Introduction to Budget Process and g understanding public budgeting in Nigeria

David Adama Inaku Governance Coordinator di ActionAid Nigeria

Objectives of the session

At the end of this session, participants should be able ,p p

to : Understand what public budget is Identify the key elements and components of the budget Understand the principles of budget

Linking the macro & micro..at our own level

What is Public Budget? Is there a relationship between Public & Household

budget?
Public Budget & Governance. Any relationship?

Introduction
Governance is about providing for the common

good of the citizens

H How can th government meet th ever competing the t t the ti

needs and expectations of citizens?

The budget is a tool which provides financial

impetus to government plans and policies.

Defining the Budget

A budget is a statement

of expected income and expenditure of a household/government/o rganization within a specific period of time.
Public budgeting

French word bougette g

which means little bag

Statement of governments

estimated revenue and proposed expenditure

A financial plan showing

involves the selection of end and th selection of d d the l ti f means to reach those ends. (Robert Lee & Ronald Johnson)

proposed expenditures and proposed means of financing

Budget is ..... Budget An action plan A key instrument for macroeconomic y management
A BUDGET IS MUCH MORE THAN
A COLLECTION OF NUMBERS. A BUDGET IS A REFLECTION OF A NATIONS PRIORITIES, ITS NEEDS, AND ITS PROMISE.

ALEXANDER HAMILTON

Plenary
Recall your g y group work on family budget. p y g From that experience, why do you think it is

important to prepare a budget?

Importance of the Budget

It helps us decide how, when and on what we spend our

money on

It helps individuals, households, communities and

government decide how and from where to get their money from government to plan on how to satisfy their needs

It helps individuals, households, communities and I enables us see h It bl how diff different groups b benefit or are fi

disadvantaged from the way resources are distributed or allocated

It gives people information on how government plans to

spend money on goods and services. It shows how government uses public money to influence and control the world (private sector) of business and the lives of people.

Functions of the Budget

Traditional Functions
Planning Tool: g It helps us lay out what activities and programmes we intend to undertake within a specific time. Political Instrument: Spells out policies, interventions and priorities of either government or an institution institution. It involves conflicting interests, attempting to use public money (Budget) for their own interest and purpose Administrative Management Tool: It funds the activities of government and its agencies

Traditional Functions contd.

Social Tool: It serves as a tool to satisfy the need/welfare of the people such as health, education, transportation, e.t.c. E Economic T l i Tool: It uses the budget to promote or discourage growth of certain sections of the economy

The budget guides or serves as a guide in production, distribution and delivery of goods and services. It helps us control access to natural and public resources

Legal Tool: g It allows government to raise and spend money.

Are h A there Dimensions to the Di i h Budget?

Economic Dimension
The budget is the annual estimates of expenditures and

revenue projections of the government plans and goals

It is the fiscal representation of government developmental The economic dimension of the budget is that it is a

tool through which the government seeks to strengthen the economy and make it self sufficient policy

The budget is the most important economic document and Every other economic policy or goal is dependent on the

budget for its success

The budget authorises government spending.

Political Dimension
The budget is seen here as a key instrument in

national policy making

It is also seen as an instrument of administrati e administrative

control as it allocates money to the various governmental departments and arms

The budget is the enabling political apparatus

through which the various arms and agencies of g government are energised so as to meet up with g p their political obligations to the people.

Human Rights Dimension

Human rights connote freedom from want and fear. Its

application will involve the citizens living sustainable and secured lives human rights on the other stems from the fact that the budget is the instrument though which government allocates financial resources in compliance with its obligations to respect, protect and fulfill human rights if it is a settled fact that the government cannot spend without the requisite authorization from the budget, then the budget must and should be seen from a human rights perspective civil society and human rights groups.

The relationship between the budget on one hand and

Most functions of governments are human rights related and

This rights- based dimension to the budget is propagated by

MAJOR COMPONENTS OF BUDGET

Income (Revenue): This refers to the funds coming ( ) g into the coffers of government from various sources. Expenditure: this is the amount of money spent on goods and services aimed at meeting id tifi d d d i i d t ti identified needs and goals of the budget.

TYPES OF REVENUE & EXPENDITURE

What are the different sources of income or

revenue of the Federal Govt. , state government and l l government? d local

What are the different kinds of expenditure of the

Federal, State and Local Govt. ?

Some sources of revenue and expenditure

Revenue:

Exploration d l E l ti and sales of natural minerals:- such as crude oil f t l i l h d il Direct taxes:- these are income taxes such as; personal income (salaries) and company profit taxes Indirect taxes: these include VAT, import and export duties taxes:VAT Grants Loans

Expenditure:

Recurrent: This is an ongoing expenditure, example- personal and g g p p p overhead cost (Salaries) Capital Expenditure: This is an expenditure of fixed assets that are not easily consumed (infrastructure)

Budget Outputs

Surplus budget:

Here budget expenditure is less than the revenue/income. revenue/income In this case there is an extra change case, which can be deployed into savings and some other ventures. Here the expenditure exceeds the income. In this case, the account of the family or government is in red This red. might have been due to poor revenue generation , wasteful spending or some unforeseen situations. Here, the income equals the expenditure. This shows budget discipline and planning. It is however rare and planning depends on a lot of variables.

Deficit budget:

Balanced budget:

Budget Stages
FORMULATION OR PREPARATION
Identify priority areas for development and sources of revenue; money allocated t priority areas. ll t d to i it

APPROVAL OR ENACTMENET
Gets the approval of the law makers to generate revenue from sources identified and to spend money on identified priority areas.

IMPLEMENTATION OR EXECUTION
Money is g y generated and spent as approved. p pp

MONITORING OR AUDIT/EVALUATION
Allows for monitoring and finding out as to how well the Allows money was generated and spent.

Budget Approval Budget P B d Preparation i

The Budget Cycle

Budget Monitoring and Evaluation Budget Implementation

Hilary Ogbonna (2007)

Public Budget Process ( Federal process)

STAGE 1
MEDIUM TERM REVENUE FRAMEWORK OIL REVENUE OIL NON-OIL REVENUE INDEPENDENT REVENUE

STAGE 2
MEDIUM TERM EXPENDITURE FRAMEWORK AGGREGATE SPENDING SPENDING BY MAJOR HEADS (MDA, DEBT, TRANSFERS) DEFICIT

STAGE 3
STAKEHOLDER CO SU CONSULTATION O
PUBLIC SECTOR NASS

STAGE 4
SET PROSPECTIVE MDA ENVELOPES

STAGE 9

STAGE 8
FMF ISSUES BUDGET CALL CIRCULAR INSTRUCTIONS MDA ENVELOPES

STAGE 7
FISCAL STRATEGY PAPER REVENUE FRAMEWORK EXPENDITURE FRAMEWORK PRIORITY FOCUS MDA ENVELOPES

STAGE 6
MDA ENVELOPES AGREED

STAGE 5
MEDIUM TERM SECTOR STRATEGIES (ANNUAL UPDATE)

SUBMISSIONS BY MDAS

STAGE 10
CONSOLIDATION OF SUBMISSIONS BY BOF

STAGE 11
PRESENTATION OF DRAFT BUDGET TO CABINET

STAGE 12
TRANSMISSION OF BUDGET BY MR PRESIDENT/ GOVERNOR TO PARLIAMENT

STAGE 13
PARLIAMENT APPROVES & PASSES APPROPRIATION BILL FOR ASSENT

STAGE 14
BUDGET IMPLEMENTATION

State Level Budget Process

Step 1 Development of Revenue Framework Framework, Fiscal Strategy Paper, Set Resource Envelop Step 2 Issuance of Budget Call circular to MDAs Step 3 Set up of Sector Planning Team, Development of Medium Term Sector Strategy

Step 9 Budget monitoring and evaluation

Step 4 Submission of draft MDA estimates to Budget Office, Consolidation of draft estimates, Executive Scrutiny of Draft Budget

Step 9 Budget implementation i l t ti Step 5 Presentation Budget by the Governor to State House of Assembly (Parliament)

Step 8 Governors Assent

Step 7 Budget Approval by parliament

Step 6 Budget defense hearing in Parliament

Basic Objectives of Public E f P bli Expenditure M dit Management t

Level 1: Allocative Efficiency

(Expenditure according to government priorities and effectiveness of public programs)

Level 2: Operational Efficiency

(Best l for (B t value f money on th spending i l d d i th the di included in the Budget)

L Level 3:Aggregate Fiscal Di i li l A Fi l Discipline

(Budget totals as the result of explicit, enforced ) decisions)

Sound budget system

Comprehensiveness Is the coverage of government operations complete and provides for all the interest groups? Are estimates gross or does netting take place? Transparency p y Is the state budget classified? How useful is the budget classification? Is it easy to co ect po c es a d e pe d tu es t oug s t connect policies and expenditures through a program structure? How are spending priorities determined and agreed under the budget process? Wh are those involved in th b d t process? Who th i l d i the budget ? Are budget documents available to the public? Are people aware of the budget timelines?

Sound budget
Reality Is the budget based on a realistic macroeconomic framework? Are estimates based on reasonable revenue projections? How are these made, and by whom? Are the financing provisions realistic? Is there a realistic costing of policies and programs and hence expenditures (e.g., assumptions about inflation, inflation exchange rates etc ) rates, etc.) How are future cost implications taken into account? Is there a clear departure from previous and new policies? What is the effect? How far ahead are spending priorities determined g g process? and agreed under the budget p

Characteristics of Sound Public Expenditure Management

Commitment, capacity & willingness to: Prepare a budget (a) in line with human development priorities and (b) that can realistically be implemented within the revenue available Specify the budget s intended results budgets Execute budget as passed by the legislature Account for results achieved Evaluate impact of policies and programs and take results into account in budget preparation.

Are there problems with PEM

Weak links between policy, resource limits, and

budgets Annual focus l d t suboptimal choices A lf leads to b ti l h i Separation between capital and recurrent budgets Non-comprehensive budget p g Failure to think strategically about tools and objectives Not learning from experience g p Not harnessing energies of all actors in system; mismatch of roles and responsibilities Taking piecemeal decisions without reference to overover all effect The common pool problem deficit bias

Myths and Illusions about Budget

Public budgeting is the exclusive p g g preserve of the Executive Budgets must be formulated in secret or they can upset

financial markets

Non-govt intervention can destroy the integrity of the budget

envelop

Legislators and CSO have a greater interest in advancing the

interests of their constituents as opposed to the interests of the country as a whole

G t mandate is to produce the budget i t Govts d t i t d th b d t internally i a ll in

closed process and have it rubber-stamped by the legislature

 WHAT IS THE WAY FORWARD?

THE WAY FORWARD

1. 2. 3. 4.

Demystify the budget Economic Literacy Promote Participatory Budgeting Engage the process of budgeting Strengthening of Institutions: the Executive, Implementing agencies, Legislature and Civil Society