Public Expenditure Management Budget Execution Bill Dorotinsky PREM

Public Expenditure Management: Budget Execution Bill Dorotinsky, PREM public sector group The World Bank PEAM Course March 21, 2005

Expenditure Management Cycle Financial management system boundaries Project appraisal Planning system Resource allocation Medium term plans, e. g. three year rolling plans Annual budgets Development, recurrent and revenue idity Liqu ent agem man Expenditure review Public expenditure review Institutions Pro Accountability Fund release procedure, e. g. . . warranting t jec re itu d l n pe ntro x E co t ev revi ent ew g Pos n ori nit mo Audit system Reports and financial statements g itorin Mon ling ntrol o c & Accounting for revenue and expenditure Source: Adapted from Integrated Financial Management. Michael Parry, International Management Consultants Limited. Training Workshop on Government Budgeting in Developing Countries. THE UNITED NATIONS. December 1997. The World Bank

Why is budget execution important? Credibility of the Honduran Budget – In-year Deviations by Agency (percent of the executed over the approved budget) The World Bank

What is budget execution? • Processes and institutions to implement the budget • Incentives – principle-agent problem • Reflects that budget is NOT only an accounting document – also a political document – Planning/steering device The World Bank

Objectives of budget execution • Manage Spending and Revenues to budget – – support choices of elected officials allow budget to be planning and steering tool promote macrofiscal discipline Reduce opportunities for corruption • Enable program implementation – Assure resources flow to programs – allow budget to be aid to operational efficiency through spending unit advance planning, efficient administration – enable program managers to achieve objective The World Bank

General Phases of Execution • Phase 1: Allocation • Phase 2: Ministry Spending Plans – link actions with finances; cash flow needs • Phase 3: Commitments • Phase 4: Verification • Phase 5: Liquidation of Financial Obligation The World Bank

Phases of Execution Source: Integrated Financial Management. Michael Parry, International Management Consultants Limited. Training on Government Budgeting in Developing Countries. THE UNITED NATIONS. December 1997. The. Workshop World Bank

Core Functions - internal control - program management - spending (commitments) - recording & reporting - payment orders - verification of receipt of goods/services - program/cash plans Financial Management is Everyone’s Responsibility The World Bank

Expenditure System Self-correcting system External Audit No scandals does not mean clean system Procurement, Personnel, Physical Asset, Contract, Performance Management The World Bank

Control Approaches The World Bank

Criteria for Assessing Budget Execution System The World Bank