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Reforms to Budget Formulation in Uganda

The challenges of building and maintaining and a credible process

Tim Williamsontim@praxisdevelopment.net

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Why Uganda?

• Successful Reforms to Public Expenditure Management since 1990s built a credible budget process– Especially in terms of establishing Fiscal

Discipline and in Budget Formulation• More Recently, some emerging

challenges in maintaining credibility– Institutional and Governance related

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3 Parts

• Part 1: Reforms to Public Financial Management

• Part 2: The Budget Formulation Process• Part 3: Successes, Failures and

Challenges

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Part 1: Reforms to Public Financial ManagementSequencing, Instruments and

Institutions

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Sequencing of ReformsEstablishing Fiscal Discipline - Introduction of Macroeconomic Framework- Cash budgeting, commitment control to reduce arrears

Improving Strategic Resource Allocation- PEAP (pre PRS), MTEF, Poverty Action Fund- Sector Working Groups, Budget Framework Paper

Improving Operational Efficiency- Internal Controls & Accounting systems, institutions and capacity- Sector level diagnostics (e.g. TrakingStudies, Value for Money Studies etc)Strengthening Legal Framework - Budgeting, Accounting, Procurement

1995

1997

2000

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Reforms Linked to all elements of the budget cycle

Policy Based Budgeting- Stronger policy processesPRS, sector policies and strategies and associated review processes- Stronger budget formulationThe MTEF and Budget Framework Papers

Budget Execution and Accounting -Computerising PFM (IFMS)- Professionalising Accounts Cadre in Gov’t,- Procurement Reforms-Budget, Sector Reporting

External Scrutiny and Audit

- Independence & Strengthening of external audit - Support to Parliament Committees

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Part 2: The Budget Formulation Process

The MTEF, Performance Focus

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Sector BFP

Detailed Spending AgencyBudgets

MTEF + National

BFP

ANNUALBUDGET

Long Term Medium Term

PEAP (PRSP)

Sector Strategic

Plans

National

Short Term

(An nual)

Sector

1. Framework for linking policies & strategies to the budget using sectors

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2. A simple sector policy & results focus

Performance Focus

Focus on agencies and inputsLine item and administrative budget

Sector Focus, with Output &

Outcome Orientation

Spending agency budgets grouped by sector (e.g. Health,

Education) where policies made

Allocations linked to the achievement of high level sector

policies & objectives in BFPNB: Formal performance / programme budgeting has not been used

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3. The MTEF marries a Top Down and Bottom Up Process

Top-down MT resource envelopeTotal and sector resources consistent with macroeconomic stability and broad policy priorities

Bottom-up cost estimate of policyThe current and medium term cost of achieving national (sector) policy objectives in line with resources envelope

Reconciling costs with resourcesAn decision-making process that reconciles these costs and new policy ideas with available resource envelop

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3. The MTEF marries a Top Down and Bottom Up Process

• Macroeconomic Framework: – MT projections of available

domestic and donor resources over the medium term

• MTEF Ceilings:– 3-year sector budget ceilings

consistent with macroeconomic framework & PRS/PEAP priorities.

– Ceilings presented by sector and spending agencies within that sector

Top-down MT resource envelopeMacroeconomic Framework & MTEF Ceilings - MoF

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3. The MTEF marries a Top Down and Bottom Up Process

Bottom-up cost estimate of policy

Sector Budget Framework - Sector Working Groups

• The Sector Budget Framework Paper sets out sector MT spending plans in detail– Reviews of past

performance; – sets out sector MT policy

objectives outputs and planned activities and

– corresponding expenditures for the medium term in line with MTEF ceilings

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3. The MTEF marries a Top Down and Bottom Up Process

Reconciling costs with resourcesThe national budget framework paperMoF, Cabinet & Parliament

• National Budget Framework Paper sets out the overall medium term budget strategy for the government– Sets out the justification for

MT macroeconomic projections; sector expenditure proposals and policy options.

– Synthesis Macro framework and sector BFPs

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4. An Inclusive &

Consultative Process

Delegation to Sector Working Groups and Local Governments

Making Spending Agencies Responsible

Engagement of Cabinet and Parliament in Decision makingMaking it Political

Reforms led by a strong, unified Ministry of Finance & Planning

Top down establishment & enforcement of systems and rules

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4. An Inclusive &

Consultative Process

Ministry of Finance, Planning and Economic Development

• Macroeconomic Policy Dep’t prepares Macro Framework

• Budget Directorate– Budget Policy & Evaluation Dep’t, manages

budget process and Compiles BFP & Budget– Two Departments made up of sector “Desk

Officers” who are primary liaison with sector ministries on planning & budgeting process and review sector BFP & budget submissions

Reforms led by a strong, unified Ministry of Finance & Planning

Top down establishment & enforcement of systems and rules

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4. An Inclusive &

Consultative Process

Sector Working Groups• Coordinate the development of

the Sector BFP including– Review budget implementation and

performance – Agree sector objectives & intra

sector budget allocations• Made up of representatives from:

– Central line ministries and agencies, local gov’ts; civil society; donors; & Ministry of finance officials working on sector

Delegation to Sector Working Groups and Local Governments

Making Spending Agencies Responsible

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4. An Inclusive &

Consultative Process

Cabinet & Parliament• Cabinet

– Reviews the BFP and Annual Budget Proposal before they are submitted to parliament

• Parliament– Budget Committee Reviews &

Comments on Sector Allocations in National Budget Framework Paper

– Detailed sectoral discussions of annual budget proposals

– Parliamentary budget office supports deliberations

Engagement of Cabinet and Parliament in Decision makingMaking it Political

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The Consultative Budget ProcessP arliam ent

C abinet

Line M inistries/Spending Agencies/

SW G s/Donors

M FPE D

N ational B udget W orkshop-Ind icative Sector C eilings-Budget & SW G G uidelines

Preparation of SectorB FP and RevisedM TEF A llocationsw ithin the C eiling

Cab inet Approval of BFP/M TEF

Inter-m inisterial Consultations

Com pilation of N ational BFPA nd U pdated M TEF

Subm ission of Ind icativePlan/M T EF

Finalisation of BudgetA llocations/M TEF

Final B udget Approval

BudgetSpeech

Preparation of D etailedBudget Estim ates

O ct - D ec Jan - M ar Apr - June

PE R

April 1 June 15M ay 15

4. An Inclusive & Consultative Process

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5. Integrating the local government dimension

• Districts are the main implementers of basic services in Uganda.– The BFP process is replicated through Local Government

Budget Framework Papers, prepared by districts– National policy priorities are funded at local governments via

earmarked conditional grants which appear in sector MTEF’s– Large increases in allocations to local governments, in line with

their functions• National priorities vs local discretion - getting the balance

right– ¾ of increases in local funding have come in the form of

conditional grants, which led to fragmented budgets & undermined discretion

– Since 2000 efforts to consolidate the grant system, by increasing focus on the budget, introducing discretionary development grants, and introducing flexibility in the recurrent grants system.

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6. Integrating aid into the process and encouraging budget support

• Aid and Donors integrated into MTEF– Aid to spending agencies reflected in MTEF since 1997 – Donors part of sector working groups from the start,

which has improved information sharing– Project Aid now included in Integrated Sector Budget

Ceilings from 2003 (intention is that sectors can switch from projects to the budget without resources)

• Donor Shifts towards sector and general budget support– Increased on-budget funding and attention paid to the

budget process– Poverty Action Fund helped give credibility through

protection of budget disbursements to PRS priority areas

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Part 3 – Successes, Failures and Challenges

Factors behind Success, and Emerging Challenges

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A Credible Process• The MTEF is the Only Game in Town

– The first year of the MTEF is the budget– A unified calendar for the MTEF and budget

• Overall credibility of the macroeconomic framework– Fiscal aggregates have now been reliable for over a

decade (+/- 3%)• Budgetary resources are made available during

the financial year– E.g. in 2005/06 only one sector had disbursements <

95%, although there are variations by spending agency and budget type (recurrent, development)

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Factors Behind Early Success• Strong leadership from MFPED, and willingness

to manage a transparent, consultative process: – Engagement of Cabinet; – delegation to Sectors and Sector Working Groups; and– allowed civil society and donors to take part

• Political support to: – fiscal discipline;– reallocation of resources to poverty priority areas,– sticking to the budget

• The process was demanding but kept simple– I.e. no complicated programme/performance budgeting

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Yet, there have been gaps• Across the board, there has not been enough

focus on operationally efficiency of sector budget allocations

• Sector budget submissions are of variable quality, and some have remained weak:– Costing is not comprehensive across sectors– Weak link of allocations with policy objectives

• Harder PFM reforms started late in the reform process– Budget reporting has been on the basis of

disbursements and not expenditures• The budget is approved after the beginning of

the financial year, leading to some uncertainty

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… and are emerging challenges• Emerging Issues

– Increasingly difficult to adhere to budget calendar, and maintain consultations

– Budget formulation becoming more routine, technical, and less strategic

– MoF is finding it increasingly difficult to maintain the rules of the game, especially during budget implementation

– Fragmentation in policies/plans (National Planning Authority, Manifesto, “Prosperity for All”, Rural Dev. Strategy)

• Underlying factors– Changes in Leadership in the MoF (political and tech.)– Change in political environment, (shift from no-party to

multi party democracy, changing policy agenda).

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Thank You