Budget execution

Recent studies show tangible improvements in budget preparation processes in many developing countries. However, budget execution remains a significant challenge. Once the budget has been approved, it must then be executed as planned with appropriate management control and accountability systems in place. This involves the development of incentive structures and sanctions, and systems of rules to control spending that ensures the efficient and effective use of funds. So where should donors, and committed partner governments, refocus their attention? Is the problem one of processes and systems, or skills and capacity?

Budget execution is the point at which responsibility moves away from the centre to a diverse network of agencies and departments. While building the capacity of the staff that work in these agencies will typically be an important step, there is also a need to ensure that staff understand their responsibilities and how they support the wider goal. For example, if government officials are required to collect data to enable financial reporting, they should understand how that data will be used, and why it matters. If they are expected to follow specific disbursement cycles – to ensure, for instance, that farmers receive subsidies or loans at important times of year – they need to be aware of why these cycles have been set.

Importantly, these ‘people’ aspects must be backed by process changes, such as the introduction of transparent audit systems and monitoring frameworks. As a starting point, some governments – and some donors – may wish to commission public expenditure tracking studies and fiduciary risk analyses. Such activities, which OPM is experienced in conducting, can help to identify and address weaknesses in budget execution, such as ineffective authority relationships and poorly defined institutional roles and responsibilities that undermine control and accountability systems. Equally importantly, they can indicate where a current policy is not effective, and feed into discussions of how to improve value for money.

We understand that control systems have important consequences for how managers behave. In budget execution, rules are required to control what money can be spent on before it is actually spent (ex-ante controls), and also to measure, reward, and sanction the results of managerial action after spending has occurred (ex-post controls). Correctly designed control systems help to ensure effective and efficient use of resources, while also stimulating the use of appropriate reporting systems.

For more on our effective public financial management, see our brochure below.

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