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

Budget Preparation and Approval 243
mechanisms to prevent bad projects and programs from getting started in
the first place. By the time they are in the budget pipeline, it is usually too
late to stop them.
An overoptimistic budget also leads to accumulation of government
payment arrears, which create their own inefficiencies and destroy government
credibility. Clear signals on the amount of expenditure compatible
with financial constraints should be given to spending agencies at the start
of the budget preparation process. During budget execution, no satisfactory
way exists to correct the effects of an unrealistic budget. Thus, across-theboard
appropriation sequestering leads to inefficient dispersal of scarce
resources among an excessive number of activities. Selective appropriation
sequestering combined with a mechanism to control commitments partly
prevents these problems, but spending agencies still lack predictability
and have no time to adjust their programs and their commitments. Finally,
selective cash rationing politicizes budget execution, enables corruption, and
often substitutes suppliers’priorities for program priorities. Such an approach
has recently come to be known as cash budgeting. This term is highly misleading.
First, it has nothing to do with the basis of budgetary appropriation,
which is on a cash basis almost everywhere. Second, it is merely a tactic during
budget execution to deal with the inevitable consequences of an unrealistic
budget. Cash budgeting is, simply, cash rationing and not a budgeting system.
The problem lies upstream, in an unrealistic budget. Accordingly, an initially
higher but more realistic fiscal deficit target is far preferable to an optimistic
target based on overestimated revenues or underestimated expenditure
commitments, which can lead only to inefficiency, payment delays, arrears,
and gamesmanship.
Isolating a core program within the budget and giving it higher priority
during budget implementation are often suggested as a means of alleviating
problems generated by overoptimistic budgets. In times of high uncertainty
of available resources (for example, very high inflation or a postconflict
situation), this approach could be considered as a second-best response to
the situation. As general practice, however, it has little to recommend it and
is vastly inferior to the obvious alternative of using a realistic budget to begin
with, because, when applied to current expenditures, the core program typically
includes personnel expenditures, whereas the noncore program includes
a percentage of goods and services. Cuts in the noncore program during
budget execution would tend to increase inefficiency and reduce further the
already meager operations and maintenance expenditure in most African
developing countries. The core-noncore approach is ineffective also when