Introduction to the case study

1.This is the real-life case of budget implementation in an IDA country. This is a country operating in a very constrained fiscal position, which is implementing a cash budget. In broad terms, a cash budget is one in which expenditures within the quarter, month or even a week are restricted to the revenues that have been received. As in many countries, the cash budget mechanism was introduced as an emergency measure to respond to a particularly severe crisis and has now been in operation for a decade.

  1. The case study explains the macroeconomic reasons for adopting the cash budget, and then describes what has happened since it has been introduced in 1993. Some of the highlights include:

Cuts in the fiscal deficit, and a resultant dramatic reduction in inflation, but lingering inflation problems.

The establishment of a small committee within the MoF to decide what the releases to each of the programs should be for the coming month, in light of funds available.

Greatly enhanced reporting and monitoring of expenditures to date and revenues to allow the MoF committee to make well-informed decisions.

And a consequent change in the way the government accounts are prepared and audited, and the responsibility for this.

The high level of fluctuations that have arisen in the releases made to the spending ministries throughout the year.

Very significant variances between the allocation of funds within the approved annual budget and the actual allocation that results from the releases that take place during the year. And this is despite the improvements made in revenue forecasting.

The nature of the variances — there are strong patterns that emerge on the winners and losers from the cash budget system.

  1. Overall the case study draws out the very problems that challenge us in our work how to assist a country to reform a dysfunctional bu4gct execution system that operates by rules and logic that fundamentally conflict with the effective use of public finances.

4.The case study assignment is explained in the hand out. The case study will be a major component of this course and draws in many aspects of budget implementation that we will be discussing during the course. It is very important that you read it and consider the questions in the handout and prepare your group findings for presentation on the last day of the course.