Measurement guidance

Effective service delivery and execution of the budget in accordance with work plans requires that budgetary units receive reliable information on the availability of funds so that they can control commitments and make payments for nonfinancial assets, goods and services.

Dimension 21.1 assesses the extent to which the Ministry of Finance can identify and consolidate cash balances as a basis for informing the release of funds. Use of a Treasury single account (TSA), or accounts that are centralized at a single bank, usually the Central Bank, facilitates the consolidation of bank accounts. A TSA is a bank account or a set of linked accounts through which the government transacts every receipt and payment. The control and reporting on individual transactions should be achieved through the accounting system, allowing the Treasury to delink management of cash from control of individual transactions. Achieving regular consolidation of multiple bank accounts not held centrally will generally require making timely electronic clearing and payment arrangements with the government’s bankers. The narrative of the indicator should include a discussion of the arrangements used in the assessed jurisdiction.

Dimension 21.2 assesses the extent to which budgetary unit commitments and cash flows are forecast and monitored by the Ministry of Finance. Effective cash flow planning, monitoring, and management by the Treasury facilitates predictability of the availability of funds for budgetary units. This will require reliable forecasts of cash inflows and outflows, both routine and nonroutine, that are linked to the budget implementation and commitment plans of individual budgetary units. Nonroutine outflows are expenditures that do not take place on a regular monthly or annual basis, such as the cost of holding elections or discrete capital investments.

Dimension 21.3 assesses the reliability of in-year information available to budgetary units on ceilings for expenditure commitment for specific periods. Predictability for budgetary units as to the availability of funds for commitment is necessary to facilitate planning of activities and procurement of inputs for effective service delivery and to avoid disruption of the implementation of these plans once they are underway. In certain systems, funds are released by the Ministry of Finance to budgetary units in stages throughout the budget year. In others, the passing of the annual budget law grants the full authority to commit and spend from the beginning of the year. However, the Ministry of Finance, Treasury, or other central agency, may in practice impose constraints on budgetary units in incurring new commitments and making related payments, when cash flow problems arise. For commitments to be considered reliable, the amount of funds for commitment or spending made available to an entity for a specific period should not be reduced during that period. Adherence of budgetary units to ceilings for expenditure commitment and payments is not assessed here, but is covered by PI-25 on internal controls. PI-22 on expenditure arrears management is also relevant.

Dimension 21.4 assesses the frequency and transparency of adjustments to budget allocations. Governments may need to make in-year adjustments to allocations in the light of unanticipated events that affect revenues or expenditures. Specifying in advance a mechanism that relates such adjustments to budget priorities in a systematic and transparent manner minimizes the impact of adjustments on predictability and on the integrity of original budget allocations. For example, particular votes or budget lines that are declared to be high priority or poverty related may be specified as protected from adjustment. In contrast, in some systems adjustments may take place without clear rules or guidelines, or may be undertaken informally, for example, through imposition of delays on new commitments. While some budget adjustments could take place administratively with little impact on expenditure composition outturn at higher levels of aggregation in the administrative, functional and economic budget classifications, other more significant changes may alter the actual composition at such aggregated classification levels. The significance of these adjustments is assessed in relation to the percentages specified in the PI-2 rating criteria. Rules for when the legislature should be involved in such in-year budget amendments are assessed in PI-18 and are not covered here.