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

Budget Methods and Practices 133
of activity-based budgets with high hopes by spending agencies that the
fundamentals of a country’s budget management systems would change.
However, if the development of these budgets is not preceded in the MTEF
development process by solid macrofiscal analytical work and policy
development, budget implementation too easily reverts to historical practices
that pay scant attention to the agreed prior activity-based budgets.
Again, negative experiences with activity-based budgeting in developing
countries are not the fault of the system itself, but rather of its implementation
without robust complementary reforms.
spending baselines, new policy proposals, and
savings budgeting. These mechanisms operate by guiding how
ministries budget and make tradeoffs through the budget submission
format. Agencies are requested to first indicate their spending baseline in
their submission—namely, the cost estimate of existing programs, including
cost escalations such as inflation and improved conditions of services for
public sector employees. They are then requested to detail proposed new
spending initiatives, such as new programs or changes in the coverage or
level of existing services. This is the new policy proposal base. The savings
base is the sum of proposed spending reductions achieved by introducing
efficiency savings, reducing service levels in lower priority programs, or
discontinuing obsolete activities. This system accepts that budgeting will
always distinguish between existing programs and options for change.
However, by requesting that departments detail how they will fund their new
spending priorities from within their existing budgets before granting
requests for additional funding, the system permits the government to reprioritize
spending over time and to focus on the decisions that must be made
to fund priorities within the limit of what can be afforded. The system also
requires spending agencies to properly cost the forward cost of their existing
policies (the base), thereby highlighting the need for policy change.
This system depends on a large degree of cooperation in the budget
process to ensure that the three categories are properly identified and
analyzed. For example, there is scope for disagreement between a spending
agency and the ministry of finance about the meaning of “no change” in
policies and the likely cost of existing policies. The task of reaching a shared
analysis of the costs and benefits of new proposals remains. And there will
continue to be problems of information asymmetry and incentive incompatibility
that may hinder the identification of possible savings and make it
difficult to reach agreement about the scope of possible savings and the
implications for service delivery.