Dr Jamal Khan :
BUDGETING as part of public management may be used in two broad senses. First, it could be used to refer to the type of budgeting or the approaches to it. In this sense, one may mention, for example, traditional budgeting, line-item budgeting, performance budgeting, planning, programming and budgeting system, and zero-base budgeting. Secondly, budgeting refers to the process by which the national budget of a country is executed: estimates collection, estimates submission, budget preparation, approval, execution, and auditing. A public sector/national budget is a difficult, inter-organisational and multivariate process. It usually has several goals. Its main purpose is to ensure control over public funds and accountability to a public authority.
The budget is expected to keep authorised and appropriated funds within stipulated desired limits, thus making it possible to check that spending is actually being put to use for designated activities. The national budget is also used as an instrument of development planning and growth. It forecasts revenues and spending, two planks of this annual exercise. If there is a deficit between revenue and spending, it spells out how the deficit is to be financed. It may introduce a set of measures aimed at increasing public sector revenue or reducing spending, such as increasing taxes, expanding tax base, reducing transfer payments and entitlements, reducing subsidies, raising nontax revenue, etc.
The budget also allows the government to exercise some measures of control over the economy by varying the rate of spending in order to increase employment or curb inflation. In Bangladesh, the type of budgeting most commonly in use is the line-item budgeting, viz. there are lines with sums attached and these lines separate items specifying the spending involved.
Broadly, budgeting involves giving the parliamentarians as well as the people of a given country an indication of what is happening to a country as a whole. The budget embodies a ministerial speech, a statement, a series of documents, a review of fiscal measures, a report on development programmes and projects, a review of the economy, the capital appropriations, and, sometimes, supplementary notes to the budget. These are ordinary supporting documents which are tabled formally. From the perspective of the ministry of finance, the budget, then, comprises a number of documents, presenting different kinds of information and ensuring that what is stated in the budget speech can be related to other facets of the whole economic/financial situation.
One should be aware of what a budget is and what a budget is for. To illustrate, a budget is a major policy instrument of a government, laying out aims and objectives for a particular financial year. It explains how the planning objectives would be translated into actual action programmes. It provides specifications about the financing of the budgetary programmes, whether these are social, economic and organisational by nature and in content. Giving an insight into the direction which socioeconomic policies and activities will take the country in the coming year, it serves as a programming tool. As an indication in a mixed economy – like Bangladesh – how public sector outlay and initiatives are expected to influence the propensity to save and invest. It targets the influencing of income distribution and opportunity creation in a given country. This is ideally, and broadly, what a budget is expected to do. But one cannot attain the ideal and never is able to satisfy everyone in the community. If the budget authority, for instance, reduces taxation, some interest groups will say that this is concession to the rich and the affluent. If the authority increases taxation, they may say it inhibits investment and sectoral/sub-sectoral growth. If the authority comes down heavily on industry, the agricultural interest may say not enough assistance is given to agriculture, and so on. It is unlikely that any budget can ever satisfy everyone in a country.
The budget division, in almost all developing countries including Bangladesh, plays an advisory role in all proposed programme/project spending. Such advice generally embraces economic and financial consolidations, resource availability, operational feasibility, estimate reliability, allocation criteria, and programme/project efficiency and effectiveness measures. Nearly all governments also require streamlined budgetary procedures, which encourage policy and managerial planning, accurate spending estimate, timely goal attainment and prompt response. In articulating allocation issues, the budget division must maintain good relationships with the key personnel of the operating ministries, departments, statutory authorities, public enterprises and field agencies.
Over the years, this relationship has been defined in terms of control. Reflecting the intellectual shift toward performance, productivity, decentralization and empowerment, the division must now redefine its relationship to the line agencies, laying emphasis on analysis, output, service and partnering. This new focus will require the budget division personnel to do more research and fieldwork within the operating agencies and participation in budget review and, in particular, quarterly performance reviews throughout the public sector system.
Complete with a supporting analytical staff, the budget division is organised in many countries by several sector units headed by chief budget analysts. This sector should be retained and strengthened by establishing strong linkages with statutory authorities, public enterprises, capital budget specialists and project analysts. Public enterprise monitoring and public sector investment should be overseen by the budget division, providing a basis for a strong continuous coordination of all resource allocation activities and offering opportunities for the development of a national budget. A strong professional orientation within the budget division provides public enterprise monitoring specialists with access to the budget analysts working with operating ministries and related units. Associating public enterprise monitoring with budget processes can stimulate strong supervision of public enterprises by the operating ministries.
In general, the government should aim at establishing strong public enterprise controls via the performance-based budgets of the operating ministries, focusing on objectives and targets, and avoiding undue interference in the daily operations of public enterprises. To achieve this type of control, all operating ministries should establish cost centres to account for their supervisory activity – supported by target-setting for each public enterprise and reviewing such targets each quarter by the responsible ministry. To provide stronger and regular organisational and coordinative support for public sector investment as a budget division responsibility, the government should set up a public investment fund, which controls capital appropriations and related assets and liabilities.The budget division must put in place strong performance criteria for the collection, processing, interpretation and presentation of data/information, including the application of statistical tests and other quantitative standards. Equally important, the division must develop traditions and the supporting procedures to produce its output on time. Establishing technical support and infusing performance awareness in its work are desirable.
The allotment process needs an overhaul in many jurisdictions across the developing world. Currently, for instance, the warrant issue is tightly linked to cash availability. Conceptually, appropriations guarantee funding of public sector policies, programmes and projects over a certain time period, secured by general revenues. A modernised budget division, one may argue, should be liberated from the short-term cash management practice. A renewed warrant procedure assumes close collaboration among the budget division, the finance ministry, the accountant-general’s department and other agencies concerned as well as the observance of several operating conditions, viz. prudent revenue estimating; a realistic budget provision; a cash budget showing balances in funds, bank accounts, revenue inflows and loan proceeds and maintaining liquidity and a stable warrant process; quarterly warrants reflecting agency requests and the budget division honouring agency requests provided warrant requests and warrant projections are within budget, thus encouraging agency planning and performance; and the warrant process should be executed in an orderly and consistent fashion.
Ordinarily, the budget division in the developing region uses several vehicles to disseminate its studies and analyses, viz. the annual budget, budget adjustment, periodic allotment warrants and special reports. To improve its ability to ensure that budget allocations are based on specific criteria – policy priorities, efficiency measures/unit costs, effectiveness measures/goal attainment, investment returns – the division should formulate a monthly budget perspective, informing and guiding the formulation of the annual budget and reflecting the best analyses of key development agencies, operating organisations and representative public inputs. The budget perspective relates spending and revenues to social and economic goals, and may comprise a set of issues, real and potential constraints and initiatives. If pursued annually, such a document is likely to foster the development of the supporting planning, analytical, implementational and evaluative capacity not only within the budget division and the finance ministry but also in the large public sector system and help nurture the integration of databases which are currently either fragmented or non-existing in Bangladesh.
The budget exercise gets started generally as early as March or April, and the timing, of course, varies right across the board. Many finance ministries are involved in a twofold exercise – recurrent budget takes care of recurrent spending, including employee payrolls and benefits and the second is one which deals with development projects/spending. Both of these exercises entail a great deal of work – quantitative work and other analytical chores. It is true of the capital budget, with the finance ministry/budget division depending a great deal for inputs on the operating ministries and departments. In order to try and get a picture of what these organisations want to do and how they want to spend the money they hope to get, the finance ministry sends out early in the year a comprehensive circular. The circulars, for example, contain requests for both the recurrent estimates and the capital estimates.
In some countries, a separation is drawn between recurrent budget and capital budget and two separate circulars are sent out. Still in some places, the separation between the two budgets is not made – having recognised that there is a link between the two – and a joint circular in that case is sent out. The practice of sending out one circular is gaining currency around the world. A comprehensive document, the circular calls for information and analytical work by the operating organisations. The hope is that operating agencies would get down to the job and produce the estimates in time so that the finance ministry personnel can go through the estimates carefully, relate those to fund availability, and see how one can prune the submitted estimates.
Reports tell us that budgeteers in some countries tend to indulge in arbitrary cutting. Previously, because of the lack of right information or the lack of coordination between the ministry and the agencies, considerable cutting and pruning used to be done by the finance ministry arbitrarily.
(Dr Jamal Khan was professor of public sector management at the University of the West Indies. [email protected])
(To be continued)
