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

The Budget and Its Coverage 61
of the importance of the transactions—as when a very small net surplus
hides huge expenditures and slightly larger revenues and, thus, prevents
appropriate scrutiny of the transactions.
Expenditures and revenues should be classified on the same basis as the
overall budget in order to permit comparisons of relative efficiency and
for accountability.
All accounts must be subject to regular external audit.
Financial reports of government activities should consolidate the operations
of autonomous funds and agencies with regular budget operations.
Extrabudgetary Funds
In many countries, a significant share of public expenditure is managed
through special arrangements outside the normal budgetary management
arrangements. These special arrangements, which are known as extrabudgetary
funds (EBFs), are used, for example, when existing budgetary procedures
are inappropriate for managing particular types of activity, when such
procedures do not allow spending agencies to use revenues from cost recovery,
or when certain priority expenditures need protection. In the clear definition
provided by the IMF Code of Fiscal Transparency, EBFs are government
operations that are set up outside the annual budget appropriations process.
The dividing line is thus clear: if transactions involving public financial
resources are not subject to the same legislative approval process as the
annual budget, they are outside the budget. However, they are not outside
the bounds of legislative authority and oversight: the fundamental requirement
of authorization by the people’s representatives is still met if the legislature
approves the establishment of the EBF—provided that (a) the
delegation of revenue and spending authority is made for specific purposes
and under clear criteria; (b) EBF governance arrangements are satisfactory
and explicit; and (c) transparent information on the financial operations of
the EBF is regularly included in the annual budget documentation, although
it is not subject to annual approval.
Reasons for Creating EBFs
The reasons for creating EBFs depend on the country. They may include protecting
priority expenditures from budget cuts; avoiding implementation
problems in budget execution; sidestepping some appropriation management
rules in the interest of powerful politicians or lobbies; insulating
donors’ projects and programs in priority sectors at their request; and, in