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

Overview 11
not need it. But the pressure to make better decisions and use resources more
intelligently has increased. ABC/M provides valuable information that can
be used to make a broad range of decisions, from outsourcing to operational
planning and budgeting.
Activity-based concepts are very powerful techniques for creating valid
economic cost models of organizations. By using the lens of ABC/M,
organizations of all sizes and types can develop the valid economic models
required for their executives and managers to make value-creating decisions
and take actions to improve their productivity and resource usage—and
ultimately to better serve their constituencies.
The pressure on the public sector is undeniable. People want government
to work better and cost less. To meet this pressure, public sector managers
will have to change their way of thinking about the true costs—and value—
of the services they provide.
In chapter 8, Salvatore Schiavo-Campo reviews budget preparation and
approval practices. He lists three prerequisites that permit the budget to
serve to control expenditure, allocate it in conformity with government
policy, and provide the conditions for operational efficiency: (a) a mediumterm
perspective, (b) early decisions on hard choices and tradeoffs, and (c)
a hard expenditure ceiling at the start of the process. Failure to meet any of
those conditions results in a number of inefficient practices, including
incremental budgeting, dual budgeting, and excessive bargaining. In
particular, postponing until budget execution the hard choices between
competing claims for resources makes them even harder and complicates
program management.
The starting point of the process should be the preparation of a consistent
and public medium-term macroeconomic framework, showing the fiscal
targets (deficit, total expenditures, revenues, and so forth) and including the
medium-term fiscal perspective to frame the preparation of the annual
budget. The fiscal perspective covers three to five years and is updated yearly.
(It is important to prevent the estimates of various expenditures over the
medium term from being seen as entitlements, which would straitjacket
annual budgeting in the future.) The medium-term perspective, as well as the
sector expenditure ceilings, must be approved by the top political leadership.
The next steps are (a) preparation by the ministry of finance of a
budget circular, giving guidelines for the preparation of ministry budgets
and the expenditure ceilings for each ministry; (b) preparation of ministries’
budgets on the basis of these guidelines; (c) budgetary discussions between
the line ministries and the ministry of finance; and (d) finalization of the
draft budget.