Pulling Backwards on Budgetary Planning
The Government of Georgia (GoG) switched to programme budgeting as from January 1 2012, which means Georgian state budget needs to be rearranged thematically. The Ministry of Defence appropriation as well as other defence-related expenses, for instance, now need to be put under the programme for Defence and Security. Needless to say, Transparency International Georgia believes programme budgeting is clearly a step forward, but Georgia’s 2012 budget can hardly be called programme budget as it a. is built around spenders rather than programmes b. lacks a logframe, which would break down expenditures into priorities, goals, objectives, activities, indicators of achievement, responsible institutions, deadlines, etc. We believe rationalizing spending is inconceivable without programme budgeting. Rationalizing spending means organizing budgetary spending, economic production or the like in such a way as to achieve a desired or predictable result, e.g. to reduce the number of personnel, industrial plants, etc. so that the remainder are more efficiently deployed.
Introduction of programme budgeting coincided with the GoG allowing its spenders 100% intra-programme line item realignment (i.e., the ability to shift funds between line items in the budget) replacing the previous 5% limit (Article 31 of the Budget Code), which still holds for inter-programme line item realignment. Unlimited freedom of intra-programme line item earrangement means spending institutions can now shuffle their line items around within their programmes with the consent of the Minister of Finance rather than Parliament.
Had Georgia switched to real programme budgeting, unlimited freedom of intra-programme line item realignment would have made some sense. Programme budgeting is all about gearing spending towards achieving aims: the fewer obstacles spenders have, the better. However, Georgia’s 2012 budget, as noted above, does not have a logframe. Nor does it have indicators of achievement that are essential for a programme budget. A logframe with its indicators of achievement is much more important than unlimited freedom of intra-programme line item realignment. Therefore, thematic rearrangement into a logframe should have been the starting point of the whole exercise.
Unlimited freedom of intra-programme line item realignment might also have been justified by 2012 programme budgets encompassing more of expenditures and growing bigger as a result, which is what one can reasonably expect to happen when a country introduces the arrangement. Bigger budgets necessitate greater manoeuvring power. However, 2012 Georgia’s programme budgets did not go that way, e.g. 2012 health care programmes failed to draw in quite some health-care-related expenses, which are now scattered all over the budget. The greater manoeuvring power, therefore, is not an issue with Georgia’s 2012 budget.
Unlimited intra-programme line item realignment may result in spenders:
a. offsetting underspending throughout the year through purchases that they would not have made otherwise, which is worse than “December fever” as the whole exercise is now spread along the fiscal year. “December fever” means frenzied spending towards the end of the year: precipitating investments, hoarding goods that a spender would not have bought under normal circumstances or would not have bought the quantities they did, paying bills in advance not to have to return part of an appropriation or make the government think that the assessment of an appropriation was too high, which might mean that a department’s budget may be downsized the following year. The difference between what a spender requested (planned appropriation) and what the spender was able to document (commitment) is transfer returns. The difference means the money that is not requested lies idle throughout the year: if a spender is unable to document their commitment they will not get the money but nor will it be spent elsewhere. If a spender is unable to document their spending needs through service contracts, etc they might move a line item which is hard to document to the line item that is easier to document (e.g. bonuses, goods/services, miscellaneous, etc). Transfer returns were a problem even under the 5% limit. With the 100% limit, however, rationalizing spending does not hold out much hope;
b. rationalizing their spending when the original budget is not planned carefully, which seems to be a positive effect except that it may well encourage careless or even reckless budgetary planning. When a spender knows it is allowed unlimited freedom of intra-programme line item realignment, it may not have an incentive to give enough thought to planning;
c. abusing administrative and budgetary power to help meet the ruling party’s electoral needs;
d. rationalizing their budgets when planning the original budget is difficult due to unforeseeable developments.
It is necessary that the Ministry of Finance should keep track of both intra-programme and inter-programme line item realignment in a single document rather than separately, which is the current practice, and publish the document.
Apart from this, the Ministry of Finance should be conducting regular meetings with the other ministries to improve budgetary planning. Neither the Ministry of Finance nor any other organization has consistently explained to the GoG ministries (divisions responsible for finance) what sound and coherent budgetary planning is about. Flawed budgetary planning manifests itself in requests for line item realignment, variations between the originally approved and revised budgets, etc.
Line item realignment and the resulting transfer returns are not unique to Georgia. Unlike other countries, however, Georgia has a higher share of the realignments.
Budgeting in Eastern and Central European countries (Slovenia, Estonia, Slovakia, the Czech Republic, Poland, Croatia) makes spending much more predictable than in Georgia. In none of these countries in 2004-2009 were transfer returns higher than 3-5% of the total expenditures.
We recommend that:
- the previous 5% limit of intra-programme line item realignment be restored;
- expenditures be rearranged thematically instead of the present arrangement by spendinginstitutions;
- expenditures be broken down into a logical framework identifying priorities, goals, objectives,activities, indicators of achievement, responsible institutions, and deadlines;
- the GoG give careful consideration to the European as well as other applicable experience making budgeting more predictable.