1. The Budget Process A simplified and generalized summary of budgeting in the public sector. Political Dynamics Actors in the budget process Stages in the budget process Budgeting for the medium term

2. Political dynamics Budgeting takes place in a broader political context. Secure legislative majorities enhance the predictability of voting outcomes. Minority and coalition governments may have to make more concessions in order to ensure legislative support. Party majorities only ensure predictability of legislative voting behavior when they are matched with tight party discipline. Role of electoral system.

3. Key actors in the budget process The finance ministry or treasury is to coordinate and drive the budget process in accordance with schedule. Spending departments are ultimately responsible for expenditures within their jurisdiction. President/Prime Minister and Cabinet make fundamentally political decisions about tradeoffs. The role of the legislature is to scrutinize and authorize revenues and expenditures. Independent supreme audit institutions audit government accounts for compliance and performance. Other actors may include the media, civil society organizations, donors and international financial institutions.

5. Drafting stage Concerned with compiling a draft budget that can be submitted to the legislature. Mostly internal to the executive, secretive. The first step is to set fiscal policy and estimate available revenues based on macroeconomic projections in order to establish the total resource envelope. Finance ministry issues guidelines to spending departments. Submission of draft budget requests from spending departments. Negotiations at bureaucratic and political levels.

6. Legislative stage Budget tabled in the legislature. Consideration by parliamentary committee(s). Parliament accepts, rejects or amends the budget. International experience suggests that a minimum of three months is required for meaningful legislative analysis and scrutiny (OECD Best Practices). The budget should also be tabled sufficiently in advance of the fiscal year to which it relates. On occasions the timely passage of the budget may not be possible, and for such cases the constitution or legislation typically define a reversionary budget.

8. Legislative stage Where the committee stage is underdeveloped, the budgetary role of the legislature tends to be weak. There are several models: – A single budget committee makes decisions without input from other committees. – In a two-tier system the budget committee decides on expenditure totals and sectoral committees departmental budgets. – There is no budget committee, but sectoral committees scrutinize departmental budgets.

9. Execution/implementation stage Funds are apportioned to departments in order to implement activities. Finance ministry monitors spending. Request for legislative approval of adjustment budget if necessary. Fiscal risks are inherent in a continuously changing economic environment – purpose of contingency reserves. In-year adjustment decisions should be transparent and thoroughly scrutinized.

10. Audit stage Supreme audit institution assesses departmental accounts and performance. Audit reports should be published promptly and submitted to parliament. Parliament needs to be interested in issues concerning the financial and operational performance of government. Furthermore it needs to be aware of the audit reports and to have sufficient weight to introduce its recommendations in the political debate.

11. Budgeting for the medium term Many aspects of budgeting require more than an annual time horizon, e.g. large scale capital projects or restructuring of service delivery. The purpose of a Medium Term Expenditure Framework (MTEF) is to indicate the size of the financial resources needed during the medium term, usually between three to five years, in order to carry out existing policy. Differs from multiyear budgeting, which involves fixed appropriations for a number of fiscal years. Usually, only the first year of an MTEF is approved by the legislature as the annual budget, whereas the outer years are nonbinding projections of the future cost of existing policy. MTEFs will be discussed in detail in a separate session tomorrow.

13. Concluding remarks For parliamentary budget researchers and committee staff thorough acquaintance with the actors and process of budgeting is essential. This presentation provides a simplified and generalized summary of budgeting in the public sector. Core participants in a typical budget process are the executive, including finance ministries and spending departments; the legislature and its committees; as well as supreme audit institutions. Most budget processes in the public sector go through drafting, legislative, implementation, and audit stages. Medium term budgeting frameworks are increasingly used to guide annual budgeting and to provide a broader planning horizon.