CFI 313 PUBLIC FINANCE: Topic three; Public Sector Budgeting
Learning objectives
1. Meaning of a budget.
2. Importance of a budget
3. Purpose of a budget
4. Principles of budgeting
5. The rationale of preparing a National Budget
6. Functions a National Budget
7. Budgetary objectives (public policy objectives)
8. Types of budgets
9. Different budgetary systems
10. Characteristics of a good budget
11. Challenges in Public Budgeting
1. What is a budget?
A budget is simply a financial plan that covers a specific period and outlines the major sources of
revenue then provides how such revenues are to be applied.
At national level a budget shows the estimated receipts and outlays for the benefit of all citizens. A
national budget is complex and takes lots of time and effort to prepare and organise. It is unique and
also requires wide spread accountability and approval by parliament.
The national budget also contains a review of financial position of the previous period in addition to
the proposal for financing revenue and the capital expenditure for the current period in question.
2. Importance of understanding the budget
Citizen’s knowledge of the national budget is necessary due to the following reasons:-
i) Greatly impacts on our day to day economic activities
Many citizens still consider the national budget document as a distant document to be left for the
officials of the ministry of finance. Yet, the budget is the document that has the greatest impact on
the day to day life of every Kenyan.
ii) Massively influences our work, consumption, saving and investment patterns
The greatest impact of the budget on the citizenry is evident in the period after the budget day when
the new budget measures announced take effect. For example, taxation measures would affect the
consumption and investment behavior of every citizen. The prices of goods and services my rise or
fall with the changes in the taxation levels.
iii) Provides economic direction
Policy announcements that accompany the budget may have serious impact on trade and the overall
welfare of the citizens. They provide an indication on the direction the government would like the
economy to take, e.g. an agricultural subsidy introduction, would indicate the government intention
to increase production by reducing the costs of producing agricultural products.
iv) Sets out the Government policy
The amount of money allocated to a given programme would reflect the government’s policy
commitments. For instance, policy to reduce poverty is best supported by the size the amount
allocated to projects or sectors that would contribute directly towards the improvement of the living
conditions of those vulnerable citizens, especially the poor and the unemployed.
v) It act as a lobbying platforms
Budgeting process acts as a lobbying platform where some interest groups such as manufacturers
associations, trade unions, employers’ associations, accountants, bankers, lawyers, and business do
lobby the government to make budget policies or measures that are favorable to them.
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, 3. Purpose of a Government budget
The significance of the budget is as follows;-
i) It acts as a financial review
The budget presents a report of the actuals of the revenue and expenditure of the previous year.
Previous year financial report is to enable a review and improvements to be undertaken and act as a
plan on which the estimates of the proposals for the coming year are based.
ii) Provides alternative financial proposals
A budgets considers various proposals of ways and means in which the government could apply in
meeting a deficit or distributing a surplus. Thus, it provides necessary information regarding
government debt and investment portfolio.
iii) Enhances co-operation
The budget process involve the whole government taking part to collate, compile and moderate
financial wish lists from various departments. It thereby encourages teamwork and co-operation.
iv) Parliamentary Oversight
It is through the budget that the legislature exercises an effective control over the executive. In the
absence of the budgeting process, every ministry and government department would either collect
or spend money in an arbitrary manner.
v) Economic policy
The budget not only contains the estimates of income and expenditure of the government but also
contains an appended statement of economic policy for the coming year. The government economic
policy acts as economic guidelines and shows commitments allocated to flagship projects.
4. Principles of budgeting
In order to achieve budgetary policy objectives, the following principles should be followed in preparing
and executing a national budget.
i) Executive programming
A good budget should reflect all government aims and schedule of actions. The social economic and
political programs of the government should be clearly unveiled in the budget program.
ii) Executive responsibility
A good budget should be provide clear responsibility assigned to the departmental and ministerial
arms of government so as the desires and intentions of the executive programs are fulfilled.
iii) Reporting
Information regarding the progress of work, program executed, revenue mobilized and the spending
done should be furnished to the executive periodically to enable monitoring and control of the
budget implementation.
iv) Flexibility
A budget should be flexible enough to meet the dynamic government financial policies which might
vary according to the changing socio economic conditions of the country i.e. there should be a
possibility of reallocation of revenues between different ministries in order for the government to
meet its objectives amidst changing environment and needs.
v) Adequate administrative tools
The chief executive should be armed with sufficient and adequate administrative tools to fulfill the
set out budgetary responsibilities. The law governing the land should not be a hindrance for the
government in executing its responsibilities. A good budget should empower the executive to
enable it achieve its set out economic goals.
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Learning objectives
1. Meaning of a budget.
2. Importance of a budget
3. Purpose of a budget
4. Principles of budgeting
5. The rationale of preparing a National Budget
6. Functions a National Budget
7. Budgetary objectives (public policy objectives)
8. Types of budgets
9. Different budgetary systems
10. Characteristics of a good budget
11. Challenges in Public Budgeting
1. What is a budget?
A budget is simply a financial plan that covers a specific period and outlines the major sources of
revenue then provides how such revenues are to be applied.
At national level a budget shows the estimated receipts and outlays for the benefit of all citizens. A
national budget is complex and takes lots of time and effort to prepare and organise. It is unique and
also requires wide spread accountability and approval by parliament.
The national budget also contains a review of financial position of the previous period in addition to
the proposal for financing revenue and the capital expenditure for the current period in question.
2. Importance of understanding the budget
Citizen’s knowledge of the national budget is necessary due to the following reasons:-
i) Greatly impacts on our day to day economic activities
Many citizens still consider the national budget document as a distant document to be left for the
officials of the ministry of finance. Yet, the budget is the document that has the greatest impact on
the day to day life of every Kenyan.
ii) Massively influences our work, consumption, saving and investment patterns
The greatest impact of the budget on the citizenry is evident in the period after the budget day when
the new budget measures announced take effect. For example, taxation measures would affect the
consumption and investment behavior of every citizen. The prices of goods and services my rise or
fall with the changes in the taxation levels.
iii) Provides economic direction
Policy announcements that accompany the budget may have serious impact on trade and the overall
welfare of the citizens. They provide an indication on the direction the government would like the
economy to take, e.g. an agricultural subsidy introduction, would indicate the government intention
to increase production by reducing the costs of producing agricultural products.
iv) Sets out the Government policy
The amount of money allocated to a given programme would reflect the government’s policy
commitments. For instance, policy to reduce poverty is best supported by the size the amount
allocated to projects or sectors that would contribute directly towards the improvement of the living
conditions of those vulnerable citizens, especially the poor and the unemployed.
v) It act as a lobbying platforms
Budgeting process acts as a lobbying platform where some interest groups such as manufacturers
associations, trade unions, employers’ associations, accountants, bankers, lawyers, and business do
lobby the government to make budget policies or measures that are favorable to them.
Page 1 of 7
, 3. Purpose of a Government budget
The significance of the budget is as follows;-
i) It acts as a financial review
The budget presents a report of the actuals of the revenue and expenditure of the previous year.
Previous year financial report is to enable a review and improvements to be undertaken and act as a
plan on which the estimates of the proposals for the coming year are based.
ii) Provides alternative financial proposals
A budgets considers various proposals of ways and means in which the government could apply in
meeting a deficit or distributing a surplus. Thus, it provides necessary information regarding
government debt and investment portfolio.
iii) Enhances co-operation
The budget process involve the whole government taking part to collate, compile and moderate
financial wish lists from various departments. It thereby encourages teamwork and co-operation.
iv) Parliamentary Oversight
It is through the budget that the legislature exercises an effective control over the executive. In the
absence of the budgeting process, every ministry and government department would either collect
or spend money in an arbitrary manner.
v) Economic policy
The budget not only contains the estimates of income and expenditure of the government but also
contains an appended statement of economic policy for the coming year. The government economic
policy acts as economic guidelines and shows commitments allocated to flagship projects.
4. Principles of budgeting
In order to achieve budgetary policy objectives, the following principles should be followed in preparing
and executing a national budget.
i) Executive programming
A good budget should reflect all government aims and schedule of actions. The social economic and
political programs of the government should be clearly unveiled in the budget program.
ii) Executive responsibility
A good budget should be provide clear responsibility assigned to the departmental and ministerial
arms of government so as the desires and intentions of the executive programs are fulfilled.
iii) Reporting
Information regarding the progress of work, program executed, revenue mobilized and the spending
done should be furnished to the executive periodically to enable monitoring and control of the
budget implementation.
iv) Flexibility
A budget should be flexible enough to meet the dynamic government financial policies which might
vary according to the changing socio economic conditions of the country i.e. there should be a
possibility of reallocation of revenues between different ministries in order for the government to
meet its objectives amidst changing environment and needs.
v) Adequate administrative tools
The chief executive should be armed with sufficient and adequate administrative tools to fulfill the
set out budgetary responsibilities. The law governing the land should not be a hindrance for the
government in executing its responsibilities. A good budget should empower the executive to
enable it achieve its set out economic goals.
Page 2 of 7
