Managing Public Expenditure - CMI

Policy Formulation and Budget Preparation
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• A proforma of the line ministries’ budget submissions.
• Specific guidelines for the presentation of major expenditure items and programmes, such as
personnel expenditures, investment projects and entitlement programmes.
• Specific policy recommendations on the main programmes/projects.
• Key economic assumptions that enable line ministries to prepare their budget requests such as the
expected inflation rate, exchange rate and level of unemployment.
2. Bottom-up approach
Line ministries are responsible for preparing their requests within the spending ceilings specified by
the ministry of finance. Depending on the severity of the fiscal constraint and the organisation of the budget
preparation process, additional requests from line ministries could be allowed for new programmes.
However, the principal request should be consistent with the notified ceilings or guidelines, and the cost
of programmes included in this submission should be sufficient for full implementation of the programmes
concerned. Provided that their savings proposals are realistic, line ministries should be free to reallocate
savings on ongoing programmes, within the limits of the sectoral ceilings.
Line ministries’ budget requests should preferably distinguish between: (i) the amount necessary to
maintain the current level of activity (or the costs of ongoing policies); and (ii) proposals for and costing
of changes in the level of activity (or policy changes). As discussed earlier, at least for entitlements, the
distinction between continuing policies and policy changes is more relevant than the distinction between
the present level of activity and changes in the level of activity. But in both cases, the methodology
should be defined in the budget circular.
Before deciding to include in the budget any new expenditure policies or programmes it is necessary
to assess their budgetary impact in the medium-term. This is particularly important for investment projects
and entitlement programmes, which may generate recurrent costs or increased expenditures in the future.
Such an assessment is required whether or not a formal exercise of multi-year expenditure programming
is carried out. For this purpose, line ministries’requests must show systematically the forward annual costs
of multi-year or entitlement programmes, and the ministry of finance should take into account the forward
fiscal impact of these programmes when scrutinising the budgetary requests from line ministries.
The submissions from line ministries should include:
• A brief policy statement describing the sector policies and expected outputs/outcomes, including
some key indicators of these outputs and outcomes.
• If possible, performance indicators by programme and activity. These indicators can be defined
according to the organisational structure of line ministries, or by a specific programme/activity
classification. If the budget of the line ministry is presented by programme, a programme profile
form should be prepared.
• A statement of how the policy and programme objectives will be achieved.
• Expenditure estimates for the budget under preparation. These estimates should fit within the
sectoral ceiling notified by the ministry of finance (any additional requests being presented on a