UNDERSTANDING

THE POLITICS OF
BUDGET
Lorena Pineda
 Overview
 Why does political
economy matter?
 Why does better political
understanding matter?
 Sound budgetary systems
 The Budget Process
 Politics of Budgeting
 Conclusion
Understanding the politics of the budget is
central to appreciate the institutional factors
and governance context that influence the
actual functioning of budgetary systems and
their reform. A political understanding of
fiscal governance and public budgeting is
important to encourage and support “good
enough” reforms in public financial
management and accountability; identify
drivers of pro-poor change, strengthen checks
and balances and support demand for good
financial governance from within and outside
government; and improve aid effectiveness
by informing donor support and instruments.
It does not seek to provide a one-size-
fits-all toolkit to be rigidly applied, as
realities differ from one country to
another and each country exhibits a
unique combination of strengths and
weaknesses. Budget reform initiatives,
too, vary in scope, sequencing and
speed. While on national-level budget
politics, understanding the politics of
budgeting at the local level and the
interaction between the two levels is
critical.
 Power relations shape budget processes and political incentives
explain the disjuncture between formal rules and informal practices.
We need to understand better the real incentives of the various
actors, as sometimes poorly functioning systems suit powerful people
very well. Not all good things go together, they don’t necessarily
reinforce each other, some budgetary weaknesses are more
amenable to swift progress than others, especially in the short run,
and small successes can quickly degrade.
While technical improvements can help resolve capacity
constraints, political incentives often explain why technical resources
are not deployed effectively or used responsibly. In turn, political
incentives are shaped by the nature of political systems, the degree
of political competition and the breadth of political accountability.
What accountability mechanisms are particularly suitable for coping
with the reality of the political economy, vested interests and power
differentials?
 WHY DOES POLITICAL ECONOMY
MATTER?
 Politics make a difference.
 It is not possible to separate technical budget reforms from the wider
governance environment required to make them work and the
political system in which they are embedded.
 Effective reforms are those that are technically sound,
administratively possible, and politically feasible. 
 It is important to bring power and politics into policy analysis.
 Political economy issues influence the scope and timing of reform, as
well as governments’ abilities and incentives to embark on reform.
They determine the choice of reform alternatives and the capacity to
implement it. The electoral cycle often shapes the policy space for
reform.
Budget politics drive public budgeting and shape
the rules of the budgetary game, including the
ownership, timing and sequencing of reforms and
government’s commitment to them.
Budget politics offer both challenges and
opportunities.
Getting the politics right is central for ensuring
developmental success.
Politics is not only a risk to mitigate but also an
opportunity to seize.
Understanding the politics of the budget therefore
helps improve aid effectiveness. In particular,
political and electoral cycles often shape the policy
space for reform.
 WHY DOES BETTER POLITICAL
UNDERSTANDING MATTER?
 Political economy factors affect the trajectory of change
and the credibility of governments’ commitment to reform.
 The studies underscore that demand for better governance
and greater accountability is a key driver of change in
budgetary systems. This demand emerges from both the
formal institutions (such as parliaments or general audit
offices) and informal systems of budget oversight (such as
civil society, the media and citizens). However, these
institutions and mechanisms are often weak and
ineffectual.
 They can be circumvented or subverted. Formal
institutions can only effective if informal institutions
reinforce, rather than undermine them.
Sound budgetary systems are crucial to make progress
in reducing poverty and tackling inequality. They are
central to governments’ ability to deliver services and
reduce poverty. They are also critical to fight corruption
and build effective states with the necessary degree of
capability, responsiveness and accountability.
 Public budgeting is a central function of the state and
the budget process involves a wide range of
stakeholders beyond government, including parliament,
oversight agencies, civil society and donors.
Better political understanding of
budget systems can thus help to:

asseimprove aid effectiveness and

assess gaps in budget practices.
 Politics matter in understanding how budget
institutions work in practice and how they
change over time.
There can be a significant gap between formal
processes and informal practices, between the
formal rules of the budget process and the
informal institutions shaping budget outcomes.
For example, volatility in the disbursement of
funds has important implications for the delivery
of social services, in particular in health and
education.
Interactions between
formal and informal Effective formal Ineffective formal
institutions governance governance
Outcomes
Convergent objectives Complementary Substitutive
between formal and
informal institutions
Divergent objectives Accommodating Competing
between formal and
informal institutions
 THE BUDGET PROCESS
During the budget process, instead of Congress approving,
or judiciously trimming, the budget submitted by the
executive branch, congressmen insert more “pork” into
departmental budgets with stipulations that they will
identify the projects, choose the contractor and suppliers,
etc. Kickbacks may be as much as half the price of
contracts awarded, and contractors, in order to squeeze any
profit from their half of the project funds, are forced to use
substandard materials and labor, cheating the government
and hindering national development.
 The budget is the single most important policy
statement of government and the battles of who gets
what is at the heart of the political process. In
January, almost two years before the start of the
federal fiscal year on October 1, the Office of
Management and Budget presents long-range
forecasts of revenues and expenditures to the
president. The president and the OMB develop
guidelines for all federal agencies, which prepare and
submit budget requests by July. The OMB reviews
agency requests and holds budget hearings in August
through September of the year before. In November
and December, the OMB presents a revised budget
to the president and a budget message is prepared
and presented to Congress in January of the year in
which the fiscal year starts.
 From February through May the Congressional Budget
Office reviews the budget and reports to the House and
Senate budget committees. From May through June these
committees establish the "first concurrent resolution," which
sets the overall total for budget outlays in major categories.
From July through September, appropriations committees
and subcommittees draw up detailed appropriations and
submit them to the congressional budget committees for the
"second concurrent resolution." The full House and Senate
pass the second concurrent resolution, reconciling the overall
budget targets of the House and Senate. In September and
October the House and Senate pass the actual
appropriations bills funding the departments and agencies of
government. Since the fiscal year begins October 1,
Congress often must pass "continuing resolutions" to fund
government in the interim until the appropriations bills are
passed.
 The budget process has to accommodate a range of
competing demands and is subject to inherent tensions.
The main objectives of public financial management
systems are to achieve aggregate fiscal discipline,
operational effectiveness and allocative efficiency. For
example, budget theory and evidence suggest that fiscal
discipline is best achieved by centralising the budgetary
system in the executive branch under the tight
supervision of the Department of Finance and its central
budget office. However, excessive executive discretion
in public budgeting tends to hamper fiscal transparency
and financial accountability. It weakens external scrutiny
and legislative oversight, and limits opportunities for
citizen participation.
 The Politics of Budgeting
A good bureaucratic politician cultivates a base of support for requests
among the public and among people served by his/her agency; develops
interest, enthusiasm, and support for his/her program among top political
and congressional leaders; wins favorable media coverage for his agency
and uses strategies that exploit opportunities.
Budgeting is incremental, accepting as legitimate the previous year's
expenditures and focusing instead on requested changes. Reformers have
proposed such schemes as zero-based budgeting and sunset laws to try to
force Congress to consider base expenditures and whether agencies should
be renewed at all, but Congress is taxed to the limit simply to consider
requested changes. Decision-making is further hampered because
submitted budgets are non-programmatic—that is, budget requests are
usually grouped into generic categories like "personnel" and "supplies,"
cutting across policy programs. Seemingly, program budgeting would
remedy this, but this is difficult to implement for a variety of reasons
(bureaucratic resistance due to added paperwork or perceived loss of power,
difficulty in assigning overhead expenses to specific programs, and overlap
of program functions served by the same resource).
 CONCLUSION
It is therefore important to identify the formal rules and
informal practices shaping the budget process and the
institutional and political contexts in which budgetary systems
are embedded; assess the overall trajectory of change and the
agents of change in the budget process; and,
ensure that budget reforms are adequately prioritized,
realistically sequenced and tackle the root causes of weak
public budgeting.
Understanding political risk is particularly important for
budget support. Where we are considering direct budget
support, with funds passing into and through national
systems, more robust political analysis is critical. The joint
evaluation of general budget support recommended donors
improve their understanding of the influence of political
factors on budgetary processes and, therefore, budget
support and fiduciary risk.
Politics of the budget reviews help identify and support
drivers of pro-poor change in public finance management.
A challenge for donors, reflected in the case studies, is
translating knowledge into action through, for example,
country programming, budget support, or conditionality.
Actionable recommendations will obviously depend on
country circumstances.
 Power relations and political
dynamics determine how
budget decisions are made and
how policy is implemented.
Political incentives affect the
process of making and
implementing budget policy.
The budget is the result of
political negotiations that
reflect underlying power
struggles between competing
social forces.
THANK YOU!