Fresh Thoughts on Strengthening the Role of Line Ministries in the Budget Process

In his paper, Mr. Dirk-Jan Kraan discusses line ministries’ capacity development needs and priorities in public financial management against the background of a reinforced role of financial directorates of line ministries. The paper is based on interviews with the finance directors of line ministries in three countries: Slovenia, Croatia and the Netherlands. It describes the typical organization and task package of the Finance Directorate of a line ministry in Croatia and Slovenia on the one hand, and in the Netherlands on the other hand.

The picture that arises from these descriptions is that of a Finance Directorate of a line ministry as a financial administration in Slovenia and Croatia, and as a “concern controller” in the Netherlands. The stronger role, characteristic of the Netherlands, results from a sharper focus on internal fiscal policy coordination and budgetary discipline. Fiscal policy coordination must ensure that the budget can be easily adjusted to changing social and economic circumstances and political priorities. Budgetary discipline must ensure better compliance with budgetary ceilings.

To strengthen the role of the Finance Directorate of the line ministry as internal fiscal policy coordinator, the paper recommends (a) to move the budget preparation calendar forward, (b) to recognize sectoral directorates as budget holders, and (c) to introduce a standard evaluation procedure. To strengthen the role of the Finance Directorate of the line minister as guardian of fiscal discipline, the paper recommends (d) to regularly update expenditures estimates of current policy (baselines) and to have them approved them by the Ministry of Finance, (e) to establish rules of budgetary discipline, and (f) to ensure close coordination between the finance directorate of the line ministry and the Ministry of Finance.

The paper proposes steps to be taken by the Ministry of Finance and line ministries to implement these reforms. It also identifies some major challenges that the reforms may pose for countries in South-East Europe. Among other things, politicians and senior civil servants would have to agree on a stronger, neutral role of the finance director of a line ministry and on more autonomy for line ministers to put their stamp on sectoral policy.

The paper can be downloaded here; and its videopresentation is available here.

Upon the initiative of ministries of finance and central banks in South East Europe, we at the CEF have been extending our efforts to strengthen capacities of public finance officials at line ministries. In 2012, we co-operated with experts from the region in the Fiscal Impact of Structural Reforms project to better understand line ministries’ role in countries’ annual processes of budget preparation and medium-term fiscal programming, and how costs of structural reforms are incorporated. The capacity development needs identified have been addressed through a series of learning and networking activities within our EU funded project on Strategic Planning and Budgeting, such as, courses on the Integration of Structural Reforms into Fiscal Programming, and Budget Submissions of Line Ministries. Also, we integrate line ministries’ needs in our learning program on budget preparation and execution, and involve public finance officials of line ministries in joint activities with counterparts from ministries of finance.