Ch 08: Budget system and cost

benefit analysis

Prepared By:
Md. Ujjal Hossain
Lecturer, Department of Business
Administration
Institute of Science and Technology,
Budgeting is the process of estimating revenue and expenses during a specific period of
1. National Budget
time. A national budget is the budget of a country. The government gets money from taxes
and fees, and spends it on things like national defense, infrastructure, grants for research,
education, and the arts, and social programs such as Social Security and Medicare.
A government budget is a document prepared by the government or other political
entity presenting its anticipated revenues and proposed spending for the coming financial
year. In most parliamentary systems, the budget is presented to the lower house of
the legislature and often requires approval of the legislature. Through this budget, the
government implements economic policy and realizes its program priorities. Once the
budget is approved, the use of funds from individual chapters is in the hands of
government, ministries and other institutions. Revenues of the state budget consist mainly
of taxes, customs duties, fees and other revenues. State budget expenditures cover the
activities of the state, which are either given by law or the constitution. The budget in itself
does not appropriate funds for government programs, which requires additional legislative
measures.
 2. Principles of Budgetary Governance
The ten principles are:
• Manage budgets within clear, credible and predictable limits for fiscal policy.
• Closely align budgets with the medium-term strategic priorities of government.  
• Design the capital budgeting framework in order to meet national development
needs in a cost-effective and coherent manner.
• Ensure that budget documents and data are open, transparent and accessible.
• Provide for an inclusive, participative and realistic debate on budgetary choices.    
• Present a comprehensive, accurate and reliable account of the public finances.
• Actively plan, manage and monitor budget execution.
• Ensure that performance, evaluation and value for money are integral to the budget
process.
• Identify, assess and manage prudently longer-term sustainability and other fiscal
risks.
• Promote the integrity and quality of budgetary forecasts, fiscal plans and budgetary
implementation through rigorous quality assurance including independent audit.
 2. Principles of Budgetary Governance
• 1. Comprehensiveness
• 2. Exclusiveness
• 3. Unity
• 4. Specification
• 5. annuality
• 6. accuracy
• 7. Integrity
• 8. Clarity
• 9. Publicity
• 10. Responsibility
• 11. Equilibrium
• 12. Flexibility
3. Purpose and Objectives of Government
Budgeting

Purpose and Objectives of Budgeting:

1. To serve as a tool for management
2. To facilitate function approach to expenditure
3.To ensure accountability
4. To achieve the indent objective of macroeconomics
 4. THE MOST IMPORTANT CHARACTERISTICS
OF THE BUDGET
The establishment of the budget is one of the regional government's core tasks. This is the detailed indication of the policy that
is to be carried out during the coming budget year and of the financial resources that are to be made available for its funding.
The budget is:
• a deed of estimate: the budget is an estimate of income and expenditure over a certain period, namely the budget year in
question. Each year the Brussels-Capital Parliament approves a budget for the Region and the Brussels Area. In addition one or
two budget amendments are passed during the course of the year. In Belgium the budget year is aligned with the calendar
year, running from 1 January through to 31 December;
• an authorization document: the budget is the authorization given by the Brussels-Capital Parliament to the Government to
implement the expenses stated in the budget and to collect the revenue mentioned in the budget;
• a legal document: the budget has a legal nature, but is not however classed as a normal law. Namely, it is not based on a legal
source and is by definition only valid for one year. The draft budgets, with projections of income and expenditure, which are
established by the Government, are submitted to the Parliament in the form of a draft ordinance, and are published in the
Belgian Official Journal once approved.
• a policy document: the budget is more than a projection and authorisation. It is the Government activity programme and
detailed reflection of the policy that the Government wishes to implement, given approval by the Brussels-Capital Parliament.
• Annual
• Single budget
• Surplus deficit or balance budget
 5. Legal framework
The Constitution of Bangladesh, however, does
not use the term 'budget'. Instead, it uses an
equivalent term 'Annual Financial Statement',
which is to show the estimated receipts and
expenditures of the government for a particular
financial year. Government budget in the country
has two parts: Revenue and Development.
Receipts in development budget are grouped as public and private receipts. Public receipts are the revenue surplus (revenue
receipts minus revenue expenditures), incomes through new measures (such as new taxes), net domestic capital, and extra
budgetary resources. A special form of public receipts is the FOREIGN AID (project aid, counterpart fund from commodity
aid and net food aid). Receipts under the private head for development budget are generated through direct private
investment, borrowing from BANKING SYSTEM and foreign private investment. Revenue budget is prepared by the
Finance Division and the agency to prepare the development budget is the Planning Commission.
Preparation of the revenue budget is a multi-stage process implemented within a time schedule. The first stage is the
printing of departmental estimates, which is followed by printing and distribution of Budget Forms (Estimating Officer's
forms) for supply to the accounts officers concerned, who fill them up with estimates from all controlling offices and send
consolidated estimates to the ministry of finance. The ministry of finance then examines the estimates, receives schedule of
new expenditures and information on actual expenditures of agencies and organisations in last six months, reviews new
estimates on the basis of these information, and prepares a rough edition of the budget and the schedule of new
expenditures. The ministry also collects forecasts of foreign development assistance and development programmes from
ministry of planning and after making necessary adjustments, prepares the budget documents for presentation in the 
JATIYA SANGSAD (Parliament) for discussion and approval.
Development budget of the government of Bangladesh is a result of a continuous process of identifying new projects,
review of project concept papers (PCPs), and vetting of the projects in ministries and in the Executive Committee of the
National Economic Council (ECNEC). Usually by December, the Economic Relations Division (ERD) prepares aid
memorandum, circulates it to the ministries for their comments, and based on domestic resource projections by 
NATIONAL BOARD OF REVENUE and the Internal Resources Division, the ERD revises the aid memorandum. The
document is then sent to the Cabinet for approval. Resource position for revenue expenditure and budget is then estimated
and the Programming Committee finalises eligible projects for inclusion the ANNUAL DEVELOPMENT PROGRAMME
 (ADP). In fact, ADP is the development budget, which, like the revenue budget requires approval of the parliament.
Two constituent parts of the government budget are the consolidated funds (Fund) and the public accounts (Account). These
are not separate entities but are distinguished by differences in receipts and disbursements. The transactions in both heads
represent inflows and outflows of funds from a single corpus known as the 'exchequer'. The overall balance of the budget,
its surplus or deficit, is represented by the difference between total receipts and expenditures of the Fund and Account
together.
Consolidated Fund includes all receipts of the government, all loans and grants received from domestic and foreign sources
and the recoveries of loans and interest thereon. All disbursements for both revenue and development heads are made from
the Fund. A part of revenue expenditure is known as 'Charged Expenditure', which may be discussed in the parliament but
voting is not required. Receipts in Public Accounts of the Republic represent the part of the exchequer, which do not
constitute the Consolidated Fund. These relate mostly to transactions, in respect of which the government acts as custodian
or banker in trust. These receipts include provident funds of government employees, post office savings deposits, various
deposit accounts (local funds, judicial deposits, foreign aid deposits etc.), and adjusting heads like suspense and remittances.
Some of these transactions are only book transfers. The expenditures comprise disbursements, which are set off against
receipts and the difference between receipts and expenditures represents a net accretion or depletion to cash resources.
Various departments, directorates, and ministries submit their estimated funding requirements in the form of demand for
grants. Demands for each service is shown under the head issued by C&AG (comptroller and auditor general). No change in
the heads of account can be effected without his approval. No demand for grant can be introduced in the parliament without
prior approval of the President. Article of 92(b) of the Constitution has a provision for making a demand for grant titled
'Unexpected Expenditure'. It is a separate grant shown as lump. There is an elaborate procedure as to how the money should
be drawn. The money drawn from this account has to be incorporated in revised budget/supplementary budget. Re-
appropriation of funds are effected following the delegation of authority orders which defined the extent to which and on
what items re-appropriation of funds can be made by office heads, departmental heads and ministries and divisions.
Stages of budget procedure in Bangladesh are preparation, approval, implementation, and follow-up. Policy components of
the budget are: (a) fiscal measures or revenue policy; (b) expenditure proposed for basic functions of the government, ie,
revenue or current expenditure; (c) development or public investment, ie, ADP; (d) money budget, commonly called credit
and liquidity programme; and (e) authorisation for implementation of these policies.
Revenue budget follows the traditional process of incremental budgeting. Estimates are adopted on the basis of preceding
year's expenditures and their historical trend. Development budget is related to long-term investment within the framework of
a long-term plan like Five-Year Plan (FYP), mostly in activities of building infrastructures and additional facilities for
production and services. Unlike revenue budget, development budget allocations are made on the basis of annual allocations
shown in each project documents and the resources realities. New and on-going projects get the full allocations as shown in
the Project Proforma (PP).
Finance division, ministry of finance is responsible for finalising the budget documents encompassing all stages from
collection, examination of ministerial submission and passage through parliament to final publication of it. Budget and
development wings of finance division take care of revenue and development budgets respectively while the internal
resources division prepares the TAXATION proposals.
The finance minister places the budget before parliament in June. It accompanies an introductory speech known as budget
speech consisting of two parts. Part one deals with the overall financial and economic conditions prevailing in the country and
government's economic performance during the last one year and also government's economic plans and programmes and the
budgetary allocation. Part two deals with taxation measures. After budget discussions, money bills, supplementary bill, and
appropriation bill are placed before the parliament. If, for any reason, it is not possible to pass the appropriation bill within 30
June, a vote on account of the bill has to be placed before the parliament. Usually, through this bill an amount equivalent to
two months expenditure is sanctioned.
Implementation of the approved budget is carried out through various rules and orders embodied in General Financial Rules
(GFR), Treasury Rules (TR) and the Delegation of Financial Orders issued by the finance division of ministry of finance.
Authorisations embodied in the Appropriation Act constitute the outer framework of a control, while expenditure sanction and
disbursement by executive authority at various levels follows a given pattern of delegated financial powers.
Budget implementation also involves balancing of government incomes and expenditures. Measures for realisation of income
and its quantum and the direction of expenditure affect the economic life of corporate bodies, individuals and households of
different income groups differently during the budget year.
Financial control is closely related to accountability and a control is exercised in order to ensure that the disbursements do not
exceed the amount provided for in the budget estimates, the expenditures are made for the purposes specified, and financial
propriety is ensured. The C&AG works as the watchdog in this respect. He prescribes the form and manner of keeping the
accounts of the Republic. He ensures account compilation and timely auditing, prepares reports, and places them to the
President who causes them to be laid before the parliament. This is an annual feature and this calls for compilation of two
types of accounts: Finance Accounts, and Appropriation Accounts
Finance Accounts, sometimes called Annual Accounts of the government, is compiled by controller general of accounts
(CGA). It incorporates comprehensive accounts of receipts and expenditures of the government. It classifies transactions
under respective heads pertaining to all approved heads of government accounts and is kept in two parts. Part one comprises
the accounts of total receipts and expenditures, the resultant revenue surpluses or deficits, the capital expenditures, including
transactions related to temporary and permanent debts, deposit transactions, and money adjustments. Part two exhibits
accounts of debts, deposit transactions, and money remittances. The accounts commence with a certificate of the C&AG that
represents and authenticates CGA's reports and accounts.
Appropriation Accounts separately indicates 'charged expenditure' and 'other than charged expenditure' for each budget
grant. This is sent to the controlling offices exhibiting budgetary provisions and expenditure thereof and their variation,
if any, for their comments. On receipt of the comments of the controlling officers, CGA prepares the accounts. The
rendering of audit reports on both accounts is the responsibility of C&AG and it serves the purpose of direction in which
rules and governments orders are followed by the disbursing authorities.
Bangladesh followed the financial management system that existed in British India adopted in Pakistan. After the
provincial autonomy was allowed in 1935, there had been two sets of financial rules: General Financial Rules (GFR-
1922) meant for Central Government and the Bengal Financial Rules (BFR-1937). In 1998, New BFR was issued
adjusting the overlaps and duplication of GFR-1922 and BFR-1937.
In 1990, a Committee on Reforms in Budgeting and Expenditure Control (CORBEC) was established and on the basis
of its recommendations, a programme named Reforms in Budget and Expenditure Control (RIBEC) was carried out.
RIBEC felt that changes in budget format, reduction of budget cycle and identification of flows of funds between
government and autonomous bodies are related to classification necessary for budgeting, accounting, expenditure
control, and analysis. COMPUTER oriented classification has been evolved and put to practice during financial year
1997-98 and this is based on code groups, such as legal codes, functional codes, and economic codes.'
The parliamentary control of budget is ensured by standing committees in respect of financial matters of the
government. These committees are (a) Committee on Public Accounts (CPA); (b) Committee on Estimates (CE); and (c)
Committee on Public Undertakings (CPU). The terms of references are laid down in the Rules (Rule No. 223- CPA,
Rules Nos. 235 and 237 CE and Rules Nos. 238 and 239 CPU). [Motahar Hussain]
 7. Budget preparation procedure in Bangladesh
1. Preparation: Finance division, ministry of finance is responsible for finalising the
budget documents encompassing all stages from collection, examination of
ministerial submission and passage through parliament to final publication of it.
Budget and development wings of finance division take care of revenue and
development budgets respectively while the internal resources division prepares the 
TAXATION proposals.
2. Approval: The finance minister places the budget before parliament in June. It
accompanies an introductory speech known as budget speech consisting of two
parts. Part one deals with the overall financial and economic conditions prevailing in
the country and government's economic performance during the last one year and
also government's economic plans and programmes and the budgetary allocation.
Part two deals with taxation measures. After budget discussions, money bills,
supplementary bill, and appropriation bill are placed before the parliament. If, for
any reason, it is not possible to pass the appropriation bill within 30 June, a vote on
account of the bill has to be placed before the parliament. Usually, through this bill
an amount equivalent to two months expenditure is sanctioned.
7. Budget preparation procedure in Bangladesh
3. Implementation: Implementation of the approved budget is carried out through various rules and
orders embodied in General Financial Rules (GFR), Treasury Rules (TR) and the Delegation of Financial
Orders issued by the finance division of ministry of finance. Authorisations embodied in the
Appropriation Act constitute the outer framework of a control, while expenditure sanction and
disbursement by executive authority at various levels follows a given pattern of delegated financial
powers.
Budget implementation also involves balancing of government incomes and expenditures. Measures
for realisation of income and its quantum and the direction of expenditure affect the economic life of
corporate bodies, individuals and households of different income groups differently during the
budget year.
4. Follow-up: Financial control is closely related to accountability and a control is exercised in order
to ensure that the disbursements do not exceed the amount provided for in the budget estimates,
the expenditures are made for the purposes specified, and financial propriety is ensured. The C&AG
works as the watchdog in this respect. He prescribes the form and manner of keeping the accounts of
the Republic. He ensures account compilation and timely auditing, prepares reports, and places them
to the President who causes them to be laid before the parliament. This is an annual feature and this
calls for compilation of two types of accounts: Finance Accounts, and Appropriation Accounts
8. Non developmental (revenue) budget
preparation process in Bangladesh
Preparation of the revenue budget is a multi-stage process implemented within a
time schedule. The first stage is the printing of departmental estimates, which is
followed by printing and distribution of Budget Forms (Estimating Officer's forms)
for supply to the accounts officers concerned, who fill them up with estimates
from all controlling offices and send consolidated estimates to the ministry of
finance. The ministry of finance then examines the estimates, receives schedule
of new expenditures and information on actual expenditures of agencies and
organisations in last six months, reviews new estimates on the basis of these
information, and prepares a rough edition of the budget and the schedule of new
expenditures.
 9. Developmental budget preparation process
in Bangladesh
• Development budget of the government of Bangladesh is a result of a continuous
process of identifying new projects, review of project concept papers (PCPs), and
vetting of the projects in ministries and in the Executive Committee of the National
Economic Council (ECNEC). Usually by December, the Economic Relations Division
(ERD) prepares aid memorandum, circulates it to the ministries for their
comments, and based on domestic resource projections by NATIONAL BOARD OF
REVENUE and the Internal Resources Division, the ERD revises the aid
memorandum. The document is then sent to the Cabinet for approval. Resource
position for revenue expenditure and budget is then estimated and the
Programming Committee finalises eligible projects for inclusion the 
ANNUAL DEVELOPMENT PROGRAMME (ADP). In fact, ADP is the development
budget, which, like the revenue budget requires approval of the parliament.
 10. Development Budget preparation : The
instruments for implementation of the five year plan
• Revenue budget follows the traditional process of incremental
budgeting. Estimates are adopted on the basis of preceding year's
expenditures and their historical trend. Development budget is
related to long-term investment within the framework of a long-term
plan like Five-Year Plan (FYP), mostly in activities of building
infrastructures and additional facilities for production and services.
Unlike revenue budget, development budget allocations are made on
the basis of annual allocations shown in each project documents and
the resources realities. New and on-going projects get the full
allocations as shown in the Project Proforma (PP).
11.Non development vs Development Expenditure
12. Constituent parts of National budget

• Two constituent parts of the government budget are the

A. Consolidated funds (Fund) and
B. Public accounts (Account).
 A. Consolidated funds (Fund)

• Consolidated Fund includes all receipts of the government, all loans

and grants received from domestic and foreign sources and the
recoveries of loans and interest thereon. All disbursements for both
revenue and development heads are made from the Fund.
 B. Public Account
•  Receipts in Public Accounts of the Republic represent the part of the
exchequer, which do not constitute the Consolidated Fund. These
relate mostly to transactions, in respect of which the government acts
as custodian or banker in trust. These receipts include provident funds
of government employees, post office savings deposits, various
deposit accounts (local funds, judicial deposits, foreign aid deposits
etc.), and adjusting heads like suspense and remittances. Some of
these transactions are only book transfers. The expenditures comprise
disbursements, which are set off against receipts and the difference
between receipts and expenditures represents a net accretion or
depletion to cash resources.
 13. Provision for Unexpected Expenditure
• Various departments, directorates, and ministries submit their estimated
funding requirements in the form of demand for grants. Demands for each
service is shown under the head issued by C&AG (comptroller and auditor
general). No change in the heads of account can be effected without his
approval. No demand for grant can be introduced in the parliament without
prior approval of the President. Article of 92(b) of the Constitution has a
provision for making a demand for grant titled 'Unexpected Expenditure'. It is
a separate grant shown as lump. There is an elaborate procedure as to how
the money should be drawn. The money drawn from this account has to be
incorporated in revised budget/supplementary budget. Re-appropriation of
funds are effected following the delegation of authority orders which defined
the extent to which and on what items re-appropriation of funds can be made
by office heads, departmental heads and ministries and divisions.
  14. Policy components of the budget
Policy components of the budget are:
• (a) fiscal measures or revenue policy;
• (b) expenditure proposed for basic functions of the
government, ie, revenue or current expenditure;
• (c) development or public investment, ie, ADP;
• (d) money budget, commonly called credit and liquidity
programme; and
• (e) authorisation for implementation of these policies.
 15. Types of national budget (estimates)
• A government budget is an annual financial statement which outlines
the estimated government expenditure and expected government
receipts or revenues for the forthcoming fiscal year. Depending on the
feasibility of these estimates, budgets are of three types –
• 1. Balanced budget,
• 2. Surplus budget
• 3. Deficit budget
• 4. and the Revised budget
16.
 Types of budgeting methods
5. Planning, Programming, Budgeting System (PPBS) is a result-oriented budget and program planning
strategy with considerable involvement of people. It is an approach with a chance to succeed. ... It does
not provide the content for a sophisticated philosophical analysis of PPBS.
This approach, elaborated by the RAND Corporation, USA in the middle of 60s attempted to integrate in
one system the elements of planning, programming and budgeting all together and was called
“planning‐programming‐budgeting system” (PPBS). The abbreviation PPBS stands for the following
three phases of this procedure:
a) Planning is what may be called strategy in the sense that at this point the concern is to define, using
prospective studies, the set of long term objectives for which various services will be responsible.
b) Programming consists of defining the administrative steps and for organizing the necessary logistics for
carrying out the set of actions in order to reach the selected objectives. In this phase, the resources in terms
of human resources, capital (investment) and research are determined for the duration period covered. The
programmes are laid out through a work plan that is, however, of only indicative value.
c) Budgeting is the phase when the annual parts of the programme are translated into annual budget, taking
into account the financial constraints. The idea is to adopt on a voluntary and progressive basis, within the
administration, a coherent way of preparing, implementing, and controlling decisions made at each level of
responsibility. In brief, the PPBS method is to set certain major objectives, to define programmes essential to
these goals, to identify resources to the specific types of objectives and to systematically analyse the
alternatives available.
 17. Pre-budgeting meeting
• FBCCI: Federation of Bangladesh Chambers of Commerce and Industries
(FBCCI; Bengali: বাংলাদেশ শিল্প ও বণিক সমিতি) is the apex trade organization of
Bangladesh playing a pivotal role in consultative and advisory capacity,
safeguarding the interest of the private sector in the country.
• BGMEA: The Bangladesh Garment Manufacturers and Exporters
Association (BGMEA) is the apex trade body that represents the export
oriented woven, knit and sweater garment manufacturers and exporters
of the country.
• REHAB: Real Estate and Housing Association of Bangladesh is a real
estate trade body in Bangladesh. Shamsul Alamin is president of
REHAB.The association was founded in 1991 with eleven members which
had grown to 1151 members by 2016. It holds an annual real estate in
Bangladesh fair titled the Rehab fair in Dhaka.
• Others key organizations
 18. Presentation of Budget Proposal
The finance minister places the budget before parliament in June. It
accompanies an introductory speech known as budget speech consisting of two
parts.
• Part one deals with the overall financial and economic conditions prevailing in
the country and government's economic performance during the last one year
and also government's economic plans and programmes and the budgetary
allocation.
• Part two deals with taxation measures. After budget discussions, money bills,
supplementary bill, and appropriation bill are placed before the parliament. If,
for any reason, it is not possible to pass the appropriation bill within 30 June, a
vote on account of the bill has to be placed before the parliament. Usually,
through this bill an amount equivalent to two months expenditure is
sanctioned.
19. How to budgetary process becomes manageable?
• Establishing actual position
• Comparing actual with budget
• Calculating variances
• Establishing reasons for variances
• Taking action to exert control
 20. Cost Benefit Analysis

Cost–benefit analysis, in governmental planning and budgeting, the attempt to

measure the social benefits of a proposed project in monetary terms and compare
them with its costs.
This attempts to do for government programs what the forces of the marketplace
do for business programs: to measure, and compare in terms of money, the
discounted streams of future benefits and future costs associated with a proposed
project. If the ratio of benefits to costs is considered satisfactory, the project should
be undertaken. “Satisfactory” means, among other things, that the project is
superior to any available public or private alternative. Or, if funds are limited, public
investment projects may be assigned priorities according to their cost-benefit
ratios.
 Steps of cost benefit analysis

Create time
Understand Identify Identify the Determine line for
the cost the cost
benefit cost expected cost
savings and revenue

Cost benefit Analysis