A Strategy for Restructuring

1
Case Study Cash budgeting, strengths,
weaknesses and prospects
Budget execution courseNovember 3-5, 2003
Presented by Joel Turkewitz, WBI
Nicola Smithers, PEFA
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
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
Cash budget process
Acc Gen (rather than Controlling Officers)
prepares financial statements based on ministry
statements
Resources estimated for the month
Controlling officers submit list of checks to
Central Bank and Accountant General
MoF committee allocates to 51 budget heads
Funds equivalent to approved list transferred by
Central Bank to ministry bank account
Incomplete reconciliation with Acc Gen
statements by ministry accountants
Releases made to line ministries during month
based on priorities
Financial statements, prepared by Acc Gene,
audited by Auditor General
Ministries submit monthly expenditure statements
to Acc Gen
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Impact
6
Composition of the budget deficit
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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

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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
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Questions

• 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?