1. Budget Forecasting
Forecasting is the first step in the budget making process where various macro-economic projections are made, sources of revenues and tentative areas of expenditure are identified and based on these economic targets are set. The Resource Committee of the NPC leads the forecasting process and produces fiscal aggregates. The committee is chaired by NPC's Vice Chairperson and includes other members of the NPC. The committee also includes members from the Nepal Rastra Bank (NRB), the MoF and the FCGO. The process commences when this committee reviews the revenue and expenditure for the ensuing fiscal year. The Economic Affairs and Policy Analysis Division of the MoF formulate the annual economic policy analysis and the macroeconomic forecast. The NRB also prepares forecasts based on growth estimates. Based on both projections, the Resource Committee decides on a macro-fiscal framework. Apart from this, the governmental plans of three years, five years and other macroeconomic goals set up by the NPC are also taken into consideration. The external and internal sources of revenue are also projected and referred to during this stage.
Although these forecasts may not seem to have a direct linkage with the budget, they do affect the budget to a huge extent. The forecasting is the basis of the annual budget. Economic growth is targeted based on these estimates. Forecasting is a crucial step in budget formulation as its accuracy determines whether the budget will be balanced, in surplus or in deficit. We see the budget figures changing every year, and it is based on these forecasts that its gets altered. Forecasting is the first step that paves the path for other budget formulation activities. It is essential for the forecast to be comprehensive as it determines the nature and shape of the budget, and the indicators that define the forecast also define the economic objectives of the nation. Therefore any procedural issues affecting the forecasting phase are directly passed on to the subsequent phases.
2. Budget Ceiling Setting
Once a tentative forecast of the budget is prepared, it is presented to the budget committee comprising of members from the NPC and the MoF. The committee conducts extensive discussions regarding ceiling setting; an exercise that sets the limits on budget expenditure. A final shape to the budget is given at this stage. NPC also takes this opportunity to assess the budget utilisation and the progress of large-scale projects, which finally defines the scale of the capital budget. It is essential to set a ceiling on expenditures considering the limited resources. In the absence of such a ceiling, the request forwarded by the subordinate ministries may not be in line with the annual budget ceiling. This means that a considerable amount of time would have to be devoted to reconciling the ministry specific budget expenditures with the national level ceiling. Therefore, ceiling setting plays a vital role in limiting the size of the budget based on sectors and availability of resources.
3. Budget Planning
After the determination of annual budget ceilings, the NPC requests the line ministries to submit their capital budget estimates in accordance to the guidelines and sectoral budget ceilings. Along with the NPC, the MoF issues detailed guidelines to the line ministries that require the budgets to be submitted in the prescribed format and within the stipulated time.
At the local level, a meeting of the village council is called for discussing plans and programmes to be incorporated into the annual budget. Interest groups such as consumer committees, NGOs, political leaders and citizens are included in these discussions. Their plans are then forwarded to the VDC / municipality where it gets accumulated. Once the VDC scrutinizes and gives a green signal to the plan it moves up to the District Council which re-examines the budget and forwards it to the DDC. On the other hand, the district level development offices also forward their plans and budgets for the upcoming year to the DDC under the supervision of the relevant ministry. For instance, the health office in a district will make its plan according to the directives issued by the Ministry of Health and Population (MoHP) and forward it to the DDC and the concerned division or department of the ministry. The DDC then consolidates the budgetary demands of the health office with similar demands from different wards and sends it to the line ministry, which ultimately presents it to the NPC and the MoF for approval.
Once finalised, these plans are forwarded to the line ministry and then to the NPC. A tripartite discussion between the NPC, MoF and line ministry is held before finalizing the budget limits for the ensuing year. Upon receiving the budget requests, the NPC and the MoF compare various frameworks of the sectoral and national objectives. There is room for revision of the plans to achieve various programme targets for the upcoming fiscal year. The sectoral budgets are assessed in line with the budget ceilings. In the second round of the tripartite discussion, the MoF plays a crucial role where its main objective is to keep the budget within the approved budget ceilings. Meanwhile, the line ministries develop plans to achieve targets in diverse sectors which are reviewed by the NPC. Such projects are prioritised in the fiscal budget approved by MoF.
The budget formulation process displays both a bottom up and a top to bottom approach. This two way process is essential in creating a synergy between the national level plans and the local level needs. The actors in the central level authority are well versed with policies, plans, and guidelines while the local level actors are acquainted with the local needs, local capacity, and available resources in a particular area. It is when these two approaches coincide, that a fruitful expenditure plan of the budget can be obtained. This would ensure a budget that fulfils the demands of both the state and the locals.
4. Budget Approval
The final step in budget process is budget approval. Before the budget is presented in the parliament, the parliamentarians are presented with a draft budget document for their perusal. They discuss the overall budget whilst looking at sector-wise specifics. For instance, the MoHP has the opportunity to discuss and review the budget allotted for health programs. The comments and queries that arise during the ministry-specific discussions are discussed in detail until the relevant ministry and parliamentarians are satisfied with the clarifications provided to their queries. The budget is presented by the government only after the ministry level budget discussion ends. If the majority agrees with the budget then it is approved and is put into implementation. According to the Interim Constitution Article 96, if the budget is not passed at the beginning of the fiscal year, the parliament can use the “Advanced Law,” which allows the spending units an advance budget of up to one-third of the preceding year’s expenditure incurred. The programme implementation commences only after receiving the parliament's approval.