TOPIC 4.

1. Budgeting in Public entities 3 weeks

2. Legal framework for the budget process
3. Types of Public expenditure- recurrent, capital and classified expenditure
and their authorization.
4. The expenditure frame wok- STEF, MTEF, LTEF in relation to development
plans and vision 2040
5. The Budget cycle
6. The budget framework paper
7. The Central Government budgeting cycle
8. Local government budgeting process.
9. Budget desk and duties of the budget desk
10. Budgeting approaches- cash, ZBB, incremental and PPBS
11. Challenges in public sector budgeting

Budgeting in the Public Entities

What is a budget?

• Is a tool government uses to implement its policies and achieve its goals and
objectives
• It involves a process by which government sets levels to efficiently, collect
revenue and allocate the spending of resources among all sectors to meet
national objectives.
• It reflects the choices of government in line with the limited resources.

Among the main purposes of Budgeting is:

o Promote economic growth: increasing the production of goods and services so

that the average standard of living improves rapidly and poverty is
correspondingly reduced.
o Macroeconomic management: promote economic order and stability by
encouraging competitive efficiency and controlling inflation.
o Attain effective service delivery: Provide services which are vital to the country
and which only Government can do best, namely, security, law and order,
infrastructure and disease control.

General Budgeting Principles

 Discipline:-Government spending should be constrained within the available

resources,
 Authoritative:- Spending should be authorized

1
  Transparency:-Information on public spending should be public, timely and
understandable by stakeholders
 Accountability:-Those entrusted by public funds should be responsible
for
performance.

Other considerations;

i) Estimates must reflect revenues which can be realised from anticipated

conditions and expenditure which is to be incurred under efficient financial
management and control.
ii) The estimates will be divided into two parts; the recurrent budget and capital
development budget.

The legal framework for the Budgeting Process:

 The Constitution of Uganda (1995): Articles 155 – 158, Chapter 9 of the

Constitution of the Republic of Uganda 1995 provide the legal basis for the
preparation and approval of the national budget. Articles 190 – 197 provide for
the finances of the Local Governments.
 The Local Government Act, Cap 243 provides the legal basis for local
government budget process. This is supported by the Local Government
Financial and Accounting Regulations 2007
 The Public finance Management Act, 2015 – This explicitly spells out
the
roles of Parliament, Executive as well as other stakeholders and stipulates the
budget calendar and the requisite documentation.
 It provides for the development of fiscal policy framework, regulation of public
financial management, prescribes the responsibilities of persons entrusted with
financial management and provides for public borrowing, audit of Government
accounts, state enterprises and other authorities of state.
 The Budget Act 2001: Although the new public finance management Act 2015
has a provision for the budgeting process, The budget Act 2001 is still relevant
for purposes of the parliamentary Budget Processes and its committees. on the
other hand provides for and regulates the budget procedure. It
 The National Development Plan (NDP). The NDP is a comprehensive
plan that articulates clearly the planned strategic interventions of all sectors
of the
economy.

Financing of the Budget:

There are three main sources of financing the National Budget:
i) Taxes - Tax revenues collected by Uganda Revenue Authority (URA) which
include income tax, customs duties, consumption taxes.
ii) Non Tax Revenues - Fees (for example from Passport and Immigration
fees) and licenses.
 iii) Loans and Grants - Loans are Concessional credits provided by multilateral
agencies; while Grants are mostly from bilateral development partners
Actors in the Budget process:

 Ministry of finance
– Formulating fiscal Policy
- Guiding the drafting of the Budget
- Monitoring implementation
 Spending departments (ministries, departments, agencies)
 Parliament (democracy)
- scrutinize & authorize revenues & expenditures.
- ensure that the budgets are properly implemented.
- may work through committees/direct floor discussions
 Independent supreme audit Institutions (AG/audit courts) – audits to determine
whether budget was implemented as appropriated.
 Civil society organizations – bring in the unconventional perspective –e.g.,
scrutinizing whether the budget has provisions for the vulnerable groups.
 The Media – ensure that the central issues in budgetary debates are widely
understood.
 International Financial institutions & Donor agencies

Types of Public expenditure- recurrent, capital and classified expenditure and their authorization.
Capital expenditure means any expenditure for the creation or acquisition of a fixed asset, inventory
or other valuable physical stock

Classified expenditure means the expenses and commitments incurred by an authorized agency for the
collection and dissemination of information related to national security interests and includes the
cost of procurement and maintenance of the related assets Classified expenditure shall be budgeted for
and appropriated by Parliament.

A vote that receives funds for classified expenditure shall be required to prepare detailed plans and
budgets to aid management in financial expenditure control and decision making; such detailed
plans and budgets shall be kept by the authorized vote and shall be accessible only to authorized
persons as designated by the relevant Accounting Officer
In order to preserve confidentiality, the budget for classified expenditure shall be presented as a single
line item and accordingly any release of funds by the Treasury shall be charged as a single line item.

• An Accounting Officer of a vote to which classified expenditure applies shall ensure that
appropriate budget control procedures are instituted to ensure budget discipline.
• He or she shall also ensure that the funds appropriated under classified expenditure are
utilized for the proper purpose.
• The Accounting Officer shall, in accordance with the PPDA Act, ensure appropriate control
over classified
• spending, and documentation to reflect the authority for the spending.
• The Accounting Officer shall ensure that all procurement records are kept in safe custody and
access restricted to designated officers.
Budget categories shall include:
(a) Initial approved budget – Estimates of revenue and expenditure passed by Parliament at beginning
of
the financial year.
(b) Revised budget - This is the initial approved budget taking into account any supplementary
budget, virements, reallocations and revision to the appropriated budget.
(c) Supplementary budget- This is an approved revised budget for the additional funds provided by
the
Parliament over and above those amounts provided for in the original
estimates.
(d) Expenditure budget - Besides the broad budget categories sub – paragraphs a- b above, budgets
are also classified according to the type of expenditure as follows:
(i) Recurrent budget - Consists of personal emoluments and recurrent transactions. Items in the
recurrent budget do not directly contribute to capital formation.
(ii) Development budget - A type of budget where expenditure is financed either by Government or DPs
specifically contributing to capital formation.
(iii) Statutory budget - A budget that covers expenditure required by statute and is not subject to
vote.

The expenditure frame wok- STEF, MTEF, LTEF in relation to development plans and vision
2040
The MTEF shall be designed so as to promote strategic medium-term budgeting, and bring
together policy-making, planning and budgeting roles of the government into a rolling three-year period.

Budgetary submissions shall be prepared and presented based on the Medium Term Expenditure
Framework.
The MTEF guiding principles shall include budget integration, an iterative three-year work plan and
budget, a detailed implementation annual work plan and budget, the use of development strategies of
government with emphasis on an output-based approach, institutional structure and capacity levels and
activity estimates comprising recurrent and development expenditure.

The fiscal and budget related policies and strategies adopted shall be consistent with and be guided by
the Government’s Medium-Term Expenditure Framework (MTEF) and economic and fiscal policy
objectives.
Where it is deemed necessary to modify any fiscal or budget policies, this shall be done in
association
with modification of the MTEF and the changes reported and
highlighted.
All program managers and staff involved in any policy, planning or budgeting work shall be familiar
with
the content of the MTEF.
The National Budget Framework Paper
(BFP)

The National Budget Framework Paper (BFP) provides the link between Government’s
overall policies and the Annual Budget.

• It lays out the fiscal policy framework and strategy for the budget year and in
 the medium term setting out how the Government intends to achieve its policy
objectives over the medium term through the budget.
• The macroeconomic framework presented in the BFP forms the basis for
resource projections and indicative expenditure allocations.
• It also forms the basis for the detailed estimates of revenue and expenditure
which will be laid before Parliament.
 The national BFP has three sections:

1. Part 1 sets out the Government’s Medium Term macroeconomic forecast, Medium
Term Fiscal Framework and Forecast, Charter of Fiscal Responsibility , the Resource
Envelope and Annual Budget for FY 2015/16 and Fiscal Risks;

2. Part 2 sets out Government’s Policy measures and programmes for social and
economic development, as well as the indicative expenditure framework in FY
2015/16 and the medium term; and

3. Part 3 provides details of proposed sector plans and expenditures

The Central Government Budgeting Cycle (Uganda):

The budget cycle defines the formal steps and procedures the Government
undertakes to prepare and have the budget approved prior to implementation. (i.e.,
drafting, legislative, implementation & audit & evaluation)
o The budget is prepared through an open, transparent and widely participatory
process.
o The objective of the consultative process is to solicit the views of all stakeholders
in the preparation of the Budget and consequently ensure that the national
budget reflects the views, aspirations and priorities of all stakeholders.
o The budgeting process is undertaken at four key levels:
i) Ministry of Finance, Planning and economic Development (MFPED).
ii) Sector Working Groups, Line Ministries and Local Governments
iii) Cabinet
iv) Parliament

The budget process starts in October and has six key stages
namely:

i) Setting the macro-economic Framework

ii) Setting National Priorities and Sector Ceilings
iii) Budget Consultations (Political and Technical).
iv) Preparation of the Budget Estimates
v) Budget Implementation.
vi) Budget Monitoring and Evaluation
Process /Steps taken:

First step is planning which is coordinated by the MOFPED.

Step 1: Determining the resource envelope/Macro economic framework:

o The Directorate of Economic affairs within the MOFPED is responsible for
determining the resources envelop in consultation with other Government
institutions such as URA and Bank of Uganda.
o The budget resource envelope for the medium term is derived from projected
domestic revenues (tax and non tax), plus external financing (grants and
loans), plus non – bank savings, minus monies required for debt servicing
and domestic arrears repayment and plus or minus non bank borrowings
/savings.
o Fiscal policy must be consistent with monetary policy projections/target on
money supply growth, private sector credit and foreign reserves which
determine Government borrowing or saving.
o The domestic tax is projected basing on: Past trends, efficiency gains, Growth
in volumes of imports, Profits of corporations, Elasticity of tax heads, Changes
in prices.

Step 2: Setting the National Priorities and sector ceilings:

o Once the resource envelop has been determined, the broad allocations of
Government resources between sectors is then determined based on:
a) Priorities which have a direct bearing on poverty and growth- as spelt
out in the National Development Plan.
b) The party manifesto/Vision.
c) Constraints faced during implementation of budget for the current year.
d) MTEF (approach where public expenditure is linked to policy and key
sectors for a period of three or five years)
Sector Ceilings are based on the following:
o The current financial year is used as a base.
o All one – off expenditures undertaken in the previous year are deducted from the
sector ceiling and made available for reallocation to identified priorities.
o The projected additional resources over and above the current year’s resource
envelope are then allocated among the policy priorities with the higher priority
areas and commitments receiving the first call on these resources.
o This then becomes the basis for the preparation of the indicative MTEF which
details the respective sector ceilings.
o This forms the national budget framework paper (NBFP)- showing priorities
budget ceilings and national objectives.

Step 3: Budget Consultations:

The consultation which starts with a cabinet retreat is meant to guide on :
i) The budget Strategy and priorities for the following financial year
ii) The Indicative Medium Term Fiscal Framework (MTFF) and Medium Term
Expenditure Framework (MTEF).
iii) Budget implementation issues for the current financial year.
After the consultation and agreed position, a Budget call circular is issued to all
government entities advising on the policy and administrative guidelines for the
development of the budget for the coming financial yea and request the Sectors to
prepare their Budget Framework Papers.

Sector working Groups: Each sector is required to set – up a Sector Working

Group composed of key stakeholders to coordinate the planning process. Example of
sectors include: Education, Health, Accountability, Justice, law and Order, Security,
public administration etc.

Inter-ministerial consultative
meetings
Inter – ministerial consultative meetings take place between Sector Ministers and
the Minister of Finance, Planning and economic development. These meetings are
held to discuss sector budget priorities and allocations at the political level and to
resolve any outstanding policy issues.

Mid-term Expenditure Review

The main objective of the review is to assess the half budget performance with a
view of identifying areas that need corrective actions to enhance the efficiency and
effectiveness of delivery of public services. A workshop of key stakeholders is held
to discuss the half year budget performance report and agree on the way forward.
Consultation within East African Community (May)
In line with the programme for achieving deeper economic and political
integration in EAC. The Ministers of Finance hold annual pre – budget and post
budget consultations with the view to harmonize tax policies, monetary and
relevant fiscal affairs.

Step 4: Preparation of the Budget Estimates:

After the approval of the National Budget Framework Paper, the process of generating
the budget estimates entails the following:
i) Votes receive ceilings from the sector investment plan.
ii) Accounting officers cost their activities based on the chart of accounts.
iii) The programme budgets are consolidated into the Vote budget.
iv) Submit to the Ministry of Finance and copy to the line ministry.

Ministerial Policy Statements

o Communication is made to all entities to submit the detailed draft budget
estimates and ministerial policy statements (MPS).
o The MPS is formulated after the generation of the detailed budgets by each vote
entity.
 o The minister of Finance, submits the consolidated MPS for the preceding year to
parliament by the 15th of March.
Contents of the MPS:

o Achievements of the vote for the previous FY

o The annual and three months work plans and outcome, the objectives, outputs,
targets and performance indicators of the work plans and
outcomes.
o The annual recruitment plan of the vote.
o A statement of action taken on Auditor General’s recommendation for the
preceding FY.
o The cash flow projections of the vote.
o A certificate issued by the minister for finance on EOC
o Statement on Vehicle utilisation report
o The asset registers of the votes in the format issued by the accountant general.

Approval of budget estimates & Implementation

Parliament by 31st May of each year considers and approves the annual budget
and work plan of govt for the next FY, the appropriation bill and any other bills
that may be necessary to implement the annual budget. The bill must be passed
into law in accordance with the public finance management Act, 2015.

Budgets for statutory Bodies:

In line with Section 5 of the Budget Act 2001, Heads of Self Accounting Bodies are
required to submit their budget estimates of revenue and expenditure to the Ministry on
behalf of the President, during the budget preparation stage. These estimates are laid
before Parliament by the Minister during the presentation of the budget without any
amendments.

Step 5: Budget Implementation:

Execution of the budget is led by the Accountant General, commences on July 1 st
and lapses in June at the end of the financial year. The Processes taken and over
seen by the accountant general include;
i) Commitment of approved budget- in line with the cashflow plan of govt,
the procurement plans, work plans and recruitment plans approved by
parliament. The accountant General uses the annual cashflow plans to
release the funds.
ii) Budget execution by accounting officers in accordance with the policy
statement.
iii) Grants of Credit on the consolidated fund – Accountant general
requests
the auditor general to issue a grant of credit on the consolidated fund in
line with the appropriated funds.
iv) Withdrawals from the consolidated fund
 v) Handling of Virements
vi) Handling Supplementary budgets requests.
vii) Report on expenditure commitments- every three months to the secretary
to the treasury then the SST consolidates and report to the minister.

Step 6: Budget Monitoring and Evaluation

• The legal framework requires government to make periodical reviews of the
budget in the course of the year and report to parliament.
• The reviews reveal how govt is performing on the set revenue targets and the
expenditures are being met as planned.
• The key offices mandated with the monitoring role is the Parliament and office of
the auditor General.
• The parliament works through five standing committees, namely: The Budget
Committee, Public Accounts Committee(PAC), Committee on Commissions,
statutory Authorities and Enterprises(COSASE), Local Government Public
Accounts Committee (LGPAC) and the Committee on National Economy.
• In addition, there is seasonal committee for finance, planning and economic
development and for each other sector/ministry that examines policy, budgets
and proposed legislation coming from each ministry.
• The oversight committees monitor budget performance as well as holding the
executive accountable.
• The PAC reviews the audited accounts to establish whether the actual
performance is in line with the appropriation that was made by parliament.
• The Local Government Public accounts committee and committee on
commissions, statutory authorities and state enterprises perform similar roles for
local govt and commissions, state enterprises and statutory authorities.
• All these committees report to parliament which deliberate on them and take
appropriate action.
• The office of the auditor General audits and reports to parliament on all public
offices such as courts, central and local govts, universities etc
• The auditor General also conducts value for money audits in respect of any
project involving public funds.

Local government budgeting process

Local Governments’ Budgets and Plans form an integral part of the National Budget.

 Local governments follow the same procedures in the budgeting cycle except that
the approving powers before parliament are decentralized to their councils.
 Before the budget process begins, they must have an overview of budget
framework
papers through workshops.
 A series of local government consultative workshops are held to launch the
preparation of the Local Government Budget Framework Papers (LGBFPs).
 The workshops which are facilitated by the Ministry of Finance together with
representatives from relevant sectors are attended by political leaders and heads of
departments from the local governments. The purpose of these workshops is to:
a) Disseminate Government priorities for the next financial year.
b) Disseminate the Indicative Planning figures for Central Government transfers
to local governments.
c) Identify and discuss policy issues which affect the operations of local
governments.
Each District and Municipal Local Government prepares a Local Government Budget
Framework Paper (LGBFP). The LGBFPs are guided by the long term Local
Government Development Plans as well as any emerging issues and priorities
of the communities within the Local Government. Different departments in each
Local Government contribute to the LGBFP, just as they do contribute to the
preparation of their budget estimates.
• The consultations enable the development of a report which summarizes the key
issues that affect service delivery in the local governments. The consultations
also are the basis for preparation of LGBFPs, which all Local Governments submit
to the Ministry of Finance and inform the National Budget Framework Paper.

Budget desk and duties of the budget desk

The Central government and local government budgeting regulatory framework require
putting in place a desk office manned by designated officers to coordinate the budget
activities. Ministry of Finance designates desk officers who coordinate the budgeting
activities for each ministry. Eg. There is a budget desk officer who coordinates the
budgeting processes for ministry of Education, another officer to coordinate Ministry of
works etc. The duties of the budget desk officers include:

• Coordinating the departments under each line ministry to produce annual plans
and budgets for submission to the ministry of finance and line ministries or to the
chief executive for local governments.

• Following up the budget cycle issued by the Minister and the chief executive (for
local government) and be responsible for updating the ministry on the progress
of the budgeting process.
• Ensuring that the different entities / departments produce realistic budget
Estimates and development plans.
• Ensuring that planning is linked to the budgeting.

Challenges in public sector budgeting

• The Process is a complex one.(refer to the process/steps 1 to 6)

• Despite outside pressures to improve the budgeting process, the adoption of
more sophisticated budgeting models and approaches has been elusive (hard to
grasp) for many public sector organizations.
• Difficult to link adequately the funds allocated to then actual outcome of the
process.
• Traditional budgets are created based on requests from competing stakeholders,
each justifying their projected expenditures based on their departmental needs
rather than the overall goals of the organization.
• Traditional budgeting approach has consistently shown high rates of inaccurate
assumptions, a massive time commitment and tedious manual input.
• Drastic changes in resource levels, budget constraints, and strategies are
inevitable.
• Static budgets and multi-year financial plans produce high level financial targets
and constraints.
• Balancing competing priorities
• Harmonising Political agendas with general economic growth targets.
• etc