ISSN: 1391 - 0531
Sunday November 4, 2007
Vol. 42 - No 23
Financial Times  

Golden rules to evaluate the budget

It is Halloween time in the jungle and the weirdest animals gather for their annual retreat prior to the jungle budget presentation. The media asses use this opportunity to seek the views of sucker footed bats of the treasury, star nosed moles of the central bank, vampire bats of the tax department, business chamber aye-ayes, business sloth, economists’ tapirs, hagfish expert professionals, and proboscis monkey civil society leaders. Their comments and critique are sought before and after the budget presentation. The animal associations raise funds by holding pre and post budget seminars.

There are no agreed rules or guidelines governing these comments and critique. Connections, patronage, degree of dependence, network needs, affiliations by party colours, competency, the straightness of the back bone, the level of independence and the commitment to stakeholders are the drivers of any critique or the lack of it.

The Wise Old Owl was asked as to “what the budget should bring out, predicted outcomes and to set out guidelines for evaluation and this was WOO’s response.
The budget should deliver the following outcomes --

1. Encourage growth and investment within a peaceful, law and order maintained external environment, where justice, good governance and the support of the international community prevail; assure effective macro economic management to realize stable exchange rates; reasonable levels of inflation and real interest rates; prioritized optimum spends on physical infrastructure improvements, human capital development, health and poverty alleviation;

encourage long term investments in regions with income disparities; an effective, wide and simple to administer tax system that taxes more those best able to contribute;

curtailment of waste, corruption and unproductive spends and subsidies; establish network alliances to effectively tap into the growing economic, trade, investment and social development in the region led by India; establishes an appropriate long term policy framework towards realizing a vision for the nation and its people and making Sri Lanka a safe and easy to do business destination,

2.The budget may be attractively decorated and covered with sweet icing, resembling the above outcomes, but will cleverly hide the long term implications and bitter pills inside. In the short term the proposals will even fail to address effectively macro management and good governance needs, in the context of the challenges facing the government with;
* a budget to balance
* a budget debate to win a war
* allocation of goodies to give away for short term popularity
* politicians and supporters to please
* large infrastructure commitments to fit personal agendas
* not bound by donor conditionality
* an opposition to be outdone
* an internationally negative economic environment
* an acceptable package to settle the ethnic conflict
* meeting international, Indian and local aspirations
* human rights issues to be neutralized

3. Guidelines for evaluation and critique include;

* Validate the overall directions established by the budget in supporting the desired outcomes
* Is the budget a statement of action and not a mere policy statement? Is it comprehensive, transparent and accountable? Does it set concrete, quantifiable proposals with supportive action plans, definitive time lines and accountability? Will it ensure fiscal transparency and good governance, and promote high quality sustainable growth?
Are the following clearly specified?
- Macro Economic Framework
- Fiscal Policy Objectives
- Rationale behind the Objectives
- Key Assumptions in compiling the Budget
- Impact of the key assumptions
- Previous year’s budget and corresponding actual figures
- Latest estimates of current budget
- Forecasts for the balance part of the year
- Financial commitments and the progress in relation to thrust sectors of the economy, and major infrastructure projects,
- Contingency liabilities of the government, including deferred payment commitments, unfunded pension liabilities,
- Compare the budgeted revenue and expenses (capital and recurrent) and other key macro variables projected in 2006 and 2007 including current account, balance of payments, debt, deficit financing with actual and estimated outturns, variances, and critique the long term impact
- Validate the long term justification of the resource allocations budgeted for 2008
- Validate the long term implications of current account deficits, balance of payments and deficit financing
- Disaggregate growth by regions
- Validate for ethnic sensitivity
- Identify wasteful expenses
- Predict the likely outcomes if previous trends repeat in 2008
- Review risks and sensitivity to changes in critical assumptions
- Likely impact of blanket approval to substitute vote heads
- Impact of deficits and financing off balance sheet commitments eg. CPC and CEB
- Are the three year projections realistic and rationale or merely an arithmetic projection?
Take note the supermen, super brands, and super fence sitters! At least this time round think before you leap in with your response critique!


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