BUDGET METHODS &

PRACTICES
NATURE OF THE PROBLEM
 NATURE OF THE PROBLEM

Tragedy of the commons

Choosing among different claimants of funds
Difficulty of efficient trade-offs
Strong political incentives
High transaction costs
Information asymmetry
Satisficing [Wildavsky and Caiden (1997: 48)]
INCREMENTAL LINE-ITEM BUDGETING
 INCREMENTAL LINE-ITEM
BUDGETING
Advantages Disadvantages
oSimplicity oIncremental in nature
oFosters overspending
oFunding stability
oBudget review
oOperational oVariance from actual
stability oPerpetuates resource allocations
oLess risk taking
BUDGETING PRACTICES IN INCREMENTAL
SYSTEMS OF DEVELOPING COUNTRIES
 INCREMENTAL BUDGETING PRACTICES
IN DEVELOPING COUNTRIES
Always asking for more
Ritualistic cycles of padding and cutting
Under-budget for high-priority expenditure
oLower project estimates for first year
Industrial countries vs Developing countries
oLess information asymmetry
oPrioritising for wrong intentions
 CHANGING NATURE OF BUDGETING
IN DEVELOPING COUNTRIES
New perceived purpose of budget
Change in relationship between government
institutions
An idealized, rational policy-making process
A series of innovative approaches to budgeting
BEYOND INCREMENTALISM: RATIONALITY
AND INCENTIVES IN BUDGET METHODS
 PROGRAM BUDGETING SYSTEMS
Programming, or the subdivision of the government
budget
Identifying the operational aims
Budgeting and accounting of each program
Measuring the outputs and performance of activities
Using the relevant data to establish standards and norms
 PLANNING-PROGRAMMING-BUDGETING
SYSTEM
Program memoranda
o describes the agencys strategy and comparing the cost
and effectiveness of major alternative programs
Special analytic studies
o looks at selected current and long-term issues
Program and financial plans
o summarizes program choices in terms of their outputs and
costs over a five-year period.
 ADVANTAGE AND
DISADVANTAGES OF PPB
Advantages
o Recognising public Disadvantages
institutions as o Requires training
interdependent o Difficult to implement
o Clarity about government
o Lot of paperwork
goals
o Disregard of available
o Seeking cost effectiveness
information
 ZERO-BASED BUDGETING
Advantages
o assume a zero base at the
beginning of each budget
cycle
o Unguaranteed Continuation
o Effective allocation of funds
Disadvantages
o Masses of paperwork
o Disregard for the realities of
institutional and public
politics
o Disregard for the
consequences of
discontinuation
o Difficulty to determine policy
impact
 NEW PUBLIC MANAGEMENT (NPM)
Shifts the emphasis from traditional public administration
to public management
Decentralization of responsibilities
Brings the responsibility to budget closer to better
information
Alignment of incentives to improve the quality of
spending decisions
Reorganizing the budget into an output- or product-based
format
 MEDIUM-TERM EXPENDITURE
FRAMEWORK (MTEF)
Resource-constrained expenditure framework
Shifts the burden of calculation to where there is
better information
Opportunity to compare the medium-term costs of
competing policies
Facilitates a more comprehensive approach to
budgeting
BUDGETING METHODS TO EXPOSE
CHOICES ON THE GROUND
 PROCESS-BASED MECHANISMS
Pressure for efficiency and effectiveness vs underfunding and increasing
demand
Funding decision based on agency reputation
Shame-and-blame tactic
Appraisal of all spending programs over time
More focus on input rather than output
 INFORMATION-BASED
MECHANISMS
Public Expenditure Review
(PER)
Examines ministerial programs
and activities
Activity Based Costing
Encourages honesty in the budget Identifies objectives and respective outputs
process Identifies what activities will deliver each output

Builds consensus on expenditure

issues
Links budgets and operational
performance
 INFORMATION-BASED
MECHANISMS (cont.)
Spending Baselines, New Policy Proposals & Savings
Budgeting
Submission of spending baselines
Submission of detail proposal of new spending initiatives
Proposing spending reductions achieved by introducing efficiency savings
Permits the government to reprioritize spending over time
CONCLUSION
 CONCLUSION
New budgeting methods are not always meaningful
Very difficult to implement new methods
Credibility of budgeting depends on a lot of factors
Always linked with politics
Continual trade-offs between costs of incremental and comprehensive-
rationale-based budgeting