1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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