Public Sector Governance and Accountability Series: Budgeting and ...

Capital Budgets: Theory and Practice 97
TABLE 3.2
Functional area
Issues in the Management of Capital Budgets
Issues
Resource planning and allocation
1. Project and investment appraisal
Application of uniform and
consistent guidelines
2. Funding arrangements
Centralized borrowing
Decentralized and market-based
borrowing
3. Budget formulation
Medium-term rolling plans
Annual estimates that are based
on contracted costs and that
allow for inflation
Domestic currency expenditures
that are fully provided for
Contingent liability and
associated risk management as
an integral part of budgetary
decision making
Consideration of the scope for
compensatory fiscal action
Some techniques may be qualitatively deficient,
may lend themselves to manipulation, and
may become “design studies” intended to
support decisions already made.
Centralized borrowing, which leads to resource
fungibility and the loss of project identity
(except where funded by external resources),
may not promote the needed sense of financial
responsibility.
The absence of regulated and coordinated
borrowing among levels of government and
governmental units could contribute to
competitive borrowing, crowding out, higher
costs, and overheating of the economy.
Such plans could contribute to budgetary rigidity,
and the management of austerity programs,
when needed, would be rendered difficult.
Full adjustment for inflation, apart from
contributing to budgetary problems, does not
promote financial responsibility.
This part of project outlays depends on the
budgetary position, and often full funding may
not be provided. Underfunding leads to
project delays.
In practice, most systems are not adequately
geared for this purpose. Some countries have
initiated efforts to pass legislation and associated
regulations in this regard.
The need for compensatory fiscal action and the
magnitude of adjustment are determined as
part of this exercise. In some countries (such as
Japan), compensatory fiscal action (stimulus
packages) may be taken throughout a fiscal year
and a series of supplementary budgets may be
approved. In most developing countries, however,
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