module 1.2 introduction to the budget cycle introduction to public finance management

Module 1.2 Introduction to the Budget Cycle

INTRODUCTION TO PUBLIC FINANCE MANAGEMENT

Module map

Module outline

The six phases of the budget Cycle

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Six Phases of the Budget Cycle

Review Policy Budget Execution

Accounting and reporting

Strategic Planning External Audit

Budget Preparation

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Translation of the medium-term economic and social policies into a medium-term programme of actions, taking into account available resources

Phase 1. Strategic Planning

Macro-economic forecasting

Development of sector strategies

Setting priorities within fiscal constraint

Costing / fiscal impact assessments

Set macro-fiscal policy

Determining expenditure ceilings

National Development Plan

fiscal side policy side

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Phase 2. Budget Preparation

• Budget preparation deals with the annual translation of strategic plans into the budget

• Responsibilities in budget preparation process are set out in a legal framework: constitution, organic budget law, financial decrees and regulations

• Approved budget is a law: deviations (virements, supplementary budgets) need to be approved

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Phase 2: budget preparation

I. Determine budgetary ceiling

Min

istry o

f F

in

an

ce

L

in

e m

in

istri

es

V. Submit to Parliament for authorisation

II. Send budget circular

III. Submit bid

IV. Negotiations

Parliament

Cabinet

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Phase 3. Budget execution

Revenue collection

• Taxes (direct/indirect)

• Excises

• Duties

• Non-tax revenues

• Donor funding

Expenditures

•Control

•Payroll

• Procurement of goods/services

• Transfers / subsidies

Liquidity management

• Short term (cash management)

• Medium / long term (debt management)

Aim: achieve policy goals

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Phase 3: budget execution Control

Authorisation by MoF or Fin. Dept. of LM

Commitment to future payment

Verification of delivery by spending dept: liability

Payment Authorisation by MoF or Fin. Dept.

Cash Payment by Treasury or LM

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Phase 4. Accounting and Reporting

Accounting: maintaining basic records of government transactions and, thus, outturn expenditures

Aim: monitor and control legal compliance with budget authorisations

Chart of Accounts (CoA): coding framework for financial transactions

Data: commitments and/or payments

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Phase 4: Accounting and Reporting

Financial reporting• In-year reporting – related to budget execution

• End of year report: Annual Financial Statement• Revenues and expenditures• Balance sheet (assets and liabilities)

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Phase 5. External Audit

Supreme Audit Institution (SAI) • National institution responsible for

external auditing of government’s annual financial report

Key feature• Independence from executive and

legislative authorities by Constitution

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6. Policy Review• Assessment of actual versus desired government

policy outcomes

• Ex-post analysis of impact of government policy programs

• Adaptations of strategic policy mix based on outcomes of government policy effectiveness and efficiency in service delivery

Should be an integrated phase of budget cycle

• No common practice in developing countries• Carried out on an ad hoc basis• Frequently initiated by donor community (PER, PETS)

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t t+1 t+2

Fiscal

Year:

t-2 t-1

Budget

T-1

Reporting & Audit

Policy Review

Budget Execution

Account. & Mon.

Strat. Planning

& Budget Prep.

Budget

T+1

Reporting & Audit

Policy Review

Budget Execution

Account. & Mon.

Strat. Planning

& Budget Prep.

Budget

T

Reporting & Audit

Policy Review

Budget Execution

Account. & Mon.

Strat. Planning

& Budget Prep.

Budget Cycle Exercise

• Groups should each clear a complete Table top,

ready for working

• Take all cards

• Lay out in three columns:

• Do stages first, then tasks, then stakeholders

• Be sure to put tasks in correct order

• Time: 30 min

Stages Tasks Stakeholders