large capital investment projects  Weak link between sector strategy and sector MTEF, especially for large investment projects which take longer to implement 8

9. Challenges Cont..  Under-reporting of direct to project funds and difficulties in timely capturing this information through Dummy Exchequer records  Delays in release of basket funds compounded by overly demanding reporting requirement 9

10. Measures to address challenges  Strengthening capacity in the preparation of cash flow and procurement plans  Strengthening the established cash management unit at the Treasury.  Strengthening capacity in the preparation and implementation of public investment projects, including capacity to undertake Cost- Benefit-Analysis (CBA).  Continue strengthening the MTEF, including public investment planning in order to enhance its credibility and hence predictability of resources 10

11. Measures to address challenges..  Continue encouraging DPs to channel all the approved project funds through the exchequer system, as PFM systems continue to improve  Strengthening of procurement and internal audit units in all spending agencies.  Continued improvement of Dummy exchequer recording, to ensure that all relevant information is captured on monthly basis rather than annually 11

12. Asanteni Sana 12