Budget Preparation and IFMIS Duncan Last Public expenditure Management Advisor East AFRITAC (IMF) Dar es Salaam, Tanzania IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya

Typical Budget Preparation Cycle Preparation of a medium term expenditure framework (MTEF) Setting of expenditure ceilings and budget call circular with guidelines Preparation of budget submissions Collection, consolidation, and analysis of budget submissions Finalization of budget, including negotiations and final adjustments Preparation of budget documents Managing Cabinet and Parliamentary changes Publication of adopted budget IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya

Budget Function – Preparation Preparing/updating the MTEF (1) Establishing macro-economic forecasts Usually the job of the Macro Department GDP, exchange rate, inflation, interest rate, wage rates, … Likely impact on revenues and expenditures Identification of macro-economic risks Establishing resource envelopes Tax and customs revenue forecasts, including impact resulting from actual or planned changes in the taxation regime, from changes in the macro-economic environment, and from changes in the tax base Other revenue forecasts: fees, cost sharing, dividends, asset sales, receipts from lending, local government revenues External resources: budget support, basket funds, project financing – grants, loans - , and debt relief Identification of fiscal risks IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya

Budget Function – Preparation Preparing/updating the MTEF (2) Recognizing fixed costs or costs established by Law Wages, social welfare, and pensions Part of operating costs, including maintenance (utilities, buildings upkeep) Membership fees and dues Debt service Statutory transfers (to local governments, agencies and extra-budgetary funds) Lending and on-lending agreements Identifying the ‘flexible’ part of the budget Possible savings in fixed costs (rationalization, containment measures, elimination) Flexible part = resources minus fixed costs (adjusted by savings), divided between internal and external resources Identification of government policy priorities Poverty reduction strategy Millenium Development Goals Sector specific plans On-going vs new policy initiatives Defining major programs to meet these priorities Outputs/outcomes Broad Costs How they are to be financed (internal or external resources) IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya

Budget Function – Preparation MTEF and IFMIS Can/should MTEF be a module of IFMIS? Or is MTEF a standalone system which uses data from IFMIS, among other sources? MTEF is a forecasting model used mainly by Budget Department The MTEF process is iterative, with maybe 2-3 scenarios developed for Cabinet consideration However, in the region MTEF has been developed well beyond its original scope, down to detailed activity plans. Such approaches should be more appropriately named Detailed medium term activity plans. IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya

Budget Function – Preparation Ceilings and the budget call circular Results of agreed MTEF MTEF negociations should result in the establishment of Cabinet agreed expenditure ceilings by budget user (line ministry) These should be set for fixed costs, as well as on-going and new programs Expected outputs/outcomes should accompany the budget ceilings Specific cost saving measures, as well as departmental revenue collection targets, which were used to determine the ceilings should be spelt out in the budget call guidelines Ceilings are central to the budget call circular In principle they force budget users to work within limits For this to happen, requests over the ceilings should be submitted separately, and considered only during final negociations This safety valve may be necessary to cater for policy changes that have arisen since setting the original ceilings Guidelines These should clearly indicate how specific costs should be calculated (wages, inflation adjustment for goods and services, per diem and travel costs, formula based transfers, …) Many countries have developed cost calculation forms to facilitate costing by budget users and to allow efficient and consistent checking by Budget Department staff. The development of standardized budget preparation forms facilitates computerization. IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya

Budget Function – Preparation Preparing the budget submissions Typical process in budget users Budget user’s planning and budgeting unit (with accounting unit) prepares wages budget and quite often the other ‘fixed’ costs as well Unit managers are asked to identify the ativities/projects they intend to undertake to meet the program outputs/outcomes assigned to them, which are then costed by the planning and budgeting, and accounting departments Key stakeholders in the budget user meet to ajudicate between the competing demands limited by the budget call ceilings Budget submission is completed and sent to the Budget Department In many countries, however, there is little discussion and budget submission decisions are made by a few senior staff within the budget user. Often the capacity to do proper costing is limited, resulting in major changes during execution. IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya

IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya Budget Function – Preparation Computerizing the budget submissions preparation process (1) Ideal solution Networked or web-based submission system designed around standard forms which are pre-filled with historical and expected outturn data, primed with the ceilings (at budget user and program levels), and which can be downloaded at the budget user end to facilitate data entry at the level of each unit, consolidated and reviewed, given final adjustments and then returned to the Budget Department. Alternative, simpler, solutions Use of pre-prepared spreadsheets: problem is that budget users change them! Manual preparation and collection of budget submission has become a major burden, given the volume of data involved. Inadequate computerization limits the analysis that Budget Department can reasonable undertake, undermining the quality of the final budget. IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya

IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya Budget Function – Preparation Computerizing the budget submissions preparation process (2) Design considerations Budget preparation is an iterative process Many units are involved in budget preparation The process required access to significant volumes of financial and non-financial data, including historical data The data needs to be analyzed from a wide range of perspectives There are several levels of budget negociations The process must be kept confidential until the budget is submitted to Parliament Budget Department is usually working under severe pressure, both time and competing interests for budgetary resources IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya

IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya Budget Function – Preparation Computerizing the budget submissions preparation process (3) Bringing order to the process through version control There are a number of key tracking stages: Ceilings, submissions, adjustments (maybe up to 5), Cabinet, Parliament, Appropriation At each stage senior management in MoF needs to take stock Absence of tracking stages will lead to uncertainty over what has already been done (i.e. a record and explanation of changes), and the remaining gap to reach the desired budget Tracking stages will help to improve the discipline, and help to avoid last minute across the board and meaningless cuts to ‘fit’ expenditures to resources IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya

Budget Function – Preparation Conclusions Budget Department must be in full control of any computerization of the budget preparation process Budget preparation NEEDS to be computerized if the quality of budgets is to improve Budget preparation is a negociation process between competing demands, and therefore needs to have structure in the form of key tracking stages if MoF is to stay on top of the process Badly prepared budgets rarely produce good results in execution Computerization will not deliver expected results if budget staff do not have the right skills/capacities to critically analyze budget submissions IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya

Thank you for your attention! Any questions or comments? Duncan Last Public expenditure Management Advisor East AFRITAC (IMF) Dar es Salaam, Tanzania IFMIS Workshop, 8-12 November, 2004, Nairobi, Kenya