Centre for Economic Governance and AIDS in Africa (CEGAA)

Acknowledgements to IBP and IDASA.

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What can we learn by looking at a budget? 1. Adequacy: How much is budgeted?

Nominal terms can tell us if the allocation is enough (compare to cost of intervention)

Real terms tell us if the allocation is keeping up with inflation. 2. Priority: How does the budget for this purpose compare to resources spent in other areas?

To determine what government’s priorities are as stated in budget To ask if stated policy priorities match priorities in budget To determine if government is keeping its promises (policy commitments)

3. Progress/ Trend: Is government’s response on this issue improving?

To monitor government commitment

4. Equity: Are resources being allocated fairly? Per capita spending across geographic regions

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What can we learn by looking at a budget?

5. Efficiency: Is the money being spent?

Allocated vs. actual expenditure

Comparing funding channels or mechanisms

6. Effectiveness: Is the money being spent on the right things? Are the interventions which are funded the most

appropriate and cost effective?

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Federal / national budgetFederal / national budget

Regional / sub-national Regional / sub-national budgetsbudgets

Divided into separate line-Divided into separate line-itemsitems

Federal budgetFederal budget

Regional Budget Regional Budget Bureau HealthBureau Health

Sector budgetSector budgetSector budget - HealthSector budget - Health

Sub-programmes budgetSub-programmes budgetSector budget - HealthSector budget - Health

Sub-Programmes e.g Community Sub-Programmes e.g Community Health CentresHealth Centres

Budget documents structure

Sector/Programme Sector/Programme budgetsbudgets

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Structure of national budgetThe national budget should provide:1. A budget overview, including:

Highlights of the national macro-economic framework, the outlook over the MTEF

National total revenue: domestic, loans, external assistance, multi-lateral payments

National total expenditure, GDP, deficit, inflation indices

Summary tables of all national departments’ budgets, also by economic classification

Explanatory notes – very useful!2. Detailed estimates of expenditure by vote.

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Structure of department budgets

Each department has its own budget (vote), which should have:

Overview: core functions, vision, mission, main services, constitutional / legal framework and external events impacting on budget decisions of the department.

Review of the previous financial year: should summarise the major achievements (for example distilled from Annual Report).

Outlook for the year: implications of challenges, policies and strategies on the departmental budget

Budget allocations 6

When we study a department budget, we first want to check:How are programmes organised/ divided?

Does each region’s welfare department have the same five programmes?

What is the level of disaggregation?Does each region and department provide

the same level of detail in their budgets? Is it understandable??

Is there text describing programmes, aims, past achievements, next year’s plans, explanations for any major changes, etc.?

How many years of data are given?

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5 different starting points for your budget analysis:

1. By sector: health, welfare, education2. By population group: people with disabilities,

people living with HIV and AIDS, Roma children3. By government programme: harm reduction,

random street drug testing, palliative care4. By issue: mental health, HIV and AIDS,

immunization5. Using policy documents as a benchmark,

including Poverty Reduction Strategy Papers

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Example of years of data recorded on budget documentsAvailable information differs from country to country. Country teams to open their documents and check structure and years of budget data available

2005/06 Actual Expenditure2006/07 Actual Expenditure2007/08 Estimated Actual Expenditure2008/09 Budget Estimate - Medium Term

(Revenue and) Expenditure Framework (MTREF)

2009/10 Budget Estimate - MTREF2010/11 Budget Estimate - MTREF

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What determines the budget? (national resource allocation)

Previous budgetPolicy priorities (political)Constitutional obligations/legal frameworkRights/moral choicesNeed (e.g. prevalence rates)Cost of programmesCost effectiveness researchEquityCapacity to spendAvailable resources

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Budget Analysis and Practical Skills

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Doing budget analysis

Become familiar with finding information in budget documents

Learn to calculate:Percentage of total budgetShare of total increasing or decreasingReal and nominal amountsReal growth rateAverage real growth rate over medium term

Become familiar with different levels of disaggregation in budgets

Practice!

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How to do budget analysis

What are we analysing the budget for? Percentage share of the budget (priority) Nominal growth in the budget (progress) Adjusting for inflation (real budget figures) Real growth in the budget (progress in real terms Annual average growth (summary) Per capita budgets (equity & adequacy) Percentage difference from average (equity) Real growth in per capita budgets (progress after adjusting

for inflation and population growth) Comparing budgets to expenditure (expenditure as % of the

budget - efficiency)

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Calculating percent share (ratios)

Terms to describe the status of the figures provided: The term share refers to the size of a slice of the pie in relation

to the entire pie. We express it in terms of a percent of the total.

For example, if the total county budget is 10 million Forint and 4 million is spent on health, we say health’s county share is 40%.

Formula (Section/Total = Share) = F4mil x 100 F10mil = 40%

We use percentages to measure how much government prioritises a certain item in the budget.

We often use percent to express:one national department as a share of the country’s budgetone programme as a share of the total department budgetone sub-programme as a share of the total programme budget

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Converting an allocation from nominal to real termsWe want to convert everything to 2004/5 Rand so we make 2004/5 the base year. The deflator for the base year is = 1.We divide each allocation by the deflator for that year to get a real amount.The deflator represents the Consumer Price Index (CPIX) that tells us the real prices of goods and services

Nominal AmountR'million 2003/4 2004/5 2005/6 2006/7 2007/8

EducLifeskills (CG only) 132 134 136 144 152Social Dev CHBCS 69 79 186 191 195Health Compr Plan for HIV & AIDS 686 1,235 1,531 2,001 2,102TOTAL 887 1,448 1,853 2,336 2,449

Deflators 0.956938 1 1.051 1.104601 1.159831

Real Amounts R'million 2003/04 2004/5 2005/6 2006/7 2007/8

EducLifeskills (CG only) 138 134 129 130 131Social Dev CHBCS 72 79 177 173 168Health Compr Plan for HIV & AIDS 717 1,235 1,457 1,812 1,812Total REAL 927 1,448 1,763 2,115 2,112

HIV and AIDS Subprogrammes in 2005 National Budget

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Calculating real growth and nominal growth ratesThe growth rate describes how much the size of an allocation changes from one year to the next. It is

expressed as a percentage of the original allocation and is called the annual growth rate or year-to-year change.

The basic formula is:

growth rate = (amount in year 2 – amount in year 1) x 100 amount in year 1

You can have a nominal growth rate or a real growth rate.

The nominal growth rate compares the nominal amount in year one to the nominal amount in year

two. Nominal growth rate = (nominal amount in year 2 – nominal amount in year 1) x 100

nominal amount in year 1

The real growth rate compares the real amount in year one to the real amount in year two. Real growth rate = (real amount in year 2 – real amount in year 1) x 100

real amount in year 1

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Calculating real growth

Real Amounts R'million 2003/04 2004/5 2005/6 2006/7 2007/8

Educ Lifeskills AIDS Grant 138 134 129 130 131Social Dev AIDS Home/Community 72 79 177 173 168Health Compr Plan for HIV & AIDS 717 1,235 1,457 1,812 1,812Total REAL 927 1,448 1,763 2,115 2,112

Real Growth Rates

% 2004/5 2005/6 2006/7 2007/8Educ Lifeskills AIDS Grant -3 -3 1 1Social Dev AIDS Home/Community 10 124 -2 -3Health Compr Plan for HIV & AIDS 72 18 24 0.05

HIV and AIDS Subprogramme Allocations in the 2005 National Budget

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Calculating annual average real growth rate

Gives a big-picture view of what is happening over the medium term. Educ Lifeskills (2005/6 – 2007/8) average annual real growth rate = average of the 3 annual real growth rates

= -3+ 1 + 1 3 = - 2%

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Per capita spending

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It is also important to adjust budget data on a per person or per capita basis to allow comparisons between countries or between states.

Per capita spending is obtained with the ‘population’ and ‘amount-spent’ variables. The equation is as follow:

Spending/Population = Per Capita Spending

Dwala Lami spent D6 billion on health care and there are about 12 million citizens (Lamicans), how much does each person get for health care in Dwala Lami?

Shanghai Republic spent D2 billion on health care and there are 3.5 million people living there. How much does each person get for health care?