Overview of the Budget Cycle Karen Rono Development Initiatives

Outline

The national budget: what it is, and how it should look like The budget Process: what are the 4 main

stages of the process Why do budgets differ with actual

expenditures at the end of the financial year? The Budget execution Process: what

happens once budget is approved?

Budgets The budget is the tool through which a

government implements policies: it allocates resources to plans

Three key principles of budgeting best practice: 1. Comprehensiveness 2. Transparency 3. Accountability

A government budget must be comprehensive and transparent to allow citizens to hold government accountable for managing public funds

The Budget Process

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• Modeling of the economy (macroeconomic assumptions behind the budget, e.g., growth, inflation, interest rates, etc.)

• Estimation of revenue (domestic & external) • Determination of expenditure ceilings for

ministries/departments/agencies (MDAs) • Release of the pre-budget statement • Formulation & negotiation of MDA

expenditure budgets • Cabinet approval

Step 1: Formulation Stage

Formulation Stage: Key Documents Pre-Budget Statement: discloses the

parameters in which the executive will form its budget proposal — (also called Budget Policy Statement).

Executive’s Budget Proposal: the draft budget that should be made available to the public before the actual budget law is passed by the legislature, so that citizens have the opportunity to provide their input into the drafting of the budget law before it is finalized and passed.

Executive’s Budget Proposal – Expenditure classification (administrative,

functional, economic, program) – Revenue classification (tax, non-tax, grants &

loans) – Debt (debt stock, composition–e.g., domestic vs.

external, interest rates) – Macroeconomic information (e.g., GDP growth,

inflation, unemployment rate, interest rate) – Multi-annual data (future projections, past data) – Public policy information (new policies, links

between policies & budget, links between budget & poverty reduction policies)

Which institutions are involved at the formulation stage?

The Executive: They are the law enforcers, they execute the law. President, prime minister and cabinet/ministers and government employees-civil servants Sector working groups: assembly of

various stakeholders who collect ideas from citizens and feed that to the proposed budgets

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• Budget tabled in the legislature

• Legislative committees consider revenue & expenditure proposals and report to the full legislature

• Legislature reviews and discusses the budget

• Amendments made

• Budget voted into law

Step 2:Approval Stage

Approval Stage: Key Documents Enacted Budget: a document that is accepted

by the legislature and passed into law as the budget to be implemented for the upcoming fiscal year (appropriation act).

Citizens Budget: a nontechnical representation of the budget, with terms that can be understood by citizens without technical background in budgets or fiscal policy (also known as the budget highlights).

Note: a Citizens Budget can be produced for either the Executive’s Budget Proposal or the Enacted Budget (or both, ideally).

Which institutions are involved at the approval stage?

Legislature: they debate the budget proposal and make any amendments and pass it into law Legislature committees (also known

as the House budget committees): they debate the budget proposal further based on the various sectors

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• Funds transferred to spending agencies (Ministries, Departments and Agencies -MDAs)

• Delivery of services

• Production of in-year reports

• Production of mid-year reviews

• Production of year-end reports

Step 3: Execution Stage

Execution Stage: Key Documents

In-Year Reports: produced and made available to the public on a monthly or quarterly basis; they should report on the implementation of the budget,

Mid-Year Review: provide a comprehensive update on budget implementation: actual figures for revenue/expenditure, a review of the economic assumptions underlying the budget, & an updated forecast of the budget outcome for the current budget year.

Year-End Report: produced and made available to public after the fiscal year is completed; should report extensively on government’s budget performance compared to original budget.

Which institutions are involved at the Execution stage?

The Executive: as they are the enforcers In some countries there are

independent offices which are part of the execution stage, and they prepare the In-year, mid-year and end-year reports (controller of budget-Kenya)

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• Year-end reports submitted to the Supreme Audit Institution (SAI)

• SAI conducts audit

• SAI submits report to legislature

• Legislature submits report to Public Accounts Committee (PAC)

• PAC reviews report and makes recommendations to the full legislature

Step 4: Oversight Stage Oversight Stage: Key Document

Oversight Stage: Key Document

Audit Report: the annual report issued by the Supreme Audit Institution attesting to the government’s year-end final accounts and whether public resources have been utilized effectively.

The audit report must be released at least 2 years after

the end of the fiscal year

Which institutions are involved at the oversight stage?

Auditor general The legislature and through the

parliamentary budget committees The executive (to take action on

the audit recommendations)

Poor Financial management systems: inability to manage fund flows and fiscal dumping Corruption: creative accounting,

procurement irregularities: can be detected by monitoring projects during and after execution phase Fund diversions

Why do government actual expenditures deviate from budget allocation?

Use of reserves during unexpected events-the contingency reserves Inadequate funding Off-budget donor funding Weak oversight

Why do government actual expenditures deviate from budget allocation?

Funding released by treasury to

spending agencies

Agencies initiate spending (through

payrolls, procurements)

Payments are made for the goods and services procured

Transactions are recorded in the

accounting system

In year and end year accounting

statements and reports are prepared

for each agency Budget

Execution Process

Budget Execution Process

What documents can help monitor budget execution?

Enacted Budget: Only document with a legal status. It states what government is supposed to spend in the coming financial year In year reports: these compare actual

budget results with the approved budgets to show if the expenditure, revenue and debt provisions are being adhered to during execution

What documents can help monitor budget execution? Supplementary budgets: allow

revision of budgets based on unanticipated needs arising during the year e.g natural disasters Year –end reports: this consolidates

the actual expenditures of administrative units, the revenue collected and the debt at the end of the financial year

So...

Where do WE come in?

Parliament, Civil Society , Media and Budgets

The role of Parliament in ensuring accountability for resources can be strengthened by their collaboration with CSOs and Media. Providing evidence of how resources are being spent on

the ground and what their positive and negative impacts are.

Allies in advocating for strengthened role of Parliament in terms of budget appropriation and oversight.

sometimes have knowledge and expertise that Parliaments don’t necessarily have around particular issues;

The Parliament can play a key role in improving and opening up participation and hence contributing to a more open and participatory budget process which leads to strengthened accountability.

Thank you

karen.rono@devinit.org