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Towards an Improved Budget Process
One of the most significant
and powerful policy instruments available to the government for improving
stability of government finances on the one hand, and improved economic and
social outcomes for its citizens on the other, is the national budget. The budget
plays a central role in effective planning for, and monitoring of,
achievement a country’s long-term development vision and its medium term
development objectives.
Between 2002 and 2004 the PNA
made considerable progress in implementing an improved budget process and
various other important public financial management reforms. However, the current political and economic
crisis has brought public financial management reform to a halt and has
placed previous achievements in danger of being reversed. For example, the budget for 2006 had still
not been submitted to the PLC for approval and, according to the Minister of
Finance (Dr. Omar Abdul Razzaq), "it is impossible to complete the draft
budget while Palestinian people are under siege". The budget circular for 2007 was
distributed to ministries in August but it seems that the 2007 budget process
is already substantially behind schedule.
In the
light of these facts, assuming that the current financial boycott of the PNA
is lifted, one of the main priorities of the PNA should be to build on prior
reforms and further improve the budget process in accordance with the
following, widely accepted, principles of good practice: comprehensiveness;
contestability; predictability; transparency; accountability; and,
legitimacy.
Based on
these principles and related good practice, the following table summarizes
the priority reforms which could and should form the basis of the PNA’s
budget and public financial management reform agenda for the future.
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Principles
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What is good
practice?
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Priority reforms
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Comprehensiveness
& contestability
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A government budget
should encompass all the operations of government and policy decisions and
plans should be made within fixed budget constraints in competition with all
other resource demands. New and
existing policies should be assessed and evaluated against each other -
development projects should not be seen as add-ons, but should be
considered together with on-going and new spending programmes of the
government. In practice this means that, to enable good decision-making,
all spending activities should be ‘on-budget’ (i.e. included in the formal
government budget preparation and review process).
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A merged
operating and development budget (i.e., MTDP and Budget) – achieved
through merging MoF and MoP functions.
A modernized,
participatory budget process which ensures that all available
resources are allocated based on national policy priorities.
A ‘National
Agenda’ setting out Palestine’s long-term development goals for the
next 10 to 20 years – developed by government (including the PLC) and
civil society.
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Predictability
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Public sector
performance is enhanced when there is stability in macroeconomic and fiscal
policies, strategic objectives and funding of existing policies. Predictability works best if fiscal and
programmes policies are formulated over a medium term period. In
practice this means that there should be a known and timely flow of funds
to ministries and agencies so that they can implement their programmes as
agreed.
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Extend the Budget
timescale to cover a medium
term (i.e., three-year) horizon.
Better processes of
macroeconomic forecasting and fiscal policy formulation and decision-making
- preparation of an annual medium-term fiscal framework.
Better aid
management and donor coordination.
Better processes for managing unpredictability in revenues and
expenditures.
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Transparency,
accountability & legitimacy
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Accountable
governments are required to demonstrate their performance in implementing
their policy commitments and the utilisation of resources to do so. Accountability
requires transparency - access to complete, accurate and timely
information on planned and actual public expenditure needs to be available
to allow relevant stakeholders (e.g., legislature, civil society) to play
their part in the policy-making and resource allocation process. Ad-hoc (in-year) resource allocation
decisions that are not in line with priorities (agreed through the budget
process) should limited. In
practice, this means that there should be political involvement and buy-in
in both the budget preparation and execution processes.
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More timely and
better quality public budget documentation for the PLC, civil society
and the general public.
Improved authority
and capacity of the PLC to influence and monitor the budget preparation
and execution process (through, for example, amended public finance
legislative framework and upgrading external audit functions).
Improved capacity
of civil society to improve ‘budget literacy’ and to monitor the
outcomes of public expenditure in key areas (e.g., public health service
delivery).
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Published by Good
Governance Initiative - 2006
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