1. Producing Policy Based and Credible Budgets Panel session Monday April 3, 2006

2. Why is this important?
Budget should be the financial expression of government policy choices
Non-credible budgets cannot be executed
Budgets which cannot be executed give arbitrary power to officials and undermine democracy
Non-credible budgets undermine incentives to produce budgets
Non-credible budgets consume administrative resources
Budgets which are not policy based imply that policy decisions are taken during budget execution

3. Important Issues – Political and institutional
Developing credible policy based budgets is a political and institutional rather than technical issue
Requires collective decisions at the centre of Government
Requires ministries to be originators of policies
Requires conservative revenue forecasts
Requires politicians to agree on the rules of the game and abide by them
Requires rule based budget execution
Hard choices made up front

4. Important issues – role of the Ministry of Finance
Manages overall budget process and timetable
Provides overall revenue envelope for the budget
Provides guidance to agencies on key parameters (inflation, wages)
Scrutinizes budget submissions for realism, consistency with stated policies and results of previous budgets
Communicates to the Government the scope of feasible choices

5. Important issues – technical
Need for consistent costing
Provisions for maintenance and recurrent costs
Capital investments decisions consistent with current allocations and sustainable in the future
All sources of financing considered together

6. Suggested Issues for Discussion
What reforms have you made in how you prepare the budget and what was their rationale?
Is there a coherent policy decision process?
Do the politicians believe in the budget process?
Do agencies believe in the budget process?
How and when does the Government reallocate resources to priorities? Is there any link between the medium term forecasts and the annual budget?
Is it possible to develop useful performance indicators? Do they have any impact on budget allocations? Has program budgeting helped or is it just an additional burden?