Just as in the 70s zero-based budgets or reengineering in the 80s and currently corporate governance and open government were not the panacea to solve the economic, financial and political aspects of a country, the multi-year budget is not the panacea, they are Useful tools to improve the actions of entities and the public sector and in the case of multi-year budgets can be conceptualized as: ”The multi-year or multi-year budget is defined as an estimate of the fiscal variables (income, expenses and financing) to three or more years, based on a projection of the main macroeconomic variables, coordinated with the Central Bank.
The usefulness of multi-year budgets lies in the fact that they constitute a tool to facilitate reconciliation between the purposes of economic policy, to reduce economic fluctuations and contribute to a better ordering of spending. It also facilitates the link with the National Development Plan. The multi-year or multi-year budget is defined as an estimate of the fiscal variables (income, expenses and financing) for three or more years, based on a projection of the main macroeconomic variables, coordinated with the Central Bank. Generally, it is projected for two more periods than the budget that is presented for the respective year.
It is essential that a multi-year budget can provide information about the projections of resources item by item, expenditure projections, as well as an investment program for the period, which determines that public sector institutions can carry out better programming and execution. It also facilitates the link with the National Development Plan.
It should be clear that if the annual budgets are not properly managed at present, there is no adequate scheduling of activities, there is very little execution of investment projects and there is a short-term vision, so these aspects must be improved so that multi-year budgets can be better used. It is essential to achieve a medium and long-term vision, that is to say that it is planned in the medium and long term, it is also necessary to promote that the budgets are really the financial expression of the operational plans and the medium-term plans. There is a set of reasons that justifies the need to analyze the behavior of fiscal accounts in the medium term.
From the budgetary point of view, assessing the future impact of certain significant expenses such as, for example, multi-year expenses, debt service and special programs, is essential to be able to estimate the evolution that tax revenues and debt should follow. public. This analysis allows, in turn, to project the impact of the Public Sector on the macroeconomy, generating a forecast that will help better global economic policy decision-making.
The Multi-Year Budget is an instrument that contains the distribution among public institutions, at the program level, of the financial resources of the State that are expected to be collected in a period greater than one year, usually three or four years, subject to the strategic plan of the Government or National Development Plan and the medium-term fiscal framework. It is important to note that the Office of the Comptroller General of the Republic recently presented a bill to manage multi-year budgets in the public sector, for which the Political Constitution must be reformed, which includes the principle of annuality, which establishes which budget governs a year. It is pertinent to indicate that the approval of the annual budgetsit is not incompatible with the existence of multi-year scenarios that allow programming of public sector activity. Therefore, the draft Law on Multi-year Budgets should respect the principle of annuality. It is necessary to analyze which of these alternatives is considered by the bill on multi-year budgets presented by the Comptroller General of the Republic: The mandatory Multi-year Budget replaces the Annual Budget or The indicative Multi-year Budget is complementary to the Annual Budget.
Advantages and disadvantages multi-year budgets:
The advantages of the multi-year budget are:
- Allows ordering of spending Facilitates reconciliation between the purposes of Economic Policy Allows monitoring of the economy Serves as a reference for private sector plans Reduces fluctuations and prevents scenarios Improves the formation of expectations reducing risk Prevents the financing of all future expenses Leads to budget balance Facilitates linkage with the National Development Plan, since the budgets can consider a period similar to that of the National Development Plan and the Institutional Strategic Plans. It serves as a reference to the plans of the private sector. It reduces fluctuations and allows to prevent scenarios
Disadvantages of the multi-year budget
- It is difficult to make good estimates for scenarios of 3 or more years, and its methodology is somewhat complex. For the formulation of the Pluriannual Budget (PLB), three fundamental questions are raised: a) the projection horizon; b) the level of disaggregation, and c) the elaboration mechanism. The macroeconomic and fiscal context of the countries, which in many cases is very unstable. How difficult it is to specify the formulation of policy guidelines sufficiently in advance, such that this allows to support the elaboration of the multi-year budget, a situation that becomes even more critical when you want to give instructions and financial limits to the agencies to program a multi-year scenario.
Finally, it is necessary to bear in mind that the multi-year budget is only a tool and not a solution for all budgetary and economic problems. These depend on fundamental measures such as the adoption of a sustainable political commitment, improved projections, reasonable costing of programs and activities, and disciplined budget management.
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Lic Bernal Monge Pacheco
Consultant
