Budgeting

Central Department of Public Administration (CDPA), Tribhuvan University (TU), Nepal
Government Budgeting
Dr. Hari Prasad Adhikari
Concept of Government Budgeting

• The term “Budget” has been derived from the French
word “Bougette” which means a leather bag or wallet.
• The term “Budget” relating to the papers containing
Walpole’s financial plans was used for the first time in
1733 by a member of the House of commons of England.
• Budgeting refers to the process of preparing, negotiating
and agreeing a quantified and specific plan (budget) for an
organization, normally for a twelve-month period.
• Definition
• “A quantative statement, for a defined period in time,
which may include planned revenues, expenses, asset,
liabilities and cash flows. A budget provides a focus for the
organization, aids to the co-ordination of activities, and
facilities control.” - CIMA
Feature of budget
• Financial plan and program of government,
• Plan of action passed by the legislatures,
• Items are only the estimates,
• Comprehensive plan which covers the activities
of all departments and agencies of the
government,
• Budgetary process involves Formulation,
Approval, Execution, Accounting, Monitoring,
Auditing and Evaluation.
Theories of Budgeting
• Classical concept of Budgeting
• Modern Concept of Budgeting
Classical concept of Budgeting

• Refers to the balance budget, means a balance between revenue and
expenditure of the government,
• There were three views regarding the interpretation
• The balance between revenue and expenditure without government
borrowing at all.
• Current expenditure should be borne from current revenue and the
capital expenditure should be born from borrowing,
• Regular expenditure should be borne from current revenue. The
emergency or abnormal expenditure like as in the situation of
depression, war, natural calamites may be financed by borrowing.
• Balance budget was based on the assumption full employment as
normal condition in the economy.
• Advocated that budget deficit is to be financed only by borrowing and
also expressed view that an unbalanced budget led to currency
deterioration (devaluation of currency).
• Emphasized on the small budget as well.
Modern Concept of Budgeting

• Keynes, Hansen, Lerner and Dalton advocated modern
concept of budgeting (managed budget)
• Budgeting as per the need of the economy as well as
circumstances of the trade cycle,
• It is quite comprehensive
• Budgetary policy should aim at attaining the optimum
level of employment of resources and steady growth of
the economy
• Budgeting in the developing countries is concerned the
modern approach,
• Deficit budget play a more positive role in developing
economics (To promote financial resource mobilization,
increase investment and saving activities through greater
utilization of productive resources)
Process of Central Budgeting in Nepal

• The responsibility of preparing the budget
document rests on the finance ministry. In
Nepalese case, fiscal year begins from shrawn.
The process of budget formulation for the
coming fiscal year starts from poush in Nepal,
• Process of Government budgeting may be
divided into mainly the four stages; they are
formulation of preparation, legislation, execution
and postmortem or auditing.
Budget Preparation
• The Ministry of Finance is mainly responsible
• formulation begins with the estimation of resources
for the coming fiscal year,
• National Planning commission Provides the budget
ceiling,
• National Planning Commission has prepared the
preliminarily estimate of development expenditure
for the coming fiscal year by participating the
authorities of line ministries and finance ministries,
• when Ministry of Finance notifies all the ministers
and the central agencies of the Government of
Nepal to submit their expenditures requirements.
Cont.
• Ministry of Finance, there will be discussion and scrutinization
over the budget demand of the ministers are made consistent
with the plans objectives, programs and policies
• the revenue estimation is done with the preceding years
revenues collection from different sources of revenue,
• The estimated revenue collection from the revision in the tax
rates, new taxation proposals, improving the efficiency of the
revenue administration etc.
• The estimated revenue receipt, the foreign aid receipt from
the donor governments and agency are estimated, the
estimation of the resources to obtained by internal borrowings
is done.
• Budget prepared by the Ministry of Finance with the
comprehensive information on the estimated income and
expenditures, necessary fiscal, monetary and other economic
policies designed by the Government of Nepal.
Cont.
• Legislation:
– The Finance Minister on behalf of the Government of Nepal presents the
budget proposal in the parliament
– Two bills finance bills appropriation bill are presented in the finance
committee of the parliament
– There will be discussions on these bill and they passed with some
adjustments if necessary
– Then the budget are submitted to the speaker of Parliament for final
approval and becomes Act.
• Execution
– Budget execution is also the executive responsibility.
– The ministry of finance through the office of the Comptroller General
performs the function of budget disbursement from the government
treasury.
– Budget disbursement is done by the “KOLENIKA” offices at the district
levels to governmental agencies.
– Likewise, the revenue collecting offices collect the revenue and deposit it
in the government treasury.
Cont.
• Auditing:
– There are two stages of auditing.
– Firstly, internal auditing performs by the kolenika
– Finally, the office of the Auditor General makes final
auditing. The Auditor General presents a report to
the President/parliament.
– Then there will be discussions in the parliament and
the concerning authorities including the concerning
ministers incharge have to justified and defend the
questions remarked by the Auditor General’s report
in case of the irregularities and malpractices. In this
way, one budget cycle complete.
Medium Term Expenditure Framework

(MTEF)
• MTEF is a three‐year framework of public expenditure and a
tool for determining the available resources and allocating
these resources in line with government priorities.
• It is a transparent planning and budget formulation process
which helps to match top‐down resource envelope with
bottom‐ up medium‐term costs of existing policy in the
context of the annual budget process.
• Government of Nepal has been MTEF since 2002. It refers to
adverse bearing MTEF resulting in bigger size of fiscal budget
deficit.
• Nepal introduced MTEF to anchor the poverty reduction
strategy annual budget. Initially it was applied as a 3 year
rolling process in five ministries.
• Now it covers all the line ministries. The National Planning
Commission coordinates and liaises the MTEF process. It gets
updated each year.
Process of MTEF
• In the beginning, the National Planning Commission
prepares three years macro-economic framework
and the Resource committee projects revenue and
expenditure on the basis of macro fiscal framework.
• National Planning Commission then fixes ceiling and
circulates guidelines to the line ministries.
• The Line Ministries prepare and submit budget
proposal based on strategic plans considering MTEF
to NPC and MoF.
• Discussions are held for the program approval at
NPC and for budget approval at MOF corresponding
to MTF.
Issues and challenges of MTEF
• The major issues and challenges of MTEF in the execution of

budget are:
– Absence of the mandatory legal provision.
– Institutional Capacity Constraint.
– Lack of adequate project bank and other relevant data.
– Delayed in Budget submission and Approval.
– Very few ministries have sectoral strategies and business plan.
– Lack of ownership in the line ministries.
– Weak coordination between MOF and NPC.
– Lack of high level political support.
– MTEF system too complex and paper intensive
– Resource gap not properly reflected by the MTEF.
– It is difficult to establish a robust linkage between planning and
budgeting through MTEF process.
– Problem in fixing ceiling and making its compliance from the sector
ministries Week monitoring and evaluation.
Ways to Overcome challenges of MTEF
• The following points must be considered to

overcome the challenges of the MTEF:
– Mandatory Legal Provision
– Strong political commitment
– Cordial relation between MOF and Line Ministries
– Development of institutional capacity
– Inventory of Project and program
– Proper concentration in fixing ceiling and compliance
– Stick on result rather in the process
– Strengthen monitoring and evaluation
– Maintaining Fiscal Discipline.
Thank You
• Questions?

Budgeting

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Budgeting

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Central Department of Public Administration (CDPA), Tribhuvan University (TU), Nepal

Concept of Government Budgeting

Classical concept of Budgeting

Modern Concept of Budgeting

Process of Central Budgeting in Nepal

Medium Term Expenditure Framework

Issues and challenges of MTEF

• The major issues and challenges of MTEF in the execution of

Ways to Overcome challenges of MTEF

• The following points must be considered to

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