Budget process and corruption:

3. Where in the budget process does corruption tend to occur?

3.2 Budget formulation  

The budget formulation stage consists of three sub-stages:

CONTENT ON THIS PAGE:

• Macro Basis for the budget   
  
  
• Preparation of Budget Policy Outline  
  
  
• Preparation of expenditure targets by the Ministry of Finance  
  
  

Macro Basis for the budget  

Ideally Budget processes should start with an economic overview and revenue forecast for the budget year. The forecast will, together with an assessment of how the budget deficit should be financed, give directions for total recurrent and capital spending. This is considered an analytical job taken care of by the inner echelons of the Ministry of Finance, occasionally assisted by consultants. There appears to be little scope for corruption at this stage, but it is of course possible to prepare for future embezzlement, taxation moneys, or favouritism to certain taxpayers by preparing pessimistic projections. The latter might be the case if the tax department or independent revenue authority plays a key role in the projection process.

Preparation of Budget Policy outline  

The budget policy outline represents the bridge to the multi-year plan document. It will in broad terms describe the policies and strategies in the plan which a current budget should emphasise, and how. The outline will, in particular, set the scene for the preparation of expenditure ceilings. If the plan is inconsistent and unclear, so will also the policy outline be, which results in unclear directions for the preparation of the expenditure targets. In this case the concrete expenditure targets can be influenced by bureaucrats and the political level of the Ministry of Finance in a way which prepares the ground for corruption at later stages. Recently, some countries have called on the private sector and civil society to comment or even participate in this step of the process, in order to increase accountability at this stage.

Preparation of expenditure targets or ceilings by the Ministry of Finance (MF)  

The preparation of expenditure targets (or ceilings) is in theory the first step that turns the verbal policy statements into concrete numbers in budget allocations. Usually quite a few features of this 'first shot' will remain and influence the final approved budget. 'Textbook' approaches such as the MTEF is adamant that this allocation must be clearly based on plans, macro frameworks, budget policy outlines, etc. In reality, there are several factors - in rich and poor countries alike - that make this process is difficult.

The more unclear the preceding policy documents are, the more difficult it is to link the budget allocations to them. In practice, what is used is 'incremental budgeting', i.e. budget items are increased, sometimes by a uniform percentage, sometimes by slightly different percentages. This is done inside the Ministry of Finance - in isolation from the public eye - and often goes directly to the Cabinet for a discussion. Because of the powerful position of the Minister of Finance - it tends to be accepted by Cabinet.

It is easy to imagine how corruption can take form at this stage. A ministry which has good connections to the staff outlining the first set of ceilings, or to the Minister of Finance, can cut a deal to increase its relative allocation. This allocation may be reversed in subsequent budget discussions, but in many countries with pressed budgetary situations, changes in the allocation suggested by the ministry of finance scarcely take place.

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