The document discusses public financial management (PFM) in Nepal. It defines PFM and outlines its primary objectives of fiscal discipline, efficient allocation and delivery of resources, and transparency/accountability. The document then describes Nepal's PFM system dimensions, reform areas, and the government's focus on improving efficiency across the budget cycle. It provides details on financial management in sub-national government and Nepal's annual budget formulation process from forecasting to parliamentary approval.

1. Pubic Financial Management
Financial Management in Sub national government
Rajendra Prasad Nepal

2. Course Outline
• PFM – Introduction
• Primary objectives PFM
• Core Dimensions Of PFM System
• PFM reform Area
• GoN Focus
• Financial management in Sub national
government
• Budget Formulation Process In Nepal

3. PFM - Introduction
• PFM has become one of the key reform areas
in developing countries in recent years.
• There has been a growing consensus about
the importance of PFM for both developed
and developing countries.
• PFM system is crucial for improving service
delivery across all sectors as well as to
promote principles of good governance.

4. PFM - Introduction
• The narrowest definition confines PFM to the
downstream activities of budget execution, control,
accounting, reporting, monitoring and evaluation (Allen
et al 2004).
• An alternative definition describes PFM as the taxing,
spending and debt management of government, which
influences resource allocation and income distribution.
• The spending portion covers the budget cycle, including
budget preparation, internal controls, accounting,
internal and external audit, procurement, and monitoring
and reporting arrangements (Rosen 2002

5. Primary objectives PFM
• Fiscal discipline,
• Efficiency in the allocation of resources
(allocation efficiency), (Allocate resources to
Strategic Priority).
• Efficient services delivery (operational
efficiency) or ‘value for money’. (Ensure value
of money in Service Delivery)
• Transparency and Accountability

6. Core Dimensions Of PFM System
• Creditability of Budget
• Policy-based Budgeting
• Comprehensiveness and Transparency
• Predictability and Control in budget Execution
• Accounting, Recording and Reporting
• External scrutiny and Audit

7. PFM reform Area
• Policy Reform
• Legal Framework
• Budget Reform
• Public Expenditure Planning Reform
• Accounting Reform
• Internal Audit Reform
• External Audit Reform
• Integrated FIM
• Accounting and Auditing Profession

8. GoN Focus
• GoN is engaged in reforming public
sectors with the aim of improving
efficiency and effectiveness across all
stages of budget cycle- revenue
generation, budget planning , budget
execution, accounting, reporting and
external control.

9. Financial management in Sub national
government
• Three tiers of Government: Federal State Local
• Financial Resources:
Federal: Tax Revenue (Direct Tax, Indirect Tax, Excise, Fees,
Commercial Operation, Royalty, Loans (Public Debts, Foreign
Loans, Foreign Grants)
State: Tax Revenue, Fees, Commercial Operation, Grants, Loan
Local: Tax Revenue, Fees, Commercial Operation, Grants, Loan
( The consitution Of Nepal: Annex 5 (Federal), 6 (State), 7(F n S),
8 (Local), 9(FSL)).

10. Financial management in Sub
national government
• Budget Formulation
• Budget Presentation (Income and Expenditure Source and Area)
and Approval
• Budget Execution (3ERP), Control
• Recording and Reporting
• Monitoring and Evaluation
• Internal and Final Audit. Final Audit Report
• Public Accounting Committee

11. Budget Formulation Process In Nepal
• Normally, the process of budget formulation in Nepal
would begin in January and end in July, when the
fiscal year starts.
• The first step in formulation of the budget is
forecasting, wherein the sources of revenues and
tentative areas of expenditures are identified.
• The process of forecasting is led by a Resource
Committee, which is chaired by the Vice Chairperson
of NPC, and includes other members from NPC,
members from the MoF, FCGO and NRB

12. Budget Formulation Process In Nepal
• Once the forecast has been prepared, it is
presented to the budget committee comprising
of the members of the NPC and the MoF.
• The committee, after thorough discussion sets
the budget ceiling, which limits the budget
expenditure based on sectors and availability of
resources.
• The committee also prepares the working
guidelines for budget formulation.

13. Budget Formulation Process In Nepal
• Then, each of the line ministries is asked to
submit their programs and budget estimates
(both capital and recurrent) in accordance to the
guidelines and sectoral budget ceilings.
• The line ministries then forward the guideline
along with the budget ceiling and priorities to
respective departments and agencies functioning
under it, either at the district level or at the
central level.

14. Budget Formulation Process In Nepal
• Based on the guidelines, these agencies prepare
the forthcoming year’s programs and budget and
send it back to the concerned departments.
• The departments compile the programs and
budget of all agencies under them and submit it
to the respective line Ministries.
• Some negotiations can take place between the
Ministries and the departments before it is revise
and consolidated by the Ministries and forwarded
to the MoF and NPC for finalization.

15. Budget Formulation Process In Nepal
• Once the MoF receives the budget from all
line ministries, inter-ministerial meetings are
held to revise and finalize the national budget.
• Similarly, the NPC discusses all the programs
submitted by the Ministries, and finalizes
those programs in consideration of the
relevancy, budget allocation, and budget
handling capacity of the Ministry.

16. Budget Formulation Process In Nepal
• The budget is presented by the government only after
the ministry level budget discussion ends. If the
majority agrees with the budget then it is approved
and is presented to the national Parliament in the form
of a Budget Speech by the Minister of Finance on 15th
Jestha (May 28).
• So, the formulation of the national budget is a
combination of the top-down and bottom-up
approach, which brings about a synergy between the
national level plans and local level needs; and ensures
that the budget fulfills the demands of both the state
and the locals.