1. Page 1 Case Study – Cash budgeting, strengths, weaknesses and prospects Budget execution course November 3-5, 2003 Presented by: Joel Turkewitz, WBI Nicola Smithers, PEFA

2. Page 2 Overview of the budgetary system Budget system Legal basis in Constitution Controlling Officer responsible Budget classification Budget heads Expenditure categories Staffing and accounting systems Issues Urgent expenditures and supplementary estimates Enforcement Transparency of grants to government entities Virement Aid flows outside the budget Lack of skilled staff and computerization

3. Page 3 Cash budget system Cash budget introduced in response to economic crisis Cash release to ministries limited to funds in Treasury bank accounts Treasury prevented from borrowing from Central Bank Strong support from Cabinet and public at the beginning Joint Data Monitoring Committee (MOF and Central Bank) monitored aggregate position daily (and later monthly) and reported to political leadership. Small committee in MoF decided monthly allocations

4. Page 4 Cash budget process Resources estimated for the month MoF committee allocates to 51 budget heads Releases made to line ministries during month based on priorities Controlling officers submit list of checks to Central Bank and Accountant General Funds equivalent to approved list transferred by Central Bank to ministry bank account Ministries submit monthly expenditure statements to Acc Gen Acc Gen (rather than Controlling Officers) prepares financial statements based on ministry statements Incomplete reconciliation with Acc Gen statements by ministry accountants Financial statements, prepared by Acc Gene, audited by Auditor General

5. Page 5 Impact

6. Page 6 Composition of the budget deficit

7. Page 7 Unexpected results Revenue forecasting improved but expenditures fluctuated Monthly deficits and expenditure arrears Meeting quarterly ESAF targets- concentrated adjustment on last month Extra-budgetary expenditures Major month-to-month fluctuations for ministries

8. Page 8 Impact on resource allocation Reallocation occurred within the year compared to budget General public service ministries received more than budget Economic services lost most Social services had modest gains Personnel emoluments higher General service ministries overspent non-salary current expenditure Long term development expenditure suffered Deliberate under-budgeting of high priorities Cash budget replaced the enacted budget

9. Page 9 Questions 1.Key features of cash budget system? Effect of cash budget system on Macroeconomic/Aggregate Fiscal Discipline Resource Allocation Efficiency in Service Delivery Accountability, transparency and control Effectiveness of annual budget as resource management tool 2. Impact on relative roles and responsibilities 3. Why were expenditures less predictable than revenues 4. Could it have been implemented differently? 5. What should the government do?