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

are doubtful and unclear. At budget preparation time, a good judgment
must be made of the government’s fiscal exposure to future obligations and
contingent liabilities.
Which level of government?
Ideally, “general government” (see chapter 2) should be considered when
preparing the fiscal projections and defining the fiscal targets, but the targets
should also be broken down between central and local governments. In
some decentralized systems, a fiscal target cannot be directly imposed on
subnational and local government. In those cases, the feasibility of achieving
a fiscal target by means of the different instruments under the control of the
central government (such as grants, control of borrowing) must be assessed.
However, the constraints on running fiscal deficits are typically much
tighter on subnational entities than they are on the central government. The
main reason is the central government’s capacity to regulate money supply.
Therefore, in some federal systems (for example, the United States), many
states have their own constitutionally mandated requirement of an annual
balanced budget. In many African countries, reliable data on subnational
government are not available. It is, on balance, better not to include suspect
data or guesswork and to limit the fiscal framework to central government.
In such cases, the limitations of the fiscal picture should be kept in mind, as
well as the need to guard against the temptation to “download” the fiscal
deficit onto local government entities by assigning to them expenditure
responsibilities without the wherewithal to perform them. In any case, all the
deconcentrated units of the central government must be fully included in
the fiscal framework and the budget. Those who control the money and the
activities should be accountable; accountability does not depend on where in
the country the activities are carried out. (See chapter 2 for other considerations
relevant to coverage of the budget.)
Consolidation of the Fiscal Commitments
Budget Preparation and Approval 257
Making the projections credible
As noted at the outset of this chapter, a key requirement of a good budget is to
be credible. If the budget preparation is framed by medium-term macroeconomic
and fiscal projections, these must be credible, too. In some countries,
the government projections are submitted to a panel of independent and
respected experts to ensure their reliability and to remove them from partisan
politics, while preserving the confidentiality required on a few sensitive issues.