Posted by Ian Lienert
On May 28–29, Egypt’s Ministry of Finance hosted an OECD seminar on legal frameworks for budget and financial management in OECD countries. The main objective was to learn more of good international practices in budget law. At present, Egypt’s two main budget-related laws are: a 1973 Budget Law and a 1981 Accounting Law. [Download egypt_budget_law_1973.pdf ]
All aspects of the legal framework for budget and financial management systems were covered in the seminar. Difference in budget laws in OECD countries are very marked, reflecting not only differences in budget systems, but institutional differences in the role of parliaments and governments in budget-making, the extent of delegation of authority for budget management to ministers and senior officials in ministries and government agencies, as well as sharp differences in countries’ attitudes towards using law for reforming budget processes and public financial management.
The seminar showed that there no single “model” law suitable for all countries. Rather, each country needs to adopt it own budget-related law(s) and regulations, to meet its budget reform needs, consistent with its institutional, political and organizational arrangements. For example, if a country is not ready for far-reaching reforms such as performance-based budgets or replacing static national planning systems by rolling medium-term budget and expenditure frameworks, then it is best not to mention these in any revisions to existing budget laws.
A country’s Constitution sets the tone to the extent to which budget processes and budget responsibilities will be embodied in law(s) and regulations. Many OECD countries’ Constitutions contain only a few references to the budget system; a few (e.g., Germany) contain a whole chapter on public finances, including a “golden rule”— borrowing is restricted to financing investment, but not current expenditures. Whereas most OECD countries have adopted 1-3 laws to provide the basis for their budget systems, the United States has adopted many budget-related laws over the past century. At the other extreme, Denmark’s parliament has never adopted a law relating to the budget system. In this country, the Ministry of Finance’s Budget Guidelines serve the same purpose as laws in other countries.
The scope of budget-related laws also varies a lot in OECD countries. This in part reflects the extent to which State/provincial and local governments have autonomy in budget-making. Many countries have Local Government Acts, or the equivalent, which usually includes provisions for the budget system at subnational levels. Separately, a Public Finance Act, or an Organic Budget Law, is adopted at central government level; such laws specify national budget and/or financial management provisions. Extrabudgetary funds, such as those for government social security schemes, often have their own laws. In some countries, there are government agencies that are not fully under the authority of the ministry of finance; for more transparent budget management, a few OECD countries have clarified in law or regulations the budget, accounting, and financial reporting responsibilities of autonomous agencies, consistent with extending the comprehensiveness of coverage of the annual budget.
For budget preparation and adoption, the two most important dates to include in law are:
- the date of submission of the draft budget to the legislature. In many OECD countries, this is 3-4 months before the new fiscal year begins, although the United States allows 8 months; and
- the date of approval of the annual budget by the legislature. Most OECD countries require adoption of the annual budget before the beginning of the new fiscal year. The United Kingdom does not have a legally-mandated date, but in practice, the consolidated fund (appropriations) act is adopted a few months after the start of the fiscal year, a practice out of line with international practice.
Budget systems laws in OECD countries usually specify the documents to accompany the draft annual budget appropriations law. The Ministry of Finance (or equivalent) is usually responsible for organizing the preparation of the draft annual budget within the executive branch of government. Government regulations or decrees specify the details of the internal processes involved in finalizing the draft annual budget and obtaining the approved of it by the Cabinet of Ministers.
Similarly, for budget execution, only a few key provisions need to be put in law. A budget systems law may, for example, specify the minister of finance’s main responsibilities, including for: expenditure control; establishing and maintaining control over government bank accounts via a treasury single account (ensuring that all revenues flow into one main bank account held at the central bank, and making all payments from the same account); cash management; debt management (unless a separate Public Debt Law is adopted); and basic provisions for the government accounting system. In each of these areas – especially for government accounting standards and the accounting framework – details are provided in regulations.
Several countries have adopted laws in recent years to improve accountability and transparency. For example, Fiscal Responsibility Acts have been adopted in some countries, including in Latin America. These laws usually require publication of a medium-term macro-fiscal strategy (for overall fiscal deficits/surpluses; government debt) and the government’s priorities for budget policies. Some Fiscal Responsibility Acts have included quantitative fiscal rules, although experience has generally shown that qualitative fiscal rules are preferable. Some OECD countries have adopted laws aimed at introducing a performance-related budget system, although other countries have implemented such budget reforms with without immediate changes in existing laws. Much depends on whether a country considers whether it is first necessary to change the budget system law(s) in order to change the budget system, or the reverse—change the law only after the budget system has been changed.
The attached presentations of OECD country experience may prove helpful for any country contemplating modernization of its legal framework for budgeting.
- Download session_1_overview_of_budget_laws.ppt
- Download session_2_budget_law_coverage.ppt
- Download session_3_legal_frame_budget_formulation.ppt
- Download session_4_legal_frame_budget_execution.ppt
- Download session_5_legal_frame_for_accountability.ppt
In this context, a Guidance Note for Revising Budget Laws is available on this blog-site --see http://blog-pfm.imf.org/pfmblog/2007/10/drafting-budget.html.
A comparative study of budget laws in OECD countries is also available in English and French (see http://blog-pfm.imf.org/pfmblog/2007/11/comparative-bud.html).
