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Budgeting System in Ethiopia: Program Budget System " Two Birds with One
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Journal for Studies in Management and Planning e-ISSN: 2395-0463
Available at http://edupediapublications.org/journals/index.php/JSMaP/ Volume 01 Issue 11
December 2015

Budgeting System in Ethiopia: Program Budget System


“Two Birds with One Stone” Ethiopian Proverb

Tefera Asefa Moreda (MPMP)


Lecturer and Department Head, Public Administration and Development Management, collage of
Business and Economics, Dilla University SNNPR

Email: teferaasefa@gmail.com
Abstract
Program budget system is one of the developed in Ethiopia. Despite some
results of the budget reform which is the progress in introducing program budget at
part of public sector financial management federal level, Ethiopia faced different
reform initiatives. Different budgetary challenges in successful implementation of
reform were undertaken in developed as the reform program. Lack of sufficient
well as developing counties, but most training to the public personnel, absence of
extensively in OECD countries. In the case basic infrastructures (IFMIS, accrual
of Ethiopia, program budgeting system was accounting system and new institutional
introduced recently under the expenditure set-up) which support the reform program
management and control program (EMCP) are not yet developed and improved in
which is one of the sub-programs of the Ethiopia
public sector reform. This budgeting
system was not as such applied and
implemented in government institutions
and levels. In Ethiopia, successful
implementation of program budget system
has been faced different challenges.
Ethiopian government started the program
budget without considering necessary
condition for the successful implementation
of the program. Important institution and
institutional framework are under

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1. Introduction (Huge, 2003; Hagen, 1968, the world


Bank, 1998; Novick, 1966).
Background of the paper
Whenever we are talking and writing about It is very difficult to define the term
program budgeting system, it is mandatory program budgeting system in precise and
to touch the historical backgrounds of the single word. There are different meanings
term in American perspectives. This is and connotation of the term in different
because the term is the results of budgetary parts of the world. Exactly how program
th
reform in America in the 20 century and it budgeting terms are used varies
was originated there. Program budget enormously in practice. It is a confusing
system is one of the results of the budget term that uses different name in different
reform which is the part of public financial countries especially in developing
management reform initiatives. Different countries. (The World Bank, 2007)
budgetary reform were undertaken in
Obviously, if there are multiple ways of
developed as well as developing counties,
defining a program budget, no particular
but most extensively in OECD countries.
approach has a special claim to legitimacy
These budgetary reforms include line item
(KIPF and WB, 2007). But there is
budget, performance budget, program
consensus among the scholars. This is a
budget and zero based budgets which are
key to program budgeting is the program -
the most commonly known (Huge, 2003;
a public policy objective along with the
the world bank, 1998). From these the
steps necessary to attain it (The world
paper concentrates on program budget
Bank, 1998). Added to this, World Bank
system in Ethiopian budgetary system.
stipulated that the budget is classified in
In reality Program budget has passed terms of programs, rather than along
different distinctive evolutionary period organizational lines. Program budgeting
starting from 1907, but it was first initiated requires that program objectives stretch
and attempted for the entire agencies by beyond a single fiscal year. In addition,
president Lynda Johnson in 1960s, in USA program budgeting requires effectiveness
along side with the introduction of program measures, which means the measurement
budget by secretary of defense McNamara of outputs and outcomes. The advocates of
and his comptroller Hitch in defense force program budgeting hoped that budget

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allocation decisions would be made extension of the change from


according to the marginal value that could administration to management in
be attained from varying use of public government. (Huge, 2003; World Bank,
resources. (ibid) 1998; World Bank, 2007)

Program budgeting aimed at direct funding Even if it is a principal budgetary reform


more towards the achievement of actual which was imported to many developing
policy objectives or outputs. Under countries, program budgeting system had
program budgeting, government activities never be practically successful in ether
are divided into the hierarchical structure developed or developing countries. Many
of program, subprogram, activity and critics have been raised from different
component (if necessary). Appropriations angles. For instance, as quoted in Huge,
can then be made to particular program 2003 (Wildavsky, 1979) provided a very
according to the priorities of the prominent criticism of the program budget.
government of the day. Instead of funding
In the case of Ethiopia, program budgeting
inputs to the administrative process as in
system was introduced recent time under
the traditional budget (salaries, overtime,
the expenditure management and control
postage and so on), identifiable program
program (EMCP) which is one of the sub-
are funded. Management reporting systems
program of the civil service
can then be based on the program structure
reform(MoFED, 2011) and even it was not
to encourage better feedback on program
as such applied and implemented in many
performance, and allow, in principle, for
government institutions and levels. At the
evaluating the effectiveness of managers
first time, some selected government
and staff. This, or the extension of program
institutions at the federal level are being
budgeting to funding outcomes, depends
implementing program budgeting system
on the establishment of suitable
as a pilot base. The Ministry of Finance
performance indicators. The proper
and Economic Development (MOFED),
development of objectives, Program
has made some progress in the
structures and performance indicators are a
implementation of the Programme-Based
difficult and time-consuming task for all
Budget (PBB), which is an essential part of
levels in an organization, but is a logical

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government’s budget reforms. The PBB is consistent training program for government
slowly started to be embedded in the public officials is also resulted in the difficulties
finance arena of Ethiopia. Like any new in effectively implementing the budget
reform, there were some teething issues at reform in Ethiopia.
the beginning; these issues are being
Different issues with a special reference to
gradually addressed.
Ethiopian budgetary system were discussed
Statement of problem in the paper. The rationality for implanting
Even if it is a principal budgetary reform
program budgeting system, experience in
which was imported to many developing
implementing the budget system, current
countries, program budgeting system had
status and progress of the budget, and
never be practically successful in ether
major opportunity and challenge in
developed or developing countries. Many
implementing the budget.
critics have been raised from different
angles. In Ethiopia the successful Methodology of the Paper
implementation of program budget system Data was gathered mostly from secondary

has been faced different challenges. data including journals, books, articles and

Ethiopian government started the program reports made by MoFD in different times.

budget without considering necessary Some data was also gathered through

condition for the successful unstructured interview conducted with

implementation of the program. some of the personnel in budget work


process in MoFED specially budget reform
Important institution and institutional training team. Data were collected from
framework are under developed in different secondary sources through
Ethiopia. Information and technological consulting books, journals, articles and
prerequisites are not in place to support the manuals especially from internet and
program. These resulted in the confusion of primary data was collect through
the government official in implementing unstructured interview from some of the
the reform. This confusion with the budget reform training teams. In analyzing
absence of basic infrastructures poses the data qualitative analysis method were
difficulties in implementing the program. used to describe the issues under
Moreover, absence of continuous and consideration.
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2. Empirical data and public finance reform. A new institution


facts and informational system were in place
prior to the program budget reform in
Budgetary Basic
In successful introduction and Korea. The Korean government is seeking
implementation of program budget, to strengthen budgetary basics. This
budgetary basics have to be understood and includes introducing accrual budgeting and
well developed in the system. Budget accounting, double-entry accounting,
systems include a wide range of basic IFMIS, and program budgeting. These
supporting services, including accounting, efforts are being directed by the Budget
budget examination, estimating, and Accounting Reinvention Office
forecasting, monitoring, and evaluating. (BARO), which was set up for this purpose
This also includes introducing accrual in 2004. Accrual and double-entry
budgeting and accounting, double-entry accounting aims to enhance transparency
accounting, IFMIS, new institution and of government accounts. It will further
institutional structures and program enable better forecasting of medium and
budgeting. If these components are not long-term fiscal\ risks. At this stage,
adequate, the budget system is unlikely to BARO is evaluating government assets and
perform well. Such circumstances require liabilities in preparation of implementing
patient diagnosis, detailed analysis of how the new accounting system (ibid).
moneys are released, spent and accounted
for, restructuring of organizations, Greece could also be another example in
institution building, and careful this respect. The will for the introduction
consideration of objectives and methods. of program budgeting in Greece was stated
The fault will more often lie not with the for the first time in the Budget Introductory
basic budget systems themselves, but with Report of 2006. The International
the environment in which they operate Monetary Fund’s report “Strategy for the
(KIPF and WB, 2007). modernization of the budget management
in Greece” (2005) was the basis for
The Korean experience could be taken as a
decision making. In 2006, the Ministry of
model for good implementation of such
Economy and Finance took concrete action
budgetary basic in introducing and
towards the fiscal reform, with the
implementing program budget in their
establishment of two new units in the
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General Accounting Office, regarding the What is the capacity to carry


budget reform and the modernization of forward reform—is this adequate or
the accounting system of the central does it require administrative
government (Hellenic republic ministry of restructuring, changes in
finance and economy, 2009). procedures, the skills available?),
In addition to the above budgetary basics, and Restructuring the incentives
international monetary fund, developed by to undertake and sustain reform
Diamond (2001), put important elements (Why, and for what purpose, will
for the successful implementation of reforms benefit the individual
budgetary reform which is even necessary rather than the system as a whole,
for any other reform. He stipulated the and compensate for the costs of the
elements as follow: effort involved? Once reform
incentives are established, how are
Generally, not enough attention is they to be maintained and
paid to the agents of change— protected?). (Diamond, 2001)
identifying them, offering them
incentives to undertake reforms, Generally, the budgetary basics are an
and removing the constraints they important supports for the successful
face in sustaining these reforms. It introduction and implementation of
can be argued that engineering program budget. Most of the developing
successful budget system reform countries budgetary reforms were criticized
involves at least three elements: for the failure of the system as they
Identifying agents of change introduce the system quickly and in short
(Who are the champions of reform? period of time while little emphasize are
Who is going to recognize the need given for such supportive basics for
for reform, design the reform, budgetary reform. The following part
monitor and implement the provides the criticism of program budget
reform?), Assessing and assuring by taking one case study.
the adequacy of the means at
Criticism of program budget
their disposal (How, and by what system
means, is reform to be carried out? Program budget system was criticized from
different angles starting from developed
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countries. Its criticism and failure was not implementation. This criticism was
limited to the developing countries. As stemmed from the reality that many
cited in Owen H. Huge, 2003, the most countries simply introduced the system
prominent critic of program budgeting was with minimum or no consideration for
(Wildavsky, 1979). For Wildavsky, institutional, informational and
program budgeting has failed ‘everywhere technological requirement of program
and at all times’. But the failure and budget while program budgeting require
criticism was more extensive in developing more of these condition. Program
countries. As provided in the public budgeting requires considerably more
expenditure management handbook, World information about the activities of the
Bank put the following: agencies than is required for traditional
Program budgeting is the principal line-item budgeting, so is not easy to
budget reform (beyond traditional implement (Huge, 2003). Other critics do
line item budgeting) that has been not see program budgeting itself as a
exported to developing countries. In flawed concept, but rather stress the
practice, program budgeting has not conditions that are needed for program
been very successful in either budgeting to be successful. These might
developed or developing countries. include, for example, adequate information
Criticisms range from those who about programs and about social, economic
believe that program budgeting is and environmental conditions. Critics
so flawed in concept that it would argue that these conditions are not present
be inapplicable in any setting, to in many countries, thereby making it
those who believe that the impossible for program budgeting to take
prerequisites that would be root and flourish (World Bank, 1998). The
necessary to bring the reform to following case shows the introduction,
developing countries are currently implementation and finally failure of
not present.(World Bank, 1998) program budget in Sri Lanka:

PROGRAM
Program budget was also criticized on the BUDGETING IN
basis of necessary condition and SRI LANKA
Sri Lanka engaged in budget reform in
requirement for its successful
earnest beginning in 1969. This ultimately

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led to the widespread adoption of a system adherence. Further, by the 1980s, the
that closely paralleled program budgeting. government no longer had any method of
By 1974, virtually the entire government forecasting cash flows. Following the
was presenting the budget in a program recommendation of the IMF, each ministry
budget format. By 1975, a modest amount was required to report monthly
of performance data was also being expenditures, but not in relation to
presented by each of the twenty-three programs or performance. Sri Lankan
ministries. budgeting came full circle; cash flow
budgeting triumphed over performance
The program budgeting reform was monitoring. Program budgeting failed in
spearheaded by a program budget unit, Sri Lanka for these reasons: (a) the reform
which was established in the Ministry of had found no powerful friends in the
Finance in 1971. This unit issued executive or the legislature; (b) there was a
guidelines on budget preparation, designed lack of skilled manpower to carry out the
the required documentation, advised reform; (c) program budgeting occurred
departments on the development of without important parallel financial and
performance measures and objectives, and administrative reforms - particularly
reviewed department performance against related to accounting and auditing - that
budgeted targets. By the mid-1970s, the Sri might have sustained it; (d) the
Lankan budget reform seemed set to replacement of organizational structure
succeed. with programs as the focus of decision
In 1977, the socialist government was making did not occur and, perhaps most
replaced by a free-market focused important; (e) a rapid, comprehensive and
government. The program budget unit was centralized introduction of program
disbanded by the new government, budgeting was ill considered in the Sri
depriving program budgeting of focus and Lankan administrative environment. A
impetus. Department of budget office more cautious and selective approach
continued to submit the required reports for would have increased the likelihood that
a time, but the sanctions that had existed the reform could have been sustained.
for failure to do so were eliminated and The case study was taken without
ministries became much more lax in their modification from World Bank, 1998 as it
was brought from: Government Budgeting
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in Developing Countries, Chapter 6, and budget was prepared on the basis of line
Peter Dean item budget which does not say something

3. Discussion and analysis about the results of the public expenditure.


of data Then the reason behind the introduction of
Prior to Program budgeting, Ethiopia PB system in Ethiopia is to make
budgetary system is dominated by line item connection the government budget and
budget which emphasize on input required expenditure to the output of the policies
for government function. Starting from and program of the government.
2004, Ethiopia started to launch program
budgeting system by creating and Experience of Ethiopia in
program budget system
providing training to the reform team with
In 2007/8, the pilot study and training has
the supports of foreign assistant and
been expanded to other ministry. The
experts with the supports given from
second pilot study has been conducted on
international monitory fund (IMF). With
ten federal ministries by giving the
the help of technical assistance from IMF
training. The second pilot study give
the budget reform committee/team prepare
greater input to the next year full scale
strategic design and agendas for the budget
budgetary reform in which all ministries
reform. Accordingly, the first pilot study
have launching the reform. Next year in
and training has been undertaken on three
2009/10, training has given to all federal
ministries-ministry of finance and
budgetary institution on shadow program
economic development, ministry of
budget preparation and manual for testing
education and the then ministry of trade
to implement at federal level. The shadow
and industry- in the year 2006/07.
program budget is to mean that the

Rationality in implementing program budget was prepared as an


program budgeting system experimental instrument and pilot study
The rationality in implementing program while the actual budget was prepared by
budget system in Ethiopia is not as much line item budget. The shadow program
differs from the reason why it is budget was then prepared and submitted to
implementing elsewhere in the world. At MoFED alongside with formal line item
the current time the PB system is fully budget in 2009/10 to balance the
practiced at the federal level but not at correspondence of the program budget to
regional level. Previously, the government the total budget.
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Until 2012, program budget systems were or confuse organizational structure


not officially launched and it has never with program structure in program
been submitted to parliament for approval design.
rather it was practiced at federal level then 4. Lack effective
tested by MoFED. But since 2012, all infrastructural requirement
ministries start to submit their budget on that supports effective
the basis of program budget and it was implementation of the
officially launched at federal level. All program. Finding and
public bodies at federal level started to Conclusion
prepare and Submit their budget to the Findings
parliament on the basis of program budget Based on the above data and some of the
and line item budget was totally discarded data obtained from one of the program
since then. budget reform training team through
unstructured interview, since its pilot
Challenges in implementing the
studies program budget has been show
reform
Despite good progress, there are variety of some improvement at federal level
challenges and constraints in program especially in some ministry. All federal
budgeting to all public bodies in general public bodies, currently, are preparing their
and to MoFED’s reform and training team. budget on the basis of program budget
The following are some of the challenges while other tiers of the government and
faced in reforming the budget: their respective bodies are still prepare
their budget on the basis of line item
A. Lack of capacity
budget. This line item budget in the lower
B. Turnover of the staff
level of the government is reported upward
C. Insufficiency in training
to the federal levels to their line ministries
D. Absence of strong and continuous
to reach the parliament. This creates other
monitoring and evolution on the
question about the applicability of
implementation of the budget
program budget system in Ethiopia in that
E. Lack of some conceptual
whether the budget for regional and the
understanding in PBS. For instance
lower level government is reported to the
there are a tendency to convert and
parliament in its line item or changed to
relates department to the program
program budget by the line ministries at the
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federal government. and difference between the two. There is


also confusion regarding the program
One of the opportunities for the
structures and organizational structures
implementing program budgeting system at
among the government officials because of
the federal level was the willingness and
the absence of sufficient and continuous
acceptances of all ministries to apply the
training to the officials how to differentiate
reform. Not only this, there are also
and relate program budget and
acceptance and supports from parliament,
organizational structure. Government
while it approve the budget, in
reform often fails because it is poorly
implementing the reform. Given those
implemented. The design may be sound,
opportunities in implement program
but if its purposes are not clearly
budget, there are different difficulties and
understood, or if stakeholders view it as a
constraints which hamper the successful
threat or burden, reform will wither. To
application of program budget at federal
succeed, reformers must win over those
levels. Actually, it is not easy to say the
who produce information, provide services,
effectiveness and ineffectiveness of the
and manage bureaus and agencies. The fate
reform since the reform is at the very
of reform rests in their hands, not in those
starting stage or infant. But different
of the small band of innovators who sit at
impediments could be identified.
the center of government, but are
The final version of the program budget organizationally and politically distant
manual prepared by MOFED in 2010, is from line managers and rank and file
very confusing to understand for the employees.
government officials since it is very
Effective implementation of successful
technical and does not provides a deep
program budget needs many other
explanation for certain difficult
interdependent institutional and
terminologies. This is one of the
technological change and improvement.
impediments of the successful
Non-budgetary reform which contributes to
implementation of the budget. For
the effective budget reform is a prerequisite
example, the manual puts the program
measures that has to be undertaken by the
budget as the analytical core of
public body. Such measures include
performance based budgeting. But, the
information technology, provision of
manual does not provide any relationship
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sufficient and continuous training to accrual accounting system which is not


personnel of the public institution, applied in Ethiopia. Ethiopian program
accounting reform (introduction accrual budget reform uses cash accounting system
and double entry accounting system) and which is not compatible with modern
new institution and institutional structure budgetary system like program budget
meant for these purposes, which is an system.
integral part of and necessary condition for
In relation to the institutional setup, the
public financial management reform. These
budget reform in Ethiopia was dominated
requirements have never been developed in
by MoFED. It is the only agents of change
Ethiopia. Accordingly, program budget
that has been launch all things under the
system in Ethiopia has been implemented
program budget reform. New institution
without such consideration. Earlier in 2002
which meant for such reform has to be
E.C European Union had indorsed nine
established and their capacity has to be
million euro for the implementation of five
build and maintained in Ethiopia. This is
modules of IFMIS which was transferred
because it is not an easy task to the central
to public sector capacity building program
ministry (MoFED) to deal with everything
(PSCAP) and utilized for other purpose.
regarding the reform. There should also the
Program budget need IFMIS, but Ethiopian
participation of different stake holder in
government start implementation prior to
designing and implementing the reform. In
the appropriation of this IT in public bodies
Korea for example, budget and accounting
and using IBEX which cannot fulfill the
reinvention office was established in 2004
PBS requirement and to cover this gap they
to support the introduction and
forced to apply micro excel as a separate
implementation of program budget. There
system. This in turn is very difficult for the
is also Korean development institute and
public bodies to provide timely report on
Korean Institute of public finance to
their budget performance since it consumes
support the reform with their respective
more time to prepare report. This is against
mandates. (KIPF and WB, 2007)
the Ethiopian proverb “two birds with one
stone” and Ethiopian program budget Conclusion
could not fulfill even one bird with one Ethiopia, starting from 2004, has been
stone. Beside this, program budget system trying to introducing and implementing
need modern cost accounting system that is program budgeting system in its financial
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management. Training was given to the system. This was also intensified with
established program budget reform team by the turnover of highly qualified
foreign experts from IMF. Accordingly, personnel from the government office in
different improvement in the budget reform search of job with attractive salary. This
is there at the federal level. Given the in turn need additional cost and time to
improvement, there are different train another new staff for the
difficulties and drawbacks in implementing implementation of the program
effective and efficient program budget in  The shortcoming of infrastructure and
the government bodies. The drawback was absence of the important consideration
partly emanates from the program itself for no- budgetary reform which support
and partly from the lack of emphasis from the effective budgetary reform is one of
the government in considering the the obstacles for the program in Ethiopia.
necessary condition for the successful In different literature, it was found that
application of the program budget. necessary infrastructures are imperative
Generally, the following factors and for the successful reform. These
explanation could be identified and infrastructures are considered as the
recognized for the difficulties of the basics for the budgetary reform. The
successful implementation. Korean government is also seeking to
strengthen budgetary basics. This
 Lack of precise explanation and
includes introducing accrual budgeting
clarification of certain technical and
and accounting, double- entry
difficult terminologies and concepts
accounting, IFMIS, and program
related to program budget in manual of
budgeting. These efforts are being
the program budget. This resulted in
directed by the Budget and Accounting
confusion of the government official in
Reinvention Office (BARO), which was
implementing the reform in their
set up for this purpose in 2004.
respective sector.
Accrual and double-entry accounting
 Absence of continuous and sufficient
aims to enhance transparency of
training to the concerned government
government accounts. It will further
official and to the training team was also
enable better forecasting of medium and
one of the impediments to the effective
long-term fiscal risks. At this stage,
implementation of the program budget

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BARO is evaluating government assets of continuous and sufficient training for


and liabilities in preparation of government officials, establishment and
implementing the new accounting improvement of infrastructures and
system (KIPF and WB, 2007). This is to technology which is basics of budget
mean that Ethiopia had better to consider reform, clear and detailed expression of
the improvement of the information and terminologies and the establishment of new
other basics to support the successful and diversified institution (especially for
implementation of the reform. the capacity constraints of single agents of
 More over the Ethiopian program budget change in that program budget reform need
reform was dominated by single ministry multifaceted change agents to be effective
that is ministry of finance and economic which need participation of multiple agents
development. New institution and of reform and stakeholders) and
institutional structure were not institutional setup and participation of
established to support the designing and concerned stakeholders was a prerequisites
implementation of the reform in for successful introduction and
Ethiopia. In Korea, for instance, BARO implementation of the program budget
was established in 2004 and led by system in Ethiopia.
Ministry of Planning and Budget (MPB).
Its mandates include introducing At the current time, the great challenges
program budgeting and improving the and idea is that the government will
current system of financial management continue to deepening the program budget
information (ibid). As such, Ethiopia system at the lower level. As such, the
need to establish distinct institution that government had better to improve these
support the development of different necessary condition to facilitate the
budgetary basics in implementing effective implementation at the lower tiers
program budgeting in efficient and of the government. Necessary
effective manner. infrastructural and technological
requirement has to be in place and
Generally, it was found that the existence
maintained to support the system.

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