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

Budget Execution 281
in budget management varies from one country to another and depends on
the nature of the expenditure.
Generally, for goods and services as well as for investment expenditures,
the commitment in the budgetary sense should be defined as the legal commitment,
which consists of placing an order or awarding a contract for delivery
of specified goods, services, or physical assets. Such a commitment entails an
obligation to pay (a liability) only when the supplier has complied with the
provisions of the contract. If the goods are not delivered or the services not
rendered, the commitment will not entail a liability, and it should be written off.
This last situation is comparatively frequent in countries with a weak private
sector and a poorly organized budget system. Also, committing expenditures
does not mean that all related payments should be made within the same
fiscal year. For investment expenditure in particular, the legal commitments
may cover a multiyear period.
For debt service, personnel expenditures, transfers, and also some categories
of expenditure on goods and services (such as consumption of
electricity and telecommunication services), the obligation to pay comes from
an event upstream or outside the expenditure budget execution cycle (staff
recruitment, disbursement of a loan, office heating, and so forth). In such
cases, the commitment in the budgetary sense corresponds generally to the
stage at which a new liability is recognized (for example, the monthly wage bill,
interest due, or electricity charges). Consequently, for those categories of
expenditures, the commitment stage and the verification stage, described
below, are combined in the budget execution cycle.
Sometimes, the commitment in the budgetary sense is only a reservation
of appropriation, that is, a request from a spending unit to the budget
authority to put aside an allotment for a future expenditure or to subordinate
units. 1 In other countries, liabilities are termed commitments, and no
distinction is made between the verification stage, discussed below, and the
commitment stage.
For a multiyear expenditure project (for example, a road project), the
term commitment refers in many countries to either the incurred liabilities 2
(for example, the invoices) or the annual tranche of the multiyear legal commitment
(for example, the road-building work planned for the fiscal year),
not to the legal commitment itself (for example, a multiyear contract for
building the road). Monitoring the commitments is very important for cash
planning and program management, to prevent any risk of budget overruns
and arrears, but this oversight requires defining properly and clearly what is
a commitment. For budget administration and expenditure control, commitment
in the budgetary sense should correspond to the earliest stage within
the expenditure cycle at which a claim against the appropriation can be