Transparency in government budget-making

The Open Budget Index (OBI) is the first index to rate countries on how to open their budget books to their citizens in which Sri Lanka ranks 47%, indicating some openness. According to the International Budget Project, headquartered in Washington DC, the Index is intended to provide citizens, legislators, and civil society advocates with the comprehensive and practical information needed to gauge a government's commitment to budget transparency and accountability. Armed with this kind of information, lenders, development advocates, and aid organizations can identify meaningful budget reforms needed in specific countries to combat corruption and strengthen basic services to improve people's lives.

This transpired at a recent discussion on transparency in government budget-making. Speaking here, Dr. Muttukrishna Sarvananthan, Principal Researcher at the Point Pedro Institute of Development, laid out his views and suggestions for enhancing transparency and accountability on the budget which is considered to be the rule of law in public finance. "Financial control of the public purse by the legislature is a salient feature of democracy," he said. Both revenue and expenditure in the budget has to be approved by Parliament.

Sarvananthan said budgets in most countries are approved without undergoing changes or significant changes because if a budget is defeated, it is a strong signal of no confidence in the government. The four processes in budget-making are formulation, enactment, implementation of the proposals and auditing. Formulation is generally a long and drawn out process and is now publicly known. Auditing is led by the Auditor General's Department.

Transparency & Accountability
Sarvananthan said transparency and accountability are indivisible. Transparency fosters public scrutiny of policies, sound decision-making, improves efficiency in public spending and arrests corruption. Furthermore, transparency in the budget process forestalls any build up of an impending crisis and thereby, fosters fiscal and macroeconomic stability to the economy. Sarvananthan said transparency in government has been emphasized over the last 10 years which has led to the more timely release and dissemination of data, facts and figures, especially by the Central Bank and the Department of Census and Statistics.

Parliamentary oversight of the budget is mainly carried out by the Committee on Public Accounts (COPA) and Committee on Public Enterprises (COPE). However, Sarvananthan is advocating that COPA and COPE meetings which are held in private should be open to the public. In addition to COPA and COPE, the Auditor General is also responsible for oversight but capacity problems and other constraints lead to long delays in finalizing and submitting reports.

Modalities of Budget Formulation
The budget is drafted by the executive with no input or participation from the legislature. In Sri Lanka, the budget is drafted by senior bureaucrats in the Ministry of Finance and the bureaucrats within the ministries determine budgetary requirements. Sarvananthan referred to this as largely a 'book keeping exercise' rather than being based on sound economic and financial rationale.

In July of each year, ministries are sent a circular which asks them to make recommendations and lay out their requirements. "The ministers don't get involved that much but in the end, it has to be approved by them and then by the Parliament," Sarvananthan said. Budget formulation in Sri Lanka is mostly based on inputs (salaries, equipment, capital goods/investment) as opposed to outputs which are those required for budgetary allocation. Budgetary resource allocations are based on past expenditure trends but should be based on economic and financial rationality with a 'value for money' criterion.

In some countries such as England, public expenditure surveys are taken to review expenditures in order to make optimal resource use that provides value for money. With these surveys taken every three years or so, the government can see which ministries are being run optimally or which ones need improvement and make the necessary changes.

Sarvananthan said the three inter-related core functions of a budget, those being planning, management and expenditure control, are lacking in Sri Lanka. For example, capital expenditures entail maintenance costs during the future stream of years which is not in the local budget planning. No review is made on the existing lines of expenditure and the requests for new lines of expenditure. Many countries prepare a rolling expenditure plan stretching over several years. The United Kingdom, for example, prepares a multi year budget with three year departmental expenditure limits. Sri Lanka had a National Planning Department to prepare a 10 year roll on Public Investment Programme (PIP) but this was discontinued in the late 1990's. Under the Fiscal Management Responsibility Act (FMRA), a medium term fiscal policy statement is given but not multi year.

In the past decade, several countries have taken steps to improve their budget preparation. In 2001, the French Parliament introduced a bill to reform their budget making process and implementation, monitoring and evaluation. Also, rights based and gender based approaches to budget formulation is advocated in some countries.

Budget Analysis
In many countries around the world, a budget or finance committee takes overall responsibility for the budget process. A Budget Research Office is established to help legislators understand budgets and economic and financial principles but this is lacking in Sri Lanka. The United States has a Congressional Budget Office with 245 highly trained staff and experts. Even in Uganda, there is a Parliamentary Budget Office with 13 economists.

Budget preparation in Sri Lanka is a top down approach and there is a large scale lack of consultation within the central and provincial governments. In Sri Lanka, budget proposals are sought from the public but Sarvananthan said no one can be sure as to what degree they are looked at since advice should come from experts. The Chambers of Commerce and the private sector are consulted the most by the Secretary to the Treasury but Sarvananthan cautions that the private sector may argue for their own case without looking at the macroeconomic framework.

Enhancing Transparency & Accountability
Sarvananthan said that the executive President holding the office of Finance seriously undermines transparency and accountability. He said it was dangerous since the President is immune from the law and therefore, can face no repercussions. Moreover, a permanent budget committee should be set up in Parliament. The timing of the budget presentation should be advanced to give time for responses to the proposed legislature. Similarly, Sri Lanka must enhance the capacity of legislators to engage in effective, informed and constructive budget debate through in house research facilities or external expertise. Sarvananthan noted that pre-1977, the quality of debates in Parliament was far superior than it has been over the last 30 years.

COPA and COPE should be open to the public and media and both committees should be strengthened with powers to prosecute offenders. So far, despite media attention and prominence given to the COPE report, no action has been taken. The Auditor General's Department should be made completely autonomous in terms of finance and personnel because currently, it lacks the capacity to make timely reports. The FMRA should also be strengthened to limit public expenditure.
(NG)