GBS ANNUAL REVIEW, 2009

1. GBS ANNUAL REVIEW, 2009 Key Issue # 4: Budget Execution November 24, 2009

2. Outline Introduction Achievements Key Challenges Measures to address challenges

3. Introduction Budget execution is measured as percentage of release and spending in relation to the original approved estimates The gap between original budget and release is called release gap The gap between release and spending is called spending/absorption capacity gap Most often spending/absorption gap is reinforced by release gap, when releases are late.

4. Achievements in budget execution Execution of recurrent budget has performed well over recent years About 90% of budgeted recurrent funds are released and spent every year. The release of both PE and OC is on monthly basis. And, some of institutions receive their OC funds on quarterly basis Establishment of functioning cash management unit at the Treasury

5. Achievements in budget execution cont.. Release and spending of local development funds in road sector is more than 90% Use of IFMS has also accelerated budget execution, through spending agencies accessing exchequer release as soon as they are posted in ACCGEN’s office in DSM, and effect spending

6. Challenges • Despite the achievements in budget execution some challenges remains, especially in development budget. This proves to be a major hurdle limiting the ability of the public expenditure to deliver public service and obtain required results/outcomes • In 2007/08 only about 45 percent of the MDAs’ budget development funds were spent. • Preliminary outturn data for 2008/09 indicates that about 52 percent of budgeted development funds were spent.

7. Challenges cont.. • The size of the execution problem also differs according to the nature of spending and source of financing. Development budget tends to experience higher execution gaps than recurrent budget. • The source of funding matters in development budget execution. • Execution of the locally funded component of the development budget performs better than the foreign funded component. • Regardless of the source of funding, sectors with higher share of capital investment spending in their development budgets experience major execution problems than the sectors with higher current spending component

8. Challenges cont.. Inadequaces in cash flow and procurement plans; and late submission of cash flow plans to MoFEA by spending agencies Limited capacity to plan and physically execute large capital investment projects Weak link between sector strategy and sector MTEF, especially for large investment projects which take longer to implement

9. Challenges Cont.. Under-reporting of direct to project funds and difficulties in timely capturing this information through Dummy Exchequer records Delays in release of basket funds compounded by overly demanding reporting requirement

10. Measures to address challenges Strengthening capacity in the preparation of cash flow and procurement plans Strengthening the established cash management unit at the Treasury. Strengthening capacity in the preparation and implementation of public investment projects, including capacity to undertake Cost-Benefit-Analysis (CBA). Continue strengthening the MTEF, including public investment planning in order to enhance its credibility and hence predictability of resources

11. Measures to address challenges.. Continue encouraging DPs to channel all the approved project funds through the exchequer system, as PFM systems continue to improve Strengthening of procurement and internal audit units in all spending agencies. Continued improvement of Dummy exchequer recording, to ensure that all relevant information is captured on monthly basis rather than annually

12. Asanteni Sana