Some developing countries still have separate capital budget

Some developing countries still have separate capital budgets, while advanced countries tend to have a single unified budget. 2. Elaborate on each of the three reasons in a short paragraph of 2-3 sentences.

Solution

Although many developed administrations may not consciously seek to optimize this current/capital spending balance, they nonetheless aspire to achieve consistency and efficiency within the context of their on-going resource allocation and budget management decisions. In fact, getting the right balance between current and capital spending across the whole range of budget interventions and activities will depend substantially on the quality of budget planning systems and capabilities. While these issues may involve a much wider range of factors than simply the extent of budgetary integration per se, there is no doubt that a unified budget generally makes it easier to develop better systems, policies and capabilities in these areas.

The budget systems of countries with a high degree of integration between current and capital expenditures exhibit several key features:

• a single (combined) annual budget law and appropriation process;

• clear, and unified, responsibilities for budgetary preparation and implementation within the relevant public sector institutions;

• the existence of effective and widely employed investment appraisal techniques;

• a unified budget presentation, with supporting classification and accounting systems; and • budget planning and management techniques within individual spending agencies that encourage and enable good use of financial resources.

Most developed countries’ budgetary systems incorporate some of these features. However, the full benefits of a unified budget can only be achieved where each of these conditions is present. And although each of these features is important, it is often in the last area?the budget planning and management within spending agencies?where the most challenging reform measures, and greatest gains, are to be found.