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ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1)

ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1). Linking Strategic Plans with Budgets January 27, 2010. Linking the strategic budget plan to the annual budget. Session 1: Day 3. Top-down and bottom-up planning. TOP DOWN - MEF.

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ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1)

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  1. ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1) Linking Strategic Plans with Budgets January 27, 2010

  2. Linking the strategic budget plan to the annual budget Session 1: Day 3

  3. Top-down and bottom-up planning TOP DOWN - MEF BOTTOM UP - MINISTRIES Long term sector strategies Long term resources strategy Strategic allocation of resources Three-year forecast of resources Three-year budget strategic plans Annual budget allocations Annual budget resource forecast Annual budget

  4. Timetable for budget preparation • As stated in the Law of the Public Finance System (May 2008), budget preparation now takes place in three phases:

  5. Phase 1: Strategic Budget Plan • SBP has been required by MEF since 2008. The aims of the SBP are: • to link budget planning to the Rectangular Strategy, the National Socioeconomic Development Plan 2006-2010 and other sector specific development plans; • to consolidate recurrent and capital expenditures of the national budget and incorporate donor funded projects • MEF has asked that representatives from project management units be included in the budget preparation process to facilitate the last point).

  6. SBP timetable

  7. Contents of the SBP The SBP consists of : • Ministry Policy Framework (policies, targets, programs, strategies, for three years); and • Three-year budgets for revenue, recurrent expenditure, and capital expenditure by programs and sections

  8. Phase 2: Preparation of the Annual Budget • The timetable is:

  9. Phase 3: Approval of the Annual Budget • The timetable is:

  10. Conditions for Strategic Budget Plan to Link to Annual Budget • SBP and Budget should be prepared using the same budget classification • Preferably this should have dimensions for economic items, administration structure, programme structure, function and funding • Annual budget must link directly to the first year of the SBP • SBP should be a rolling three year plan.. • Work each year should focus on forecasts for year 3 and minor changes for years 1 and 2, NOT a complete rewrite of the plan

  11. Conditions for Strategic Budget Plan to Link to Annual Budget 4. SBP should be a ‘living plan’, not just something that is prepared in April-May • Agreed annual budget should be immediately reflected in the SBP 5. SBP must show future changes in recurrent costs that result from capital investment now 6. Estimates in the SBP should be backed up by good costing records. 7. SBP should distinguish ongoing committed plans, existing plans not yet started, and new plans.

  12. 1. Budget classification /chart of accounts • A uniform comprehensive budget classification /chart of accounts (BC&COA) assists planning, budget preparation, budget execution, budgetary control, accounting and reporting. • Further development of the BC&COA is therefore a priority of PFMRP.

  13. Dimensions of the budget classification

  14. More on these principles • Covered in the course on Budget Classification and Chart of Accounts • (March 8, 2010)

  15. 2. Annual budget must link directly to the first year of the SBP 2011 2011 Strategic Budget Plan 2012 2013 2011 2011 Annual Budget

  16. 3. SBP should be a rolling plan 2012 2012 Strategic Budget Plan 2013 2014 Ideally only small changes New forecast 2012 2012 Annual Budget Easier to prepare

  17. 4. SPB should be a living plan Example: • Agreed 2011 SBP for Ministry X contains expenditure for sub-program 002: 2011: 150 million 2012: 80 million 2013: 80 million • In the annual budget for 2011, overall funds available for Ministry X are reduced, and sub-program 002 is postponed to 2012. • When should you reflect this change in the SBP?

  18. 5. SBP must show future changes in recurrent costs that result from capital investment now • All capital investments result in changes to recurrent costs (increases, or savings) and sometimes changes to revenues Example: • An investment in 2011 results in recurrent cost increases in 2011, 2012, 2013 and beyond. • These additional recurrent costs should be protected in future annual budgets.

  19. Estimatesin the SBP should be backed up by good costing records. XYZ Program Original 5-year cost projections Original 3-year projections for 2011 BSP Agreed amount included in budget 2011 UPDATE and RE-FORECAST Actual amount spent in 2011

  20. 7. SBP should distinguish ongoing committed plans, existing plans not yet started, and new plans

  21. Advantages of using program budgeting • Focuses on sector goals, needs and capabilities • Links inputs to outputs and outcomes • Hence improves transparency of budget • Ensures that all initiatives are properly costed over a suitable timeframe • Enables the most cost-effective solutions to be chosen • Assists direction of resources to the most effective uses

  22. Difficulties with using program budgeting • Program budgets are unusable if they are too optimistic concerning available resources. • Program budgeting is ineffective if the basis for resource allocation between sectors ignores it. • Establishing missions, goals and objectives of programs is lengthy • Costing of programs is lengthy and detailed and continuous revisions are necessary. Reallocations of indirect costs is time-consuming. • Effectiveness of program budgeting is undermined if accountability for programs is unclear – program structure needs to be integrated with organisation structure.

  23. Advantages of effective linkage between program plans, SBP and annual budget • Making three-year SBP estimates reduces the need to set over-optimistic annual budgets. • Annual budgets are easier to set, because planning has already taken place for the program and SBP. • The annual budget is linked to strategic plans, not made on an ‘incremental basis’. • Hence sectors and ministries can plan to progressively improve their operations and achieve longer term objectives. • MEF can plan to allocate resources to sectors targeted in national strategic plans.

  24. Difficulties of linkingprogram plans, SBP and annual budget • The master copies of three-year plans are often held at ministries, and are often significantly rewritten from year to year, which should be unnecessary. • Finance Ministry should hold master copy of agreedthree-year plans. Submissions from ministries should focus on changes to this plan • Ongoing plans can be ignored if arbitrary budget cuts are made.

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