PROBLEMS OF CASH BUDGETING AND MOVING TOWARDS TRANSPARENT CASH ALLOCATION

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• PROBLEMS OF CASH BUDGETING AND MOVING TOWARDS
  TRANSPARENT CASH ALLOCATION

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BACKGROUND

• Liberalization of the economy
• High fiscal deficit largely financed by domestic
  borrowing
• High inflation, interest rate and unstable
  exchange rate
• Ministries' operating accounts managed by the
  Central Bank
• Use of Local Purchase Order by Ministries
• High dependency on donor resources

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Background Cont..

• Low disbursement rate by cooperating
  partners
• Public finances governed by the finance and audit
  act (1969)

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Perceived solutions

• Introduction of MTEF
• Purpose of the MTEF
• Aggregate fiscal discipline
• Resources allocated to strategic priorities
• Value for money in service delivery

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Expectations from MTEF

• Limit budget deficit to manageable levels
• Introduction of cash budget
• Prioritisation of activities
• Transferring of operating accounts from Central
  Bank to Commercial Banks
• Enhanced the budget approval process by involving
  cabinet ministers and other stakeholders

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Reforms to support MTEF

• Discontinuation of the use of LPO
• Closure of deposit accounts
• Introduction of Credit Ceiling Authority and
  Commitment Control System
• Formation of a cash allocation committee
• Conduct pre-budget consultations
• Improved budget classification
• Introduction of appropriation in Aid

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Budget performance with MTEF

• Positive attributes
• Reduced number of accounts and ease
  reconciliation
• Reduced government borrowing
• Increased comprehensiveness of the budget
• Improved prioritisation of activities within
  ministries
• Negative attributes
• Huge expenditure overruns due extra budgetary
  activities
• Increased borrowing due to low disbursement from
  donors
• Increased activities implemented outside the
  budget due to budgetary ceilings

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Further reforms

• Review of the legal framework
• creation of Malawi Revenue Authority
• Appointment of chief financial analyst
• Introduction of IFMIS
• Introduction of the automated cash management
  system
• Review of the first phase of MTEF

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MTEF II characteristics

• Political Effective management of MTEF II
• Predictability of funding
• Consistent and affordable policies
• Comprehensiveness
• Accountability