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

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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