copy the linklink copied!5.4. Budget flexibility
The budget provides the financial framework that dictates the limits within the management of operations of public institutions. Delegating authority to managers on their fund allocations within their own budgets could lead to more effective spending as local heads may be in the best position to choose the most important mix of inputs to carry out institutional objectives.
On the other hand, excessive budget flexibility could lead to a misuse of public resources and is against a budget for results approach. Specially in low and middle-income countries, sub-limits on lump sum appropriations serve to align expenditures and revenues while making sure that resources are not disproportionately allocated to one type of expenditure. In 2018, among countries with available data, Brazil, the Dominican Republic, Panama and Peru imposed sub-limits to lump sum appropriations. Such sub-limits can be on wages or capital spending, among others. In Brazil, the number of limits decreased from three or more in 2013 to one in 2018; similarly, in Panama they were reduced from two to one and in Paraguay they were eliminated. On the contrary, Peru increased the sub-limits.
A budget carry-over is the ability of line ministries to transfer unused funds or appropriations from one fiscal year to the next. This form of spending allows ministries to use previous budget appropriations for their undertakings the following fiscal year. Carry-overs are not common in LAC. Only four out of thirteen countries (Bahamas, Brazil, Chile and Peru) allowed them. Brazil allowed carry-overs without thresholds in 2013, but in 2018 it imposed thresholds. Additionally, in 2019, Mexico sanctioned an austerity law by which all savings should be allocated to priority federal government programmes. By contrast, in 2018, around half of OECD countries allowed for carry-overs without a threshold for operating expenditure and/or investment expenditure, and around another third allowed them up to a certain threshold.
Most LAC countries do not allow line ministries to borrow against future appropriations in 2018; with the exception of Peru for investment expenditures up to a certain threshold. Similarly, very few OECD member countries allow line ministries to do so. In 2018, this practice took place in three countries for operational spending and four countries for investment spending both up to a certain threshold.
LAC countries are allowing more flexibility than before for the Executive to cut spending or redistribute resources once the budget is approved by the Legislature. For operational spending, in 2018, all LAC countries except Mexico and Panama allowed the executive to perform such cuts. Ten countries allowed the executive to redistribute spending without a threshold. The majority of these did not allow such flexibility in 2013: Guatemala and Paraguay did not allow any cuts by the Executive, Argentina allowed them only up to a certain threshold requiring approval, and Costa Rica and the Dominican Republic allowed them without a threshold but requiring approval. All of these now allow cuts without a threshold and without approval. Additionally, El Salvador did not allow for any cuts in 2013 and now allows them up to a certain threshold with approval. Only Chile and Mexico became stricter, since they allowed cuts without a threshold nor approval in 2013. Among OECD countries, 18 out of 34 allow for cuts without a threshold and without requiring approval and only 6 do not allow any cuts.
For investment spending, a similar picture can be observed for both OECD and LAC countries: only three LAC countries (El Salvador, Mexico and Panama) do not allow for cuts, while the rest allow the same flexibility as for operational spending. Only seven OECD countries do not allow them, while the rest allow the same flexibility. In 2013, fewer LAC countries allowed for cuts on investment spending than cuts on operational spending, probably due to the bias against investment spending in times of fiscal adjustment.
Data come from the 2018 OECD/IDB Survey of Budget Practices and Procedures to which 11 LAC countries responded and 2018 OECD Survey of Budget Practices and Procedures, which collected data for Chile and Mexico. Data for the OECD refer to 34 respondent countries. Respondents were predominantly senior budget officials in LAC countries and OECD member countries. Responses represent the countries’ self-assessments of current practices and procedures. Data refer only to central/federal governments and exclude the sub-national level.
Budget flexibility refers to the possibility to carry over funds to the use of an unspent appropriation beyond the time period of which it was originally granted. This allows for spending agencies to transfer unspent resources of the previous fiscal year to the current year’s budget allocation.
Further reading
Marcel M., M. Guzman and M. Sangines (2014), Presupuestos para el desarrollo en América Latina, Interamerican Development Bank, Washington, DC.
Figure notes
Data for Bahamas and for Uruguay for 2013 are not available.
5.9: Bahamas and Uruguay assign detailed operating expenditures to line ministries.
5.10: Countries with an asterisk (*) responded to only one round of the survey. In Brazil, from 2019, parliamentary approval is required for making transfers between categories of spending.
Source: OECD/IDB (2013, 2018) Survey of Budget Practices and Procedures, OECD (2018) Survey of Budget Practices and Procedures.
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