What problems would the minister of finance encounter in the process of budget formulation and implementation in Zambia?
The national annual budget is a document containing various government activities or work programmes expressed in monetary form. Thus, the budget is an important economic policy tool for macroeconomic management and resource allocation. It provides a comprehensive statement of the nation’s economic priorities.
Accordingly, the budget formulation process has four major dimensions namely (i)Setting up the fiscal targets and the level of expenditures compatible with these targets. This is the objective of preparing the macro-economic framework. (ii)Formulating expenditure policies.
(iii)Allocating resources in conformity with both policies and fiscal targets. This is the main objective of the core processes of budget preparation. (iv)Addressing operational efficiency and performance issues.
In Zambia the Minister of Finance spearheads the process of budget formulation and implementation. There are a number of problems which the Minister of Finance encounters in the process of budget formulation and implementation. To understand these problems better, the process of budget formulation as well as implementation is hereby briefly explained followed by highlights of the problems the budget process undergoes.
i.Budget formulation (Drafting) Stage
The initial stage in the budget process is the drafting of the budget. Through this process, the Ministry of Finance (MoF) develops a national budget every year. Normally, the drafting of the budget goes through the stages set out hereunder.
(a) Preparation of a Consultation (Concept) Paper for Cabinet (b) Update of the Macro-Fiscal Framework for the Forthcoming three years and Draft Green Paper (c) Cabinet Approval of the Green Paper and Dissemination of Budget Guidelines (Call Circular) (d) Budget Hearings on the Draft Budget Estimates of MPSAs
(e) Cabinet Approval of the Draft Budget and Budget Speech
ii. Enactment or Authorisation Stage
The second stage of the budget process is the enactment of the national budget. This starts from the point when the Minister responsible for finance presents the budget statement to Parliament. The Constitution of the Republic of Zambia mandates the Minister of Finance to present the budget to Parliament.
iii. Execution or Implementation stage
After the enactment of the budget, the President signs a General Warrant authorising controlling officers in the budget units to start implementing the budget. In order to provide for activities that are unforeseen, the Constitution of Zambia provides for supplementary expenditure
iv. Accountability (Audit stage)
The Audit is the last stage of the budget process. Section 10 (2) of the Public Finance Act of 2004 empowers the Controller of Internal Audits to be responsible for the internal audit of every Ministry, department and statutory corporation. In addition, the Government accounts and financial statements were audited by an independent audit institution namely, the Auditor General. This process is normally followed by the presentation of the audit report to Parliament and its consideration by the Public Accounts Committee (PAC).
PROBLEMS THAT WOULD BE ENCOUNTERED IN THE PROCESS OF BUDGET FORMULATION AND IMPLEMENTATION
(a) Enactment of the Budget and Planning Law
The Minister of Finance would face increasing pressure from opposition parties and civil society organisations in advocating for the enactment of budget Act. The Budget Act is an important piece of legislation needed to guide the budget process in Zambia. This piece of legislation will enhance the consultative process among the various stakeholders involved in the budget process. Wide consultations will enhance ownership, participation and accountability of budget implementation.
(b) Review of the Legal Framework Governing the Budget Process in Zambia Some legal provisions on the budget are not in keeping with the principles of transparency and accountability. In this regard, Article 117 (4) of the Constitution provides for Supplementary Expenditure, it does not explain the type of activities that qualify for such expenditure and as such is prone to abuse. Ideally, supplementary expenditure is supposed to meet unforeseen expenditure such as disasters, but this has not been the case in the past. Some expenditures incurred in the past which were treated as supplementary were purely as a result of poor budgeting as they should have been planned for.
(c) Inadequate Time for Consideration of the Budget
The time required by Parliament to study and approve the budget is limited. Limited time coupled with inadequate in-house expertise to provide technical and unbiased advice on the budget to Members of Parliament adversely affects the quality of the debates on the floor of the House.
(d) Lack of Transparency
Again here the Minister of Finance would face pressure from civil society from lack of transparency by the Ministry of Finance when disbursing funds. In other jurisdictions, the community would want disbursements by displaying relevant information on the notice board in respective local areas for transparent sake. Further, the Government would be expected to expedite rolling out the implementation of the Integrated Financial Management Information System (IFMIS) programme to other provinces and districts.
(e) Improved Fiscal Management
The Government collects taxes on the basis that it will provide specific socio-economic benefits to the people. Therefore, mismanagement of public resources which might be caused by corruption, lack of willingness to fight corruption, social economic decline and overall deterioration in public service is a major problem in implementing the budget. (f) The new budget cycle
The budget cycle is not necessarily about having it run from January. The budget cycle should always run its full course. In this case, the danger remains that the budget implementation process will be curtailed midstream to allow for the commencement of another budget formulation process. It is possible that the budget making process will improve drastically on the period of implementation but prove a strong challenge on the formulation. The challenge will shift from implementation agencies to the treasury to effectively manage the process of implementing while at the same time formulating the budget for the following year. In other words, there will be obvious lapses.
It is important to know that the budget making process ordinarily takes longer in developing economies because of the various factors under consideration such those which are exogenous like donor support, performance of the key industries like copper. The formulation of the budget policy and resource projections generally takes two to three months. This includes macro-economic reviews. How do you effectively review these factors midstream (when the other budget is still running)?
Then we have the other process of identifying the main activities and processes for the new financial years. This includes resource projections and the budget framework. Do we have capacity to make effective and all encompassing projections when we do not exactly know how the running projects will end? In my view, it is very challenging to make expenditure and revenue projections as well as setting up sectoral priorities and sector ceilings when some projections are still running. This process alone takes several months. There is the additional challenge for issuing the budget draft to cabinet, inter-ministerial technical committee reviews and final cabinet approvals before parliamentary committees debate the budget. This process alone is very challenging.
Zambia is not a federal state, so, we also have the challenge of incorporating projections from other regional players as well as local governments. In other words, the treasury will have a lot of econometrics to do as this will mean making a lot of assumptions in the budget making process. This is all because while parliament is approving the budget for the following year, the existing budget would still be in the current fiscal year. There is therefore need for additional capacity at the treasury. In other words, pressure will move away from the implementing agencies to the treasury. Therefore inefficiency and bureaucracy at the Ministry of Finance is a problem the Minister of Finance would face.
(g) The need for early decisions
Preparing the budget entails hard choices. These can be made, at a cost, or avoided, at a far greater cost. It is important that the necessary trade-offs be made explicitly when formulating the budget. This will permit a smooth implementation of priority programs, and avoid disrupting program management during budget execution.
Political considerations, the avoidance mechanisms mentioned below, and lack of needed information (notably on continuing commitments), often lead to postponing these hard choices until budget execution. The postponement makes the choices harder, not easier, and the consequence is a less efficient budget process. When revenues are overestimated and the impact of continuing commitments is underestimated, sharp cuts must be made in expenditure when executing the budget. Overestimation of revenue can come from technical factors (such as a bad appraisal of the impact of a change in tax policy or of increased tax expenditures), but often also from the desire of ministries to include or maintain in the budget an excessive number of programs, while downplaying difficulties in financing them.
Similarly, while underestimation of expenditures can come from unrealistic assessments of the cost of unfunded liabilities (e.g. benefits granted outside the budget) or the impact of permanent obligations, it can also be a deliberate tactic to launch new programs, with the intention of requesting increased appropriations during budget execution. It is important not to assume that “technical”improvements can by themselves resolve institutional problems of this nature.
An overoptimistic budget leads to accumulation of payment arrears and muddles rules for compliance. Clear signals on the amount of expenditure compatible with financial constraints should be given to spending agencies at the start of the budget preparation process. As will be stressed repeatedly in this volume, it is possible to execute badly a realistic budget, but impossible to execute well an unrealistic budget. There are no satisfactory mechanisms to correct the effects of an unrealistic budget during budget execution. Thus, across-the-board appropriation “sequestering” leads to inefficiently dispersing scarce resources among an excessive number of activities.
Selective cash rationing politicizes budget execution, and often substitutes supplier priorities for program priorities. Selective appropriation sequestering combined with a mechanism to regulate commitments partly avoids these problems, but still creates difficulties, since spending agencies lack predictability and time to adjust their programs and their commitments. An initially higher, but more realistic, fiscal deficit target is far preferable to an optimistic target based on overestimated revenues, or underestimated existing expenditure commitments, which will lead to payment delays and arrears.
(h) The need for a hard constraint
Giving a hard constraint to line ministries from the beginning of budget preparation favors a shift from a “needs” mentality to an availability mentality. Annual budget preparation must be framed within a sound macroeconomic framework, and should be organized along the following lines: – A top-down approach, consisting of: (i) defining aggregate resources available for public spending; (ii) establishing sectoral spending limits that fits government priorities; and (iii) making these spending limits known to line ministries; -A bottom-up approach, consisting of formulating and costing sectoral spending programs within the sectoral spending limits; and – Reconciliation mechanisms, to produce a constant overall expenditure program.
Although the process must be tailored to each country, it is generally desirable to start with the top-down approach. Implementation of this approach is always necessary for good budgeting, regardless of the time period covered.
The Zambian national budget formulation and implementation process passes through four stages namely drafting,enactment or authorization,implementation and auditing.I have endovoured to labour on the problems the Minister of Finance encounters in the formulation and implementation of the budgeting process.These problems are; Enactment of the Budget and Planning Law, Review of the Legal Framework Governing the Budget Process in Zambia, Inadequate Time for Consideration of the Budget, Lack of Transparency, Improved Fiscal Management, The new budget cycle, The need for early decisions and The need for a hard constraint