The meaning, types, cycle, and history of the budget are already discussed in a separate article. In this article, the budget formulation process is discussed with reference to Nepal. This article is useful for those who are studying in class 12, preparing for the Loksewa exams, and students of economics. The steps of budget formulation in Nepal mentioned in laws and procedures are clearly explained in this post.
Budget Formulation
It is the first step of the budget cycle. Budget is the projected income and expenditure for a certain period, budget formulation includes all tasks that are related to the projection of income and expenditure. The budget formulation process ends before the implementation is started.
Federal Budget Formulation Process in Nepal
There are many laws, by-laws, and guidelines that guide the budgetary system of Nepal. Fiscal Procedures & Financial Accountability Act, 2076, and By-Laws, 2077 are the major guidelines in Nepal to make government budget. According to these laws, the process of budgeting in Nepal is listed below:
Step 1: Preparing Medium-Term Expenditure Framework (MTEF)
On the basis of the periodic plan and sectoral policy, each ministry has to prepare a medium-term expenditure framework including projected expenditure for the upcoming 3 years and send it to the National Planning Commission and finance ministry. The National Planning Commission prepares the aggregate statement of the medium-term expenditure framework.
Step 2: Resource Estimation and Expenditure Ceiling Determination
There is a National Resource Estimate Committee led by the vice-president of the National Planning Commission and this committee determines the possible availability of resources and maximum limit of expenditure for the upcoming 3 years till Magh 15 of each fiscal year. This estimation includes federal, provincial, and local level resources. For this, the committee coordinates with the finance ministry.
The committee has to submit its resource estimation and expenditure ceiling report to the finance minister.
Step 3: Sending Budget Ceiling and guidelines
According to the report of the committee, the planning commission has to send the budget ceiling including budget preparation guidelines to related ministries, commissions, and secretariates till Magh end of each year.
Step 4: Budget Propose and Discussion
Each ministry prepares budget proposals including policy and programs of their own and their subordinate departments and offices subject to budget limits and guidance received from the planning commission.
The following major subjects should be included in the budget proposal:
- Estimation of budget for the upcoming fiscal year and forecast of expenditure and resources incorporating already created liabilities for the upcoming 2 fiscal years.
- Liability due to multiyear procurement and contingent situation and payable amount due in previous years.
- Cost-benefit analysis of programs that are designed to fulfill the goal of periodic plan.
- Budget needs for projects that are listed in the project bank.
- Financial and Physical achievement of 6 months of the previous fiscal year and current fiscal years.
The planning commission and Finance ministry organize separate discussions with the Accountable Officers of the Ministry regarding the budget proposal sent by related ministries.
Step 5: Budget Appropriation
After the discussion and evaluation of the proposal received from the ministry, Finance Ministry prepares an aggregate budget proposal where proper budget allocation is done according to the priority and defined provisions in the act.
Step 6: Principle and Priority of Budget
15 days prior to presenting an Appropriation Bill, the finance minister has to present the principles and priority of the budget in the federal parliament. Parliament provides necessary recommendations after the theoretical discussion on it. If there are not any suggestions, the budget goes for the final draft.
Step 7: Preparing the estimates of revenue and expenditure
The finance ministry includes the following subjects in the revenue and expenditure estimation:
- Revenue collection achievement.
- Actual expenditure and target achievement of each ministry.
- Medium-term expenditure framework.
- The detail of the program that has to operate using national resources, foreign assistance, internal loan.
- Projection of revenue and expenditure for the upcoming 3 fiscal years.
- Statement of loan, investment, and liabilities.
- Fiscal policy that includes the strategies to maintain economic stability.
- Aggregate economic condition including projected economic growth rate, inflation rate, current account balance, and balance of payment.
- Exemptions in tax and non-tax.
- Description of foreign assistance received in the previous year.
Step 8: Presenting the estimates of revenue and expenditure
on Jestha 15 of each year, the finance minister presents the estimates of revenue and expenditure and related bills in the joint meeting of both houses of parliament. Before this, the finance minister presents the report of the economic survey of the current fiscal year in the federal parliament.
After the discussion, suggestions, amendments, and suitable revisions, the budget gets acceptance by the parliament and goes for its implementation.
Provincial and Local Level budget formulation process in Nepal
After the implementation of the federal system in Nepal, three levels of government make their own budget. The provincial and local level budget formulation process is guided by Intergovernmental Fiscal Arrangement Act, 2074, and its by-laws, 2076. The general procedure of budget making is the same as at the federal level, however, some of the major provisions in the provincial and local level budget formulation are as follows:
- Province and local levels have to submit the revenue and expenditure estimation by the end of Poush to the federal finance ministry.
- After the consultation with the planning commission, the federal finance ministry provides the detail of estimated Financial Equalization Grants for the province and local level by the end of Falgun.
- Similarly, the provincial government should consult with the planning commission and provide the detail of estimated Financial Grants for the local level by the end of Falgun.
- The federal government presents its budget in the federal parliaments, whereas provincial governments and local governments present their budget in province assembly and village/municipal assembly.
- The provincial government should present the budget by Asar 1 and local level government should present by Asar 10 of each fiscal year.
- After the discussion in the provincial assembly and village/municipal assembly, the budget gets acceptance by them and goes for its implementation.
Conclusion
To sum up, the budget formulation process in Nepal is guided by acts and by-laws. The finance ministry, planning commission, national resource estimate committee, federal parliament, and similar structures in provincial and local level government have a major role in budget making process in Nepal; however, all the stakeholders give equal input as per requirements. Having such a defined step, some lacks and problems in the budgetary system are undeniable. We have to solve issues in this process and try our best to make a realistic budget that strengthens our economy.
FAQ
Some FAQs related to this article:
When was budgeting system started in Nepal in BS?
The budgeting system in Nepal was introduced in 2008 Magh 19 (February 1952 AD) after the then Finance Minister Subarna Shamser presented the first budget in Nepal.
What are the types of budget in Nepal?
These days, the deficit budget is popular in Nepal in order to meet the speedy development need. This budget includes 1) Government Expenditure, 2) Government Revenue, 3) Fiscal Arrangements, 4) Foreign Grants, and (5) Internal and external loans.
Please tell the budget formulation of local Rural/Municipality recent context of Nepal