What is Budget Cycle?
The budget cycle starts with the budgeting process, in which the government, with legislative oversight, plans for the use of the coming year’s resources in accordance with policy priorities.
Once the budget has been approved and the new fiscal year begins, spending agencies and the Ministry of Finance embark on its implementation. They use the resources allocated to them on salaries for public servants, running costs for their offices, such as rent and electricity, and goods and services delivered to their beneficiaries (school books, medicines). The Ministry of Finance manages the flow of funds and monitors and makes in-year adjustments to ensure compliance with the budget and PFM rules.
Many PFM topics are highly specialised and have their cadre of experts—on issues such as financial management information systems, payroll reform or procurement for public works, for example. But whether one is engaged in the gritty details of cash advance procedures or works on public policy at a broad level, it remains valuable to consider the PFM system as a whole. It is important to understand how various functions fit into a broader system of rules and regulations that govern the management of public resources, and what these functions are ultimately intended to achieve.
Although the PFM discipline may be new to some readers, most will have encountered many of the concepts and processes in the course of their professional lives. Public servants will have participated in the steps of the budget cycle when they budgeted for a programme, raised a purchase order, reviewed an expenditure report or prepared documents for external audit scrutiny. Readers who have not worked for a public institution may notice that PFM has much in common with ‘private’ financial management. Many of the principles of budgeting, expenditure and reporting also hold true for firms and private organisations.
An effective budget pursues three (partially competing) objectives: maintaining fiscal discipline, allocating resources in accordance with policy priorities and efficiently delivering services, or ‘value for money’. Budgets should be comprehensive, transparent and realistic. In order to promote these objectives, a budget should contain the following elements: a macroeconomic framework and revenue forecast, a discussion of budget priorities, planned expenditure and past outturns, a medium-term outlook and details on budget financing, debt and the government’s financial position.