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October 22, 2007

Drafting Budget System Laws -- IMF Technical Guidance Note

Posted by Ian Lienert

Law is a dry subject. Budgeting is as well. Would happiness be attained if the two subjects were to be married? Denmark sees no need for such a marriage: it has never adopted a formal law to govern the budget system. At the other extreme, the United States believes in this marriage: it has adopted many laws relating to the budget system—both a federal and State level. Most countries lie between the extremes of these two countries.

A new IMF FAD Technical Guidance Note on Budget Systems Laws, prepared by Ian Lienert and Israel Fainboim of the Fiscal Affairs Department, explores the variations, and provides principles to guide countries seeking to draft new budget laws or to amend existing laws.

[Click here to download the full Note Download pfm_guidance_note_2_budget_lawsleinertfainboim.pdf]

Some, but not all, countries have constitutional requirements relating to the budget system; some countries have “budget principle” legislation to guide other laws (e.g., Germany and some Latin American countries), and some countries have “organic budget laws” (e.g., France), which have a higher status than ordinary laws that specify budget processes.  More generally, the legal basis for budgeting reflects not only the legal system, but also different political choices regarding the type of budget system, as well as difference in administrative, organizational, and cultural arrangements. [Readers interested in specific country budget laws can access many laws at the Joint World Bank-IMF Country Budget Law Database.]

Given the diversity regarding the role that law plays in providing a framework for the budget system, a “model law” is not proposed in this Guidance Note, which is divided into five parts:

  1. the reasons for adopting a new law for the budget system;
  2. the legal context;
  3. political economy considerations;
  4. the responsibilities of budget actors; and,
  5. the various stages of budget processes that could be specified in law.

The fifth section is the most important and includes the following 11 budget principles:

  • Authoritativeness
  • Annual basis
  • Comprehensiveness
  • Unity
  • Common pooling of revenues
  • Specificity
  • Accounting balance
  • Accountability
  • Transparency
  • Stability
  • Performance

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