A range of different actors are involved in budget preparation and policy formulation, including the centre of government (office of the Prime Minister or President), the Ministry of Finance, line ministries, and in the case of decentralisation, subnational governments. Although each national context is different, is it possible to formulate some general principles which are relevant to all situations, and how can these different actors be brought together in clear and coordinated systems to avoid repeating past mistakes?
This chapter looks at organisational issues in budget preparation, the distribution of responsibilities between central and local government and the approval of the budget and the role of the legislature. The authors cite examples of good and bad practice from many different parts of the world, and stress the importance of an overall strategic framework as a means to manage the process of budget preparation. The basic advice is to keep this framework simple.
The responsibilities of the different actors involved in this process must be clearly defined and delimited. The quality of the budget depends largely on the mode of coordination established among the different actors involved in its preparation. Information and communication mechanisms also play an important role in ensuring that the process is clear and efficient. The distribution of responsibilities should be set out in official guidelines giving hard-fast rules for compliance and accountability.
Other conclusions from the chapter are:
- Assignment of expenditures to subnational governments should be established on clear grounds, and arrangements for revenues should follow expenditure assignments.
- Central government should avoid passing down a deficit to subnational governments
- Incentives and sanctions are needed to ensure efficiency and fiscal discipline
- In developing countries, it is generally appropriate to begin preparing the budget six months before it is due to be presented to the legislature
- In developing and transition countries, the administrative capacity of subnational governments and the administration and compliance costs of decentralisation must be taken into account when assigning expenditures among levels of government
The legislature is the appropriate locus of overall financial accountability, and it must therefore be given adequate means to review policies and the budget. In some cases there may be a need to limit the power of the legislature in order to avoid expenditure levels being raised during debates. The chapter suggests the following principles in the legislative process:
- The budget should be presented in a timely manner to allow proper scrutiny and completion of budgetary debates before the beginning of the fiscal year
- Legislative committees should have adequate resources
- Aggregate revenue, expenditure and fiscal targets should be reviewed together
- The legal framework should stipulate that laws that have a fiscal impact take effect only if fiscal measures are authorised in the budget or supplementary acts.
