5.

Government Budgeting LH 10
5.1 Concept of Government Budgeting
5.2 Theories of Budgeting:
- Classical Concepts of Budgeting
- Modern Concepts of Budgeting
5.3 Types of Budgeting
5.4 Process of Government Budgeting in Nepal
5.5 Mid-term Evaluation Framework (NPC
Publication/World Bank)
 5.1 Concept of Government Budgeting
• the term budget originated from French word "bougette"
meaning small leather bag.
• budget consists of government revenue and expenditure.
• the budget has come to mean the financial arrangements
of a given period, with the usal implication that they
have been submitted to the legislature for approval –
Bastabale.
• in early period, it was merely a report for information of
the legislature.
• financial plan of government.
• an integrated form of fiscal policy.
• an annual budget is usually the legal authority for public
spending. it is ideally a one year slice of a medium term
expenditure plan – World Bank.
• it shows the financial picture of a country.
 purposes of government budget
• it sets a framework for policy formation.
• means of policy implementation.
• means of legal control.
• source of public information on past activities,
current decisions,and future prospects.
• a tof of accountability.
• a tool of management.
• an instrument of economic policy.
 5.2 Theories of Budgeting:
- Classical Concepts of Budgeting
• considered- balanced budget is indicated fiscal stability.
• Adam Smith " what prudence in the conduct of every private
family can scarcely be folly in that of a great kingdom"
• government should aim at a moderate surplus in the budget
– Bastable.
• balanced budget is moral concept too – Dalton.
• he raise three question: what should be included in
expenditure, in revenue, and what length of time should be
chosen as the accounting profit.
• assumptions: full employent, less painful method, public
debts are more expensive.
• policy: balanced budget principle did not raise much
problem, equilibrium between income and expenditure,
current expenditure must be covered by current revenue,
however, debt can be taken in war, natural calamities period.
• saving is virtue.
 - Modern Concepts of Budgeting
• involuntary unemployment exist – Keynes, Hansen,
Beveridge.
• saving is vice not a virtue.
• private sector does not provide full employment
automatically and savings are not matched in planned
way of investment.
• budget should affect on aggregate demand and a
deficit in the budget may be required to reduce
unemployment.
• budget deficits are viewed as positive instruments to
raise aggregate income to stimulate all sectors to
spend more.
• borrowing to build assets is acceptable because assets
increase in line with liabilities – WB.
• investment (public +private) = savings (public + private
+foreign) = total investment.
 5.3 Types of Budgeting
• legal perspective:
executive budget: prepared by chief of budget
department and then presented in legislative
branch of govt.
legislative budget: while legislative budget is
prepared by legislature.
• organizational classification: classification
based on government departments, divisions.
• objective classification: based on salary and
travel allowances. budget allocated for goods
such as computer, stationaries, etc.
 types of budget
Gov
revenue
ern
men
t
Rev surplus
balance
enu
e expenditure
and
Exp deficit
endi
ture

National Income
 Functional Classification of Expenditure
• expenditure side: a. general services (defence,
jusice, police, general administration (b)
community services (roads and bridges,
sanitation and others) (c) social serivices
(education, health, social security and others)
(d) economic services ( agriculture, fuel and
power, industries and minerals, transport and
communication and others)
• Revenue side: tax revenue (income tax,
commodity taxes etc) b. non tax revenue.
• economic classification: current expenditure
and capital expenditures, purchases of goods
and services and transfer payments. it is useful
to make evaluation of macroeconomic impact of
budget.
• programme and performance classification:
budget classified acc to programs. performance
relating to inputs with outcomes eg MCPM.
• Zero base budgeting: govt must not think in
terms of increases or decreases in spending but
start from a zero base so that it must be justified
freshly.
 5.4 Process of Government Budgeting in Nepal
• Prior to 1951, there was no budgeting process. Since the
political changes in 1951, the government has presented
a budget every fiscal year July 16 to July 15.
• Until 1959 the budget was published in the Nepal Raj
Patra, the government gazette.
• Since 1959 the budget has first been presented to a
legislative body whenever one existed and then
published.
• Constitutional provision, Budget preparation
process, Budget guidelines, Current and
capital expenditures, Budget formulation
committees, Resource Committee Revenue
estimation and expenditure allocation criteria,
Budget formats used for recurrent and capital
expenditures, relationship with NPC,
parliamentary procedure, financial monitoring
and Management Information System (MIS)
system, Budget red book, Source book,
Financial act and regulation etc.
 Budgetary Process
• District Budget ceiling and guidelines send to the
DDCs by NPC– before end of Kartik.

• Resource Committee meeting (chaired by VC of

NPC)– By last week of Mangsir.

• Budget call circulars with budget ceilings,

guidelines and format send to LMs by NPC – By
Poush second week.

• LMs send budget proposal to NPC and MoF- By

Chaitra first week.

• Program discussion in NPC- Start from Chaitra

third week
• Budget discussion in MoF- Start from Baishak
third week.
• Approval of Annual Development Program by NPC
chaired by the PM- third week of Ashad.

• Approval of the Budget by the Cabinet- Third week

of Ashad
• Finalisation of budget and presentation in the
parliament by Finance Minister – third week of
Ashad
• Publication of Annual Development Program Part
Two by NPC – last week of Ashad.

• Approval of annual program by NPC- by second

week of Shrawan.
Problems
• Lack of ownership and sustainability
• Poor peoples participation
• Time overrun / Cost overrun
• Lack of proper Quality- at- Entry
• Inadequate Supervision Mechanism
• Frequent transfer of project staff
• Procurement delays / inadequate control
• Lack of financial accountability
• No proper devolution/ delegation to local self
government units.
 5.5 Mid-Term Evaluation Framework (NPC
Publication/World Bank)
• Mid-Term: examination of budget in halfway of
budget/plan period.
• MTEF is a tool for determining available resources
and allocating these resources in line with the
government priorities.
• it consist top down resource envelope and bottom
up estimation of current and medium term costs of
existing policies.
• aim: to produce credible budget in order to link
between output and outcome.
• macroeconomic model of revenue and expenditure.
• it can be used to allocate resources in more
productive sectors. eg. education or health.
 why
• for making sound and effective budget.
• link of budget in macroeconomic framework
based on availability of resources.
• to meet target
• to check policy and resources.
• to see the activities, priorities and sectoral
budget.
• to link between poverty reduction strategy
and annual budget.
• overall: to enhance performance of budget.
 budget preparation and
implementation.
this places the budget preparation process
within a wider public expenditure management
cycle, which captures the policy, planning,
budgeting, execution, accounting & monitoring
and reporting & audit processes,
The effective interaction of these processes is
necessary for improved budgetary outcomes,
and a weak link in the cycle is likely to undermine
all the other components.
The cycle also applies to the MTEF budgetary
process.
 MTEF Process in Nepal
• Orientation program for technical committee
members
• Workshop for familiarizing MTEF, its process and
dummy preparation
• Unit cost Estimation
• Estimation of macro-economic framework:GDP, BoP,
price level etc
• Estimating fiscal framework: last FY
• Preparing budgetary ceiling and guidelines
• Finalizing MTEF: considering required resources and
prioritization of project.
• Steering Committee approval and submission to the
ministry of finance
• Monitoring MTEF implementation