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

Budget Preparation and Approval 253
among others. 5 Projections should cover the current year and a forward
period of two to four years.
Preparing the macroeconomic framework
A macroeconomic framework typically includes four interlinked modules—
on the balance of payments; the real economy (that is, production in the
various sectors); the fiscal accounts; and the monetary sector. It is a tool for
checking the consistency of assumptions or projections concerning economic
growth, the fiscal deficit, the balance of payments, the exchange rate,
inflation, credit growth, and the share of the private and public sectors on
external borrowing policies. Preparing a macroeconomic framework is
always an iterative exercise. A set of initial objectives must be defined to
establish a preliminary baseline scenario, but the final framework requires
a progressive reconciliation and convergence of all objectives and targets.
Considering only one target (for example, the fiscal deficit) in this iterative
exercise risks defining other important targets as de facto residuals instead
of independent policy goals.
The preliminary baseline scenario gives the macroeconomic information
needed for preparing sectoral and detailed projections, but these projections
usually lead, in turn, to revisions of the baseline scenario. Such iterations
should continue until overall consistency is achieved for the macroeconomic
framework as a whole, and close dialogue is critical among all concerned
government authorities. This iteration process not only is necessary for sound
macroeconomic and expenditure programming but also is an invaluable
capacity-building tool to improve the awareness and understanding of
involved agencies—and therefore eventually to improve their cooperation in
formulating a realistic budget and implementing it correctly.
The preparation of a macroeconomic framework should be a permanent
activity. The framework needs to be prepared at the start of each budget
cycle to give adequate guidelines to the line ministries. As noted, it must then
be updated throughout the further stages of budget preparation, also to take
into account intervening changes in the economic environment. During
budget execution, too, macroeconomic projections require frequent updating
to assess the impact of exogenous changes or of possible slippage in
budget execution.
In addition to the baseline framework, formulating variants under
different assumptions, such as changes in oil prices, is important. The risks
related to unexpected changes in macroeconomic parameters must be
assessed and policy responses identified in advance, albeit in very general
terms, of course.