Consistency of the structure of a budget classification with recognized international standards can help in developing a common language or a system of classifications so that financial transactions can be expressed and understood consistently by a variety of audiences. The IMF’s Government Finance Statistics Manual (GFSM 2001) provides a standard framework for developing a new budget classification structure or improving an existing one. The GFSM 2001, however, is generally not sufficient for the purposes of developing a budget classification system. It focuses on revenues, and economic and functional reporting for statistical purposes, while a budget classification system is also an instrument of policy formulation, administration of the budget and accounting. As a result, the classification system for both expenditures and revenues may need to be adapted to meet the needs of budget preparation and execution.
Another very important use of a budget classification is the planning, the budgeting, and the monitoring of the use of budgeted funds so that resources are used to implement the priorities of the government. The budget classification should allow for the presentation of the budget such that country officials and politicians can understand what is being funded, who is responsible for results, what resources are being provided, and so forth.
Classifying expenditures by program can serve these purposes by identifying and clarifying the goals and objectives of government spending, and monitoring operational performance through performance indicators, which may relate to the inputs, outputs, or outcomes of a particular program. A classification by program can contribute to improved transparency and accountability, and help link inputs to objectives or outcomes. A programmatic approach has the advantage of encouraging managers in each organization to clearly define their objectives and to consider what results have been achieved. It is thus often linked to the development of a performance-related approach to budgeting. As for the administrative classification, there is however no specific international norm for codifying programs. The program classification depends on the needs of each country.
This paper prepared by Pr. Mohamed Moindze (in French and English),[1] addresses for the most part the above characteristics of budget classification. In particular, it presents interesting developments on how a budget expenditure classification system should be designed and structured in developing countries to be the right tool to use to (dis)aggregate financial information and present it in various shapes and forms suitable for various uses and audiences. It summarizes the attributes of each of the primary budget classification system components (administrative, economic, functional and programmatic in particular) from the aspect of meeting the country’s needs for planning, budgeting and budget execution, in particular for developing countries that intend to implement program budgeting, and to move toward performance-based budgeting. Based on the provisions of the new WAEMU directives on public financial management, and using specific guidance of the GFSM 2001 on certain desirable features of economic and functional classifications, it also gives useful advice on how to build a sound budget classification system consistent with international and regional standards, while taking into consideration the specific needs of countries.[2]
Perhaps the paper could, however, have placed more emphasis on the need for technical capacities and adapted IT systems to develop and implement a sound budget classification system. If the finance ministry has insufficient skilled and trained staff and other resources, a new budget nomenclature is unlikely to be effective. Strengthened capacity within the budget departments of line ministries and other budgetary institutions (e.g., the treasury, the external audit authority, and the national professional accounting bodies) is also an essential requirement. Computer processing of budgetary transactions would also be necessary to permit a reclassification of entries according to the main classification schemes, and some areas such as administrative accounting and reporting to be more operational.
Download Budget Expenditure Classification and the New Fiscal Governance
[1] Mohamed Moindze, a Comoros national, started his carrier as a civil servant in the Comorian Ministry of Finance where he finished as budget director from 2003 to 2007. Since, he has worked as a consultant for the World Bank in the area of public financial management, based at the National School of Administration of Madagascar.
[2] For these reasons, this paper usefully completes the technical note prepared by the Fiscal Affairs Department (see Budget Classification by Davina Jacobs, Dominique Bouley, and Jean Luc Helis, December 2009; and the corresponding blog post).
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