Convergence May Hold Key for Effective Budgeting and Program Performance

Convergence May Hold Key for Effective Budgeting and Program Performance
Udaya Pant
One of the biggest problem areas often noticed in the countries’ national budgets and the budget performance in terms of expenditure outturn and outcomes of the layouts, in development spending. More so, in the countries that work on the cash budgeting and tight central controls on the budget releases. In practice they may already have prevailing multi-year procurement and commitments, yet calling them cash-budget (lapse at end of the year) system.

Funds Rationing Starves the Implementation Level and also Results in-Year Artificial Deficits
Commonly, even when the budget cycles are in place, the implementation level releases and actual expenditure on development programs gets released/authorized near the close of the financial year. This, on the one hand, gives the poor picture of the projected spending cycle; and on the other, it keeps the implementing agencies guessing and awaiting the release/authorization of funds till late in the financial year. It does result in the bunching of expenditure at the end of the year; and paves way for rush of expenditure, parking of funds and lack of prudent expenditure management.

On the macro-side it results in creating the artificial deficits (against projected cash flows) and adding to the cost of borrowing unnecessarily. Borrowing money in cash budget surplus scenario and for parking of funds (without actually spending the released amounts) is a cardinal sin in the traditional budgeting as well. In the contemporary budgetary practices also, the surrenders and supplementary requirements have to be anticipated well in advance; so as to provide for using the scarce resources for the overall budgetary performance.
We have on the one hand line ministries, planning bodies; and finance ministry sitting late over the desired releases of funds and also when they release funds that have to be close to the end of the year; leaving very little time for the spending units and implementing agencies to complete the processes and cycle of procurement of goods and services and make their optimum usage.

Allow Convergence but With Internal Controls and Accountability

Convergence, if it is allowed will work well by linking the allocations to the MTBF and MTEF in such scenario. Let the LM and the implementing agencies (like Local bodies) be allowed to make their spending plan based on the available total releases/authorizations at any given point of time. This would mean they are allowed to spend across the programs and projects out of their total amounts available at a given point of time all along the financial year. This would allow them to make temporary internal adjustments by utilizing amounts released for one program to the other.

At the end of the year, they have to balance out the total program/ project allocations as per the budget allocations; and if necessary vire the amounts where required. This will also imply that they are allowed to spend more (or less) than the annual budget allocations in specific program/project! This is the key issue that can be addressed by the active MTBF and MTEF systems. The total spending will have to be within the gross annual allocation and function/program based MTBF/MTEF allocations. The cash budget operating countries will have to fix the legal position accordingly in the advance.

For the implementing agencies like the local bodies, public corporations, municipalities etc the operational system is much simpler. The funds released to them for carrying out program/projects implementation, they will greatly benefit from the budget system allowing convergence. This will also allow them to have a good look at the outputs and outcomes that are redundant, duplicate and overlapping. Thus, providing synergy and better overall control on the development programs/projects and functions. The convergence of spending and outputs both will move in tandem.

Total Picture is Available at the Local Body’s level

As an example, a rural local body may be getting funds for spending under different programs/projects under different LM’s etc. At any point of time they may not have coordinated on the outputs and operational systems at work; leaving room for duplication and overlapping of the activities. The RLB shall be able to easily identify them and take a total picture in view while spending. This means that RLB will have to be allowed to link the program outputs and indicators and cross-subsidize the funds for synergy, with or without interfering with the budgetary allocations made by the LM’s.

Smooth Budget and Program Implementation

Overall, the scenario has to change with flexible spending allocations; with strict internal controls and performance reporting enabled. The fiscal oversight mechanism has to be close and accountability regime identifiable. With this in view, there is no doubt that the ’convergence budgeting and spending’ shall hold the key for smooth budget and program implementation. It may be a bit complicated for some countries with poor transparency; but they can also try out by starting from a sub-national entity or a local body to test this. The first step is to enable legal provision and provide adequate simple yet strong internal controls and accountability systems. Be clear, this is for facilitating budget execution not the budgeting! Budgeting shall remain within annual budget, MTBF and MTEF intact!

I know, there will be many issues and opinions on this; but I have no doubts that countries with intent of fixing the aforesaid problems can make use of this as a practical solution. It also empowers and makes the implementing agencies responsible for the implementation of development plan by providing them decentralized approach and powers to make flexible allocations and re-allocations. It will sure provide level-playing also for the ground levels!