Budget Practices and Procedures in Africa

1. Budget Practices and Procedures in Africa Paolo de Renzio Joachim Wehner Annual CABRI Seminar Dakar, Senegal, 7-8 April 2009

2. Background and Introduction • Previous OECD surveys in 2003 and 2007, extension to non-OECD countries in 2008. • DFID funding for inclusion of CABRI countries, yielded results for 26 African countries. • Quality control: Peer review, Pretoria workshop, comments from countries and external reviewers. • CABRI and AfDB-commissioned report, based on a selection of the most relevant and reliable survey items. • Parallel effort in the OECD, with a similar report to be published later this year.

3. Timelines (1) • Four stages of the budget process: • Formulation • Approval • Execution • Audit and evaluation • Beginning of the budget process varies from 11 to four months prior to start of FY, with a median of eight. • Tabling of the budget varies between three months prior to the start of the FY to one month after, with a median of two months prior to the the start of the FY.

4. The timeline for budget formulation

5. Timelines (2) • Legislative approval takes place between one month before and four months into the FY. • In most countries, the legislature approves the budget prior to the start of the fiscal year. • Only two out of 26 African countries publish their audited accounts six months or less after the end of the fiscal year. • In most countries in this study the publication of audited accounts takes more than 12 months.

6. Budget formulation (1) • The report looks at two main aspects of the budget formulation stage, linked to fiscal discipline and resource allocation: • Top-down budgeting: Degree of ‘hierarchy’ in budget decision-making • Multi-year frameworks: expenditure estimates and targets/ceilings

7. Budget formulation (2) • Most countries impose comprehensive ceilings at chapter/ministry level; dispute resolution is split between ‘hierarchical’ and ‘collegiate’ systems. • More countries adopt targets than simple estimates, which is contrary to what happens in OECD countries. • Difficult to judge the quality of existing MTEFs, but they seem to be based on automatic adjustments, and the separation of capital and operating budgets might create problems in 11 of 26 countries.

8. Role of legislatures (1) • Formal authority affected by: • Amendment powers • Reversionary budgets • Executive flexibility during execution • Relevant organisational variables include: • Time for scrutiny • Committee capacity • Independent analytic capacity • Combined into an index ranging between zero (no legislative budget capacity) and one (full capacity).

9. Index of legislative budget institutions

10. Role of legislatures (2) • Total scores range from .47 to .06, median of .33. • Contrasts with OECD countries, where scores range between .89 and .17, median of .42. • More than one third of OECD legislatures obtain a score of .5 or higher – none in Africa sample. • The role of legislatures varies more in the OECD than in African countries. • In Africa, formal powers tend to exceed organisational capacity (20 out of 25 legislatures). • African legislatures have, on average, less institutional capacity for financial scrutiny.

11. Budget execution • Major challenge in many countries, involving a trade-off between credibility and flexibility. • In six countries there are no restrictions on the cancelation/impoundment of spending. • 16 countries allow overspending without legislative approval up to a limit, in three without limits. • No country prohibits virement/reallocation outright. • Nine countries do not have a contingency reserve. • The majority of countries report one supplementary budget per year, no country reports more than four.

12. Fiscal transparency (1) • Higher transparency has been shown to be associated with better fiscal and economic outcomes. Both OECD and IMF have developed codes and guidelines • Focus on three questions only, linked to different phases of budget cycle, and construction of index: • Information included in documents sent to Parliament • Frequency of in-year reporting • Public availability (and delay) of audit findings

13. Fiscal transparency index

14. Fiscal transparency (2) • High variation. Scores range between .89 (South Africa) and .25 (Nigeria). The median is .54. • Very little information on off-budget spending, non-financial performance targets and long-term perspectives sent to Parliaments. • 9 of 26 countries produce in-year reports weekly or monthly. 4 countries only produce them once a year. • 6 of 26 countries rarely or never publish audit reports. • Information available might not be sufficient to fully judge degree of fiscal transparency.

15. Off-budget spending • Budget comprehensiveness is an important budgetary principle. Off-budget spending reduces transparency and can create liabilities that may undermine fiscal sustainability. • In general, the picture is not very encouraging. When off-budget spending exists, it is neither accountable nor transparent. • Data cannot be considered very reliable. • For aid funds (Q99), more countries report coverage at earlier stages of budget process, where coverage values are also higher. • There are serious difficulties in capturing aid flows in budget documents.

16. Aid management (1) • In many African countries, aid is a considerable share of government spending (new section in questionnaire) • CABRI focus on ‘putting aid on budget’ • Key issues are institutions, policies and information • Institutions: Degree of centralization of responsibility for aid management • Policies: Existence and comprehensiveness of aid management policy • Information: Existence and comprehensiveness of aid database

17. Aid management index

18. Aid management (2) • High variation in the index. Scores range between .91 (Rwanda) and .08 (Nigeria). The median is .52. • Aid management systems are quite fragmented. • In 15 of 26 countries, the aid management function is split between two or more units • They are also based on weak (if any) policy statements and informational bases. • In 11 of 26 countries, there is no aid management policy

19. Conclusions • Survey results highlight the variety of budgetpractices and procedures in Africa. This is linked to administrative traditions, reform efforts and political and economic realities. • Improvements will depend on tailor-made interventions. • Main areas in need of attention are: • Transparency and off-budget spending • Budget execution and audit procedures • Aid management