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TERESA CURRISTINE: International guidelines and codes, which are discussed in a

later module,
have been developed to promote and support
the implementation of good budgeting principles
and to address the challenges we discussed in the previous video.
To address these challenges, governments have
sought to implement modern budget principles and budget reforms.
Countries are at different stages in the development of their budget processes.
In this video, we will discuss these modern principles and modern budget
reforms.
There are three main modern budget principles outlined in this slide.
First, stability.
Within the agreed fiscal policy, the government
establishes fiscal objectives and targets.
For example, that debt should not exceed 60%
of GDP, or that the budget deficit should not be more than 3% of GDP.
This provides a clear path for achieving fiscal policy objectives,
and it serves as a guide for the budget process.
This is discussed in another module.
Second's transparency.
Transparency involves providing timely, comprehensive, and regular
financial and non-financial information in budget documents.
This is to inform the legislature, the public, and the markets
about the government's fiscal policy and its planned and executed budget.
This is discussed in the fiscal transparency module.
Third, performance.
Performance is providing information on expected and/or past performance
of government policies and programs.
This can be provided in the budget or in supporting documentation.
This allows the public to have information
on the results of government's programs, what is working, what is not.
Some governments have introduced reforms to support
the implementation of these principles and to modernize their budget
preparation process.
In this slide, first let us briefly discuss
what are these reforms and secondly, how they relate to these principles.
First is top-down budgeting techniques.
At the start of the budget process, the Ministry of Finance
sets ceilings for total government expenditure
and for individual ministries that are within the overall fiscal targets.
For example, a debt ceiling of 60% of GDP.
Second, developing a fiscal strategy early in the budget.
This sets out the government's fiscal objectives
over the medium-term and for the upcoming budget.
It includes budget totals, macroeconomic assumption and forecasts,
fiscal balance, and the debt level.
We also have medium-term budget frameworks.
This entails developing a framework which
estimates revenues and expenditures over the medium-term,
and it examines the implications of budget decisions over the medium-term.
You will hear more about this in the next module.
Focusing on results-- that is, introducing performance information
into budget documents and the budget process to program and performance
budgeting.
Budget transparency.
This should be throughout the budget process.
The arrows in the slide indicate how certain reforms can
help support modern budget principles.
For example, top-down budgeting techniques, fiscal strategy statements,
and medium-term budgets all support stability.
Some reform support more than one principle.
For example, medium-term budget framework
support both stability and performance.
While all governments have an annual budget process,
not all have modernized that process.
Country's budget processes face different challenges
and are at different stages of development.
Only selected countries, especially advanced economies and some emerging
markets, have introduced these reforms.
In light of the financial crisis, the European Union
required member countries, especially those that were part of the Euro area,
to adopt these reforms.
In many countries, the budget process is evolving
with selective elements or reforms being introduced at different rates.
Some countries are focusing on improving the basic components
of their annual budget rather than introducing advanced reforms.
Reforms should have focus on addressing the country challenges and issues.
It's important to have a proper diagnostic of the issue.
For example, if the issue is budget credibility,
is it a result of poor macroeconomic forecasting, poor costing of programs,
or weak budget execution?
This slide shows how the budget can evolve
from the traditional to a more modern budget process
to overcome some of the limitations and challenges countries face.
The key characteristics which are changing include the time frame.
So governments are moving from a traditional annual budget process
to a more medium-term approach.
That is a three to five year period.
The budget process is evolving from a bottom-up to more top-down process
as we discussed in the previous slide.
Countries are developing macro-fiscal frameworks
and more comprehensive frameworks.
Countries are changing their budget coverage
and seeking to move from a narrower to a broader and more comprehensive budget
coverage.
Modern budgeting uses spending ceilings, which
can be indicative or binding on government expenditure,
and this will be addressed in the next module.
Budget negotiations are changing from the traditional incremental
and compliance focused to the more strategic and policy focused.
The appropriation structure is moving from a line item input based structure
to a more program and output and outcome based structure.
These modern budget reforms, if properly designed and implemented,
can improve the budget preparation process.
However, they are complex.
To be implemented successfully, they need to fulfill several preconditions
and require a high administrative capacity.
And reform agendas need to be tailored to the individual country context.
Reforms to modernize budgeting will be discussed throughout this course.
In the next section, we will concentrate on the budget preparation process.
We will describe the process and while doing so,
we'll look at relevant reforms.
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