This PowerPoint was prepared to teach students comparative studies in Public Administration. It is developed from reading literature on comparative Public Expenditure.

1. COMPARATIVE PUBLIC EXPENDITURE
MANAGEMENT SYSTEMS
By:
Eyenga Samuel
mob: 0782325489
email: eyensam_12@hotmail.com
1

2. Introduction:
• Public Expenditure refers to government expenditure.
• It is incurred by central, state and local government of a
country.
• Public Expenditure can be defined as, “ the expenditure incurred
by public authorities like central, state and local governments to
satisfy the collective social wants of the people”
2

3. Introduction:
• Public expenditure management (PEM) is an
approach to public sector budgeting that is
oriented towards achieving socially desired
outcomes.
• In particular, PEM asks the following
question.
• What outcomes do we want to achieve
through the budget and what procedures,
rules, and processed we need to put in place
in order to achieve these outcomes?
3

4. • In general, PEM tends to promote the achievement of three
outcomes, namely;
1. Aggregate fiscal discipline,
2. Allocative efficiency,
3. Operational efficiency
4

5. Aggregate fiscal discipline
• Aggregate fiscal discipline refers to the alignment of public
expenditures with total revenues (domestic revenues plus a
sustainable level of foreign borrowing
• it means keeping government spending within sustainable
limits. In layman’s terms, it means not spend more than what
you can afford”
5

6. Operational Efficiency, Monopoly, and the
Principal Agent Problem
• Suppose that the government manages to instill aggregate fiscal
discipline and to enhance allocate efficiency. That is, it stays
within its budget and spends on the right things. It still has to
confront the challenge of providing services at an acceptable
level of quality and at reasonable cost
• In this case, there are two problems
6

7. • The first is the inevitability of government being the monopoly
supplier of some, in fact many, services.
• A monopolist has little incentive to keep costs down and
provide good service.
• Government as monopolist is no exception. In the case of
obtaining a driver’s license, for instance, because a citizen has
no choice but to get it from the drivers license bureau, the
service is usually grossly inefficient (and invariably corrupted).
7

8. • The second is a typical management problem. How can top
management monitor the performance of the company staff?
Top management has a set of preferences and priorities which it
seeks to satisfy. Staff may not necessarily have the same
preferences nor share the same priorities.
• When such misalignment occurs then there will be a tendency
for some staff to try and “shirk”, i.e. do other than what
management wants them to do.
• This is what economists refer to as the principal agent problem
8

9. • It is particularly severe in government because the likelihood of
misalignment is much higher
• The more severe the misalignment, the higher will be the cost of
monitoring the performance of staff.
• And the higher the cost of monitoring, the less monitoring there
will be.
• Consequently, inefficiencies will creep in
9

10. Allocative Efficiency, Preference Revelation,
and Cost Revelation
• Assuming aggregate fiscal discipline can be instilled,
there is another major challenge which confronts any
government.
• How should the constrained budget be allocated.
• Technically this involves making calculations at the margin
so that “the last dollar spent on each program yields the
same net benefit to society”
10

11. • More simply, it means the government spends the money on the
“right” things.
• But what is “right” depends on (a) the priorities of society and
(b) the cost of programs and activities needed to meet those
priorities.
• A program may be relatively inexpensive but does not fall in
any priority area. Or, a program may be in a priority area but
cost a lot more than another program in some other priority
area.
11

12. • To establish priorities, one needs to know the preferences of the
citizenry.
• But this we know is a difficult task. Economists refer to this as
the problem of preference revelation.
• a number of countries, the national government begins
the planning process with extensive consultations with
different stakeholders.
• the regions and districts within those regions, sectoral
interest groups, business associations, labor unions, etc..
12

13. • The resulting development plan incorporates to the
extent possible the broad priorities enunciated by
stakeholders (which reflects their preferences).
13

14. Operational Efficiency
• In the context of operational efficiency, the oversight
agencies (including primarily the budget agency) are
the “principal” and each line agency an “agent”.
Moreover, within a line agency, the minister is the
principal and his management staff the agents.
• Within a division in the ministry, the manager of the
division is the principal and the staff are the agents. In
short, there are several layers of principal-agent
relationships.
• This breeds inefficiencies.
14

15. Comparison of French-Based and British
based PEM System.
•We will review;
A. The major features of the two systems
B. The key differences between the two
PEM systems in each of them.
C. Discuss the advantages and
disadvantages of one system over the
other
15

16. Major features
•The Major features to be considered are;
1. Budget Formulation
2. Budget Execution
3. Fiscal Reports.
16

17. Budget Preparation
• This examines the legislative framework for budget
making, as it provides the foundations of the budget
preparation system
• Legislative Basis for Budget Preparations:
• Constitutions:
• Francophone countries typically include statement that
annual budget laws determines the resources and
expenditure of the state
17

18. • They provide the timing of the presentation of the
budget to parliament (Often in October for the budget
year that begins in January)
• Provision for governments to begin executing the new
budgets on the basis of monthly authorizations.
• Anglophone countries:
• These vary considerably in their constitutional
provision for the budget process.
18

19. • Some countries may have the provision in their
constitutions others might not( i.e. Uganda) has
provisions for the budgeting process. Nigeria has more
detailed provisions.
• Typically in Anglophone constitutional requirement is
that the money may not be withdrawn from the
consolidated fund account unless appropriated or
provided for by another law (budget bills passed by
parliament)
19

20. • In the French based system, organic budget
laws spell out five well-known principles for
budget preparations these are;
1. Annual Basis
2. Unity
3. Universality
4. Specificity
5. Equilibrium(balance)
20

21. • They define or specify:
1. Current and capital expenditures, and
loans/advances
2. Provide broad categories of the economic
classification of expenditure
3. Provide the nature of documents to be submitted to
parliament
4. Procedures for preparing and adopting annual
budgets.
21

22. • The budget laws in Anglophone countries are
dissimilar to those of the francophone countries
• The closest equivalent to an “organic budget law” in
Anglophone countries are the “Finance and Audits
Acts”
• Which might have captures in the budget preparations
i.e Uganda Budget Act
22

23. Common features of budget preparation systems in
Francophone andAnglophone
Annual basis for the budget, but no medium-term expenditure
framework
One budget for current expenditure and another budget for
investments
Detailed line-item budgeting
Budget generally limited to central government, plus a few
autonomous fund. LGs and extra budgetary funds are excluded
A process of decentralization of budgeting to lower levels of
governments is under way
Unrealistic costing of expenditures; some line items are under
provisional
Timing budget preparations allows little time for parliamentary
discussion
An absence of focus on results or effectiveness of government.
23

24. Budget Execution
• There are some important differences in budget
executions these are as below;
• Key Actors in the expenditure process and their
respective roles;
• British system; Decentralized management – spending
ministries are mainly responsible for budget executive.
• In contrast, the French-based system is one in which
the central Ministry of Finance plays an important role
at each step of the spending process.
24

25. • In Anglophone countries, officials in spending
Ministries are charged with initiating and authorizing
each step of the expenditure process from commitment
to payment.
25

26. 26

27. Expenditure Controls
• In Anglophone systems, expenditure controls is
largely exercised by the warrant system. In
principle, the MOF controls the issuance of
warrants for none statutory expenditures. eg
annual warrants for salaries and quarterly of
monthly warrant for current expenditures.
• Cash budgeting arrangements were introduced
in a number of Anglophone countries especially
during the 1990s i.e in Kenya, Tanzania and
Zambia
27

28. • Expenditure controls systems in Francophone
countries is quite different, with formal controls at
each stage of the expenditure process; commitments,
payment order issuance
28

29. 29

30. 30

31. Conclusions:
• Budget preparation in the two regions are broadly
similar, although there are two features of the
francophone countries system that arguably
advantageous relative to the system of Anglophone
countries.
• There are significant differences in budget execution
procedures between the two systems, centering
particularly around the role and powers of the Ministry
of Finance and the degree of delegation of financial
Management to spending agencies.
31

32. Cont.…
• The francophone countries have the advantage of
possessing a forma system of recording the controlling
expenditure at the prepayment stages.
• The Anglophone countries have inherited external
audit arrangements that play a relatively more
important role in the budget process than in
Francophone countries.
• In Principle supreme audit agencies in Anglophone
countries provide Parliament and the Public with
timely information on budget execution and the
integrity of annual accounts.
32