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

102 A. Premchand
by most developing countries, either as part of the budget or as part of the
international reporting system. These approaches do not include depreciation
allowances, and capital receipts may not be shown or recorded separately.Also,
for ascertaining capital formation in central and general governments, most
industrial countries rely more on national income accounts and associated
forecasts. A similar trend is growing in developing countries.
The fifth category comprises those countries that had capital budgets
but have moved to investment budgets. Denmark is one; it now maintains
an investment budget that can be spent beyond the fiscal year. The sixth category
comprises those countries that have the equivalents of capital budgets.
Japan, the Republic of Korea, and other Southeast Asian countries have
special accounts that have selected features of capital budgets. In Japan, the
Fiscal Investment and Loan Program is the most important one; it acquired
even more importance during recent years as the primary instrument for the
revival of the economy. In many developing countries, governments have
developmental budgets of a hybrid form. Some capital outlays are included
in these budgets; the receipts include loans received for their financing but
are not restricted to capital items only. In several governments, all projects
and programs funded by donors and international financial institutions are
included in this category. Developmental budgets have become a mixed bag
of transactions with flexible applications. In the former centrally planned
economies, the budget chapter on construction was the nearest approximation
of a capital budget. (The slogan was that construction plus energy was
equal to communism.) These economies distinguished between routine
government transactions and those that were quasi-commercial and
expected to have depreciation accounts.
The last category includes those countries that have a capital budget but
do not maintain depreciation allowances. India belongs to this category.
China announced in the early 1990s its intention to introduce a capital
budget and to refine it over a period. Initially, following Chinese tradition,
this capital budget was limited to construction outlays.
Perspectives and Issues
Given tradition and considerable diversity in experience, another issue is the
purpose that a capital budget is to serve. In considering this important issue and
in seeking an answer to the most significant question (whether capital budgets
provide a better framework for the allocation of resources and, specifically,
for the determination of long-term investments), one must recognize
that different disciplines produce analysts with different perspectives. The