Introduction
A comprehensive understanding of the budget coordination is imperative, not just to develop expense projections but to ensure that policymakers get the best advice on the feasibility of a given budget suggestion from outlooks of both macroeconomic and microeconomic factors of a country. The public sector is highly complex and therefore coordinating a budget could be difficult for fiscal planners. Nevertheless, it icheckserative to understand the relevance of budget principles, particularly in the public sector where misappropriation of public coffers is rampant. By relying on an objective evaluation of macroeconomic factors and available financial resources, theoretically, the budget contents should be inclusive, transparent, practical, policy-based approach with a clear accountability system to support its execution (Gruber, 2005). These elements entail a benchmark by which the accuracy of a budget can be evaluated. In most cases, however, public sector organisations may lack these fundamental concepts in budget coordination. The purpose of this essay is to discuss critically the most significant challenges of budget coordination in a public sector organisation.
The most significant challenges of budget coordination in a public sector organisation
In most cases, a public sector organisation presents both the current budget and capital budget. These two budgets, however, are often prepared in a parallel way with different procedures. It is difficult to note this when the budget is presented to the legislature because it appears unified. When budgets are prepared with different procedures, it is difficult to coordinate them fully. In addition, such a budget cannot adequately account for all macro objectives and economic assumptions for a given fiscal year. This situation is often common in emerging economies, for instance. They may combine both capital and current budgets for a given fiscal year. A lack of coordination during the budget preparation often leads to poor utilisation of funds. For instance, a single item may appear in a current programme as well as in a capital budget. In some instances, however, a project may be included in a capital budget, but without a corresponding provision in the current budget. In addition, it is assumed that budget items contained in the national budget may overshadow other items in the current expenditure, particularly if items must scramble for scarce resources. Data used may be partial and economic assumptions may not meet expectations (International Monetary Fund, n.d).
Budget coordination requires policymakers to account for all macroeconomic elements explicitly. In addition, it requires economic assumptions to be precise and consistent. Some public sector organisations fail to refer to or make little reference to macroeconomic elements when preparing their budgets. Governments rarely pay adequate attention to data and therefore they may have little macroeconomic data for reference. The planning ministry may also lack direct coordination with the department responsible for data collection and analysis. Consequently, a lack of reliable data can lead to poor coordination in budget preparation. Given the inadequacy of data and subsequent macroeconomic analysis, public sector organisations may not be able to coordinate the budget or prepare a sustainable one. In fact, a lack of coordination often leads to budget overrun because most ministries request funds to meet their needs before the end of a particular financial year (Mikesell, 2010). Ministries or departments may not limit their requests for more funds because they lack a coordinated approach to budget preparation. It is also difficult to ascertain the validity of data used in the budget preparation. This situation may result from “poor forecasting of revenue collection and emerging fiscal deficits, which ultimately lead to poor execution of the budget” (Schick, 2000).
The budget department may lack “volume indicators of the previous year projected outturn expenditures” (International Monetary Fund, n.d). It may result from lack of data, poor communication and coordination between departments or failure to analyse available data. In addition, a planning ministry and treasury department may not have “provisional outturn for the previous fiscal year or any other projected revenues generated for the current fiscal period” (International Monetary Fund, n.d). This may happen because budget planning and budget execution are performed by different departments. For effective budget preparation, various “departments or ministries such as the treasury, planning and the budget department should be involved” (International Monetary Fund, n.d). This is vital particularly when evaluating figures for various items. These departments or ministries have different roles, but the department of treasury should be responsible for evaluating and proving fiscal estimate for the past financial years as well as the current one, which should be overviews and specific ones. Moreover, it should also determine the possible outturn for the present fiscal year. It is imperative to forecast the expense of any programme by using estimates of the programme for past years. Hence, data should not be misleading and actual expenses should be the same as the expenditure.
Spending ministries and treasury department may fail to prioritise their spending needs. A public sector organisation may present several uncoordinated priorities to the treasury for funding. A government needs to determine its spending priorities, important policies, changes in current policies and estimates. However, failure to coordinate these factors has often led to budget technicalities. As a result, notable weaknesses in the departmental priorities and arrangement during budget preparations may affect budgeting because these factors are not coordinated to support cash allocations or budget supplementary (Christensen & Lægreid, 2007). In addition, once the actual budget is done, amounts allocated for projects may not be available during execution while political interests in budgeting could derail proper coordination and planning. While it is the role of the budget team to determine what is realistically feasible, political undertone could derail any prior coordination in budget preparation. In this regard, it is advisable for policymakers and decision-makers to have relevant information on programme costs, inputs and results. Political development agendas may lack transparency or could be poorly articulated with poor measure indicators while outcomes could remain unknown (Schick, 2000). When planning and budgeting departments lack fundamental information for coordinating budget proposals from political declarations, then the result could undermine the principles of effective budgeting in the public sector (Rubin, 1999).
A public sector organisation may have long-term goals. In most cases, however, it may only concentrate on the current financial year expenses without a clear budget for meeting long-term goals. It is imperative to plan for long-term projects that go beyond a single fiscal year in order to understand potential future spending outcomes of the current projects and policies. A multiyear forecasting or expense plan is important in situations in which recurrent costs are common. It offers a basis for creating a more realistic budget for long-term projects. Budget preparation also requires a breakdown of mid-term financial outlook based on programmes and ministries (The World Bank, 1998). A focus on the current fiscal year alone without coordination with the forecasted figures for the future could have negative outcomes on financial sustainability of the budget. Policies may be short-term without any agendas for long-term developments. Without a proper multiyear fiscal planning, a public sector organisation can experience challenges related to unanticipated impacts of recurrent capital spending. This implies that discrepancies between short-term breakdowns and long-term programmes may arise when a public sector organisation fails to provide a multiyear fiscal budget. Multiyear plans should project future budgets and related costs of new policies to avoid overrun, which results from poor budget coordination.
The existence of extrabudgetary funds could negatively affect budget coordination. Extrabudgetary funds reflect governments’ accounts that handle different transactions, are not part of the capital budget elements, and normally do not follow the normal procedure of capital and current budget execution. These funds may originate from donors or other funds not accounted for in the national budget. In most cases, however, governments set up extrabudgetary funds for inapt motives. Such reasons for extrabudgetary funds may “not reflect the element of good governance” (International Monetary Fund, n.d). These funds are mainly established to enhance executive authorities over normal budget processes. In this case, public sector budget experts should strive to locate all such funds and then review them for compliance and consolidate them for fiscal accountability (Segal & Summers, 2002). It is however difficult to ensure coordination of extrabudgetary funds particularly when they are linked to presidential spending and security accounts. These accounts are often regarded as highly sensitive and therefore top secrets. It is difficult to persuade the executive arm of a government to consider extrabudgetary funds as legitimate elements of a national budget. These accounts should be coordinated with national budget or their numbers reduced to enhance transparency and accountability in budgeting.
Complexities associated with quasi-fiscal activities could impair effective budget coordination. It is difficult to include quasi-fiscal activities in the national budget. The Central Bank may pay out interests or offer special fiscal aid to some public parastatals or private firms through banking services. Certain funds may be established for public institutions such as schools and hospitals under quasi-fiscal expenses. In short, these expenses are not normally reflected in the national budget and therefore cannot be easily reflected in capital or current expenditures. Generally, it is difficult obtain information or estimate costs related to quasi-fiscal activities. This affects budget coordination and consolidation for capital expenditure. To determine the overall impacts of such quasi-fiscal activities, one can only review types of operations they fund and then draw a general conclusion. Quasi-fiscal activities are non-transparent and full of controversies. It is therefore important for policymakers and budget planners to convince executives to include them in the budget or provide detailed accounts of expenditures.
In some states, government ministries can generate their own cash, for instance, the Ministry of Immigration that charges fees for issuance of passports. These financial resources are referred to as appropriations-in-aid. Three critical issues emerge with regard to budget coordination in the public sector organisation. First, departments may rely on their internal revenues to fund their operations rather than funds from the national budget. In some instances, however, budget planning may fail to coordinate appropriations-in-aid with the capital budget. Second, government agencies may use various bank accounts to collect their fees. A reconciliation of these funds is often a major challenge and therefore a poor budgetary coordination and practice (Meyers, 1999). In fact, appropriations-in-aid is prone to abuse by corrupt public officials. Finally, these revenues and fees may be deliberately underestimated to ensure that such departments maximise allocations from the recurrent budgetary resources. Fees and revenues from such sources require annual updates for effective coordination with the national budget (Greene, 2011). Moreover, it would be imperative to determine costs that such agencies can meet and ensure enough allocation from the general budget.
Conclusion
This essay has critically discussed the most significant challenges of budget coordination in a public sector organisation. In this regard, eight areas that could result in poor budget coordination were identified. Some of these factors depict that budget coordination in a public sector organisation could be difficult to achieve. Nevertheless, comprehensive understanding of the budget coordination is necessary for transparency, accountability, equitable distribution of resources and support for the principle of good governance. Coordination ensures that budget remains feasibility and funds are well utilised.
References
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