The Role of the Legislative Budget Office (LBO)
In
The National Budget Process:
PREPARED BY:
PROF. F. JULIUS CAESAR
LEGISLATIVE BUDGET OFFICE (LBO)
LIBERIA LEGISLATURE
CAPITAL HILL
MONROVIA, LIBERIA
FEBRUARY 1, 2011
CONTENT
I.
Introduction
 Purpose of Governmental Budgeting
 Basic Principle of Governmental Budgeting
 Basic Problems and Concerns of Budgeting
II.
Overview of the Budget Process
 Preparatory Process
o Executive Preparation
 Budget Ceiling in Liberia
 Budget Hearings
 Legislative Consideration
o Current Challenges
 Budget Implementation
o Allotment
o Budgetary Transfers
o Personnel Action Notices
o Potential Challenges
 Monitoring and Evaluation
o Potential Challenges for Effective Monitoring & Evaluation
III.
The Legislative Budget Office
 Purpose
 Measurable Program Objectives
 Activities
 Challenges
 Relations
IV.
Compendium of Reports
 Reports Needed for the Process
 Cost Estimates and Mandate Statements
 Analytical Studies
 Budget Review
V.
Conclusion
ACRONYMS
HoR
LBO
DOB
NBC
LMAs
MTEF
PANs
SMP
CSA
GAC
BTs
House of Representatives
Legislative Budget Office
Department of Budget
National Budget Committee
Line Ministries and Agencies
Medium Term Expenditure Framework
Personnel Action Notices
Staff Monitoring Program – IMF
Civil Service Agency
General Auditing Commission
Budgetary Transfers
-1-
Profile of F. Julius Caesar
Hon. F. Julius Caesar is a seasoned Liberian Economist with
extensive public sector experience, having served in various
positions in the Bureau of the Budget, now Department of the
Budget at the Ministry of Finance. He also served as Deputy
Minister/Administration and Insurance at the Ministry of
Transport. Prior to this appointment, Hon. Caesar served as
Acting Institutional Head of the Bureau of the Budget. During
his tenure at the Bureau of the Budget, Hon Caesar also served
as Deputy Director General for Administration and Technical
Advisor to the Budget Director, where he guided budget policies and formulation,
implementation; and monitoring, controlling and evaluation. He has contributed and continues to
contribute to international research through active engagements with the National Budget
Committee, USAID, the IMF, US Treasury and Alexander Grant Consultancy Firm, and UNDP.
He was the Liberian Counterpart of the USAID funded Liberian Improved Budget Assets, and
Mining Management (LIBAMIM) Project.
On April 28, 2011, he was appointed Director of Legislative Budget Office (LBO), with a
contract for five years. The function of the LBO is to assist the Legislature, through the Ways,
Means, Finance and Budget Committee of the Senate and the House of Representatives, by
conducting objective and imperial analyses of public expenditures and revenues relative to the
Budget as shall be contained in the Budget proposal of the President of Liberia to enhance
Legislative oversight and accountability consist with the relevant provisions of the Constitution.
He is also a lecturer of Government Budgeting, Public Finance and Economics at the University
of Liberia and the Cuttington University Graduate School.
-2-
The Role of the Legislative Budget Office (LBO)
In
The National Budget Process:
Introduction
The Budget is a very important instrument in the furtherance of the democratic process in any
nation. It is an indispensable tool for the promotion and maintenance of “good governance” with
the potential to foster peace and national development. Against this background, the processes
that lead to the formulation and implementation of the National Budget is very crucial and
should therefore be well guarded so as to guarantee the protection and articulation of the interests
of all stakeholders in the nation.
Endowed with rich soil, abundant rainfall and a large array of materials, Liberia has many
material resources which should facilitate the achievement of economic prosperity. But the
nation has inherited a legacy of mismanagement by previous governments, setting back the clock
on its economic and social development.
Since the inception of the new Government, fiscal reforms have been directed at stabilizing
public sector finances, the liberalization of the monetary and financial sectors, improving the
climate for private sector investment, improving revenue collection and encouraging investment
in key areas.
In this regard, the Government continues to institute measures to address budget management
issues raised by international financial institutions and donor agencies regarding transparency
and accountability in Government revenue collection and expenditure. Some progress has been
made in a number of key areas under the SMP. This program aims at fostering macroeconomic
stability, consolidating progress in building the economy and continuing to restore public
confidence in the context of a post conflict environment.
In view of the above, the budget formulation process has taken on a new dimension in light of
recent budget innovations to improve allocative efficiency with the aim of better addressing the
socio-economic and political realities of post conflict Liberia. There is now a greater realization
of the need to allocate our scarce resources in an optimal manner that will ensure that the goals
of the Government are realized. In so doing, resources should target areas of greatest needs. The
budget formulation and implementation processes therefore require collaborative decision
making of all branches of Government devoid of any existing suspicion in any quarter.
-3-
This paper describes the budgetary process and the crucial role the LBO, (which is the technical
arm of the National Legislature,) plays in helping to provide and equip the First Branch of
Government who has the “Power and control of the Purse” with critical information needed to
efficiently and professionally guide the process. This is very important considering that the
Legislators are the representatives of the people.
Definition of a Budget
 The Budget is a major policy instrument for the articulation of national socio-political
and economic development objectives, through which stakeholders determine the
allocation of scarce resources to ministries/agencies
a. In financial terms, the Budget is an estimate of receipts and expenditure.
 The formulation process involves choosing among alternatives, priorities and also
includes significant statement of policy; (i.e., the President’s goals and priorities are
reflected in the budget).
 The strength of the Budget is a reflection of the Government’s structure.
Purpose of the Government Budgetary Process
The budgetary process has two main objectives
b. What services does Government intend to provide?
c. How will the provision of these services be financed?
Basic Principles of Budgeting
An effective budget must be carved along three basic principles as follows:
 Comprehensiveness

Coverage of budget: all public resources should be open to equal scrutiny and
allocation; problem of hidden resources and costs
 Realism

Realistic resource estimation: problems of inaccurate revenue forecasting and
debt limits

Realistic costing and output targets
-4-
Transparency/Accountability

Issues of transparency in budget formulation, implementation and evaluation to
enhance accountability of officials and legislators
Basic Problems in Government Budgeting
The problems in Government Budgeting are centered on two main issues:
How much resources will be committed to a given project (allocation of scarce resources)
Which, among competing priorities, will be funded or implemented? (i.e. infrastructure
development versus provision of social services)
In the Private Sector, this problem is solved by the interaction of market forces where prices
and profits determine resource allocation, whereas in the Public Sector, a different set of
forces interplay to determine resource allocation and what projects to be funded. These
forces are driven by key considerations amongst which are:
Allocation of Public Expenditure
Allocation should be made across output, services and sectors. To achieve distributional
growth and economic efficiency goals, the development of all sectors in the economy must
be prioritized regardless of input into the general economy as the overriding goal is to
engender comprehensive national development.
Control of Public Finance
Expenditure must be in line with planned programs and budgetary allocations. There must be
stabilization through deficit control.
Efficiency of Public Expenditure:
Planned Programs must be cost effective or the Budget must be technically efficient so as
to achieve “value for money”.
-5-
Concerns of Budgeting
Lack of requisite capacity on the part of policy makers continues to plague the budgetary process
with specific reference to the formulation and implementation of national budgets and
accordingly is a major concern in Liberia. Paramount among issues in this regard includes:
•
Poor link between policy making, planning and budgeting
–
•
•
•
•
•
Policy makers/planners are ill-informed about budgetary implications
Weak expenditure control
–
Hard vs. soft budget constraint
–
Impact on the economy and growth
Little relationship between budget as formulated and budget as executed
–
Budget and policy priorities are not linked
–
Poor and overly optimistic revenue forecasts lead to deficits and under-funded
budgets
–
Long-term policy failure
Over emphasis on investment projects and job creation; and inadequate funding of
operations and management
–
Half completed projects, lop sided growth
–
Decay of infrastructure and poor quality of services
Unreliability in flow of budgeted funds to line ministries and agencies
–
Spend budgeted amount as soon as possible without attention to priorities
–
Revenue shortfall adversely affects flow of funds to LMAs to implement planned
programs
Poor management of external aid
–
Waste of resources, conflicting priorities between donors and government and
among donors
-6-
•
Poor cash flow management
–
•
Inadequate reporting and lack of monitoring
–
•
Government activities occasionally coming to a halt
Both financial and physical performance are poorly monitored
Ill trained staff with low motivation
–
Need for capacity building and incentives
Overview of the Budget Process
 The process is initiated in the Executive Branch.
 Usually the process begins in March.
 The Budget Cycle contains four identifiable phases:
 Executive Preparation/Budget Formulation
 Legislative Consideration
 Budget Implementation, and
 Monitoring and Evaluation
Preparatory Process
The budget formulation process has two major phases. These phases are: a) Executive
Preparation and b) Legislative Considerations.
Executive Preparation
 At the technical level, the budget exercise/process begins with the preparation of the
basic funding analysis and Budget Policy Guidelines
 The basic funding is the expenditure profile of a Ministry/agency. It considers the
recurrent impact on the Budget, through budgetary transfers, and Personnel Action
Notices (PANs). It excludes non-recurrent items – machinery and equipment, and items
of one shot nature.
-7-
 At the policy level, the President, Cabinet, and NBC determine the broad priority areas
for spending, i.e. sectors, programs and activities.
 The NBC issues the Budget Preparation Guidelines
 Revenue projections
 Indicate budget ceilings determined by model MTEF for sectors, LMAs and
priority areas
 NBC request for estimates from LMAs
-8-
During the Executive Preparation of the budget two hearings are held
Budget Hearing I
At Budget Hearings I, the following take place:
 Revenue estimates discussed by NBC; LMAs justify their programs and requests for
funding; NBC collates the notes from the LMAs presentations; and
 NBC makes recommendations to the Cabinet.
Budget Hearing II
At Budget Hearings II, the following take place: Cabinet discuss the NBC recommendations, and
holds a budget retreat to determine policy direction.
Concerns addressed at the retreat center on:
Financial and Economic concerns
Definite revenue estimates; final ceilings for LMAs; and Other macroeconomic policy
details.
Quantitative concerns
Balanced budget (Cash-Based); budget within ceilings; appropriate balance among
sectoral allocations and appropriate balance among expenditure categories (Personnel,
Good & Services, Capital)
Qualitative concerns:
Comprehensiveness: cover all government revenues and expenditures; transparency: a
clear trail from details to aggregate summaries for revenue and expenditure so that the
implications of policy proposal and operating assumptions are clear, and Accountability:
clarify responsibility for amounts and purposes of funds.
Constituency Concerns
 There is an uneven distribution of resources through the Country; concerns are
centralized in the central government ministries/agencies; and anticipation that with the
introduction of program budget and the poverty reduction strategy constituency concerns
will be addressed.
-9-
d. Potential Challenge
 Liberia faces an ambitious reform agenda. In order to secure balance growth, there is
urgent need to achieve fiscal viability through significant and durable revenue
mobilization efforts; proper integration and comprehensiveness of the budget. This would
minimize financial constraints and the need for defining the public sector’s role in the
economy.
 Enhancing the efficiency of public resource management, including rationalizing the
allocation process, in order to address priority sector needs; alleviating the constraints on
a time-consuming budgetary process and a complex institutional environment; initiating
efforts to transform the annual budget into a medium term framework; and Re –
introducing program budgeting in order for public resource
 Management geared towards objectives, results and outcomes. Areas to strengthen in the
short to medium term:
 DOB to provide spending ceilings at the beginning of the formulation process;
adopt a more programmatic approach ensuring focus on inputs, activities and
outputs linked to the desired outcomes; lengthen the formulation time table.
e. Legislative Consideration
According to Article 34 D of the Liberian Constitution, “the power and control over the purse”
rest in the hands of the Legislature. Consequently, after the Executive have prepared the Draft
National Budget, the President submits the draft budget to the Legislature with a Budget
Message that outlines all the policy considerations and macroeconomic assumptions for the
budget proposal.
At the Legislature the following procedures are observed:
 The House of Representatives (HoR) receives the budget for scrutiny and deliberation; a
resolution is passed on the budget; the HoR then forwards the budget to the Senate for
scrutiny and concurrence; and the two Houses pass a joint resolution to approve/reject the
budget.
The Legislature, in its deliberations on the Budget, is concerned with the following policy issues:
 Avoidance of revenue dedications/earmarks or other long-term commitments that
prejudice current priorities; prioritization: clearly defined public purpose and desired
result, i.e., meeting established policy benchmarks; Compliance with the law and stated
budget policies; National priorities; Interest of constituencies; Special group interests.
-10-
Budget Implementation
If the two Houses pass a joint resolution approving the Draft National Budget, same is returned
to the President to be signed into law. The Budget, when signed into law, becomes the legal basis
for implementation. An approved budget becomes an important managerial tool, both to guide a
Ministry’s/ Agency’s operations according to plan and to ensure that expenditure does not
exceed appropriation.
Three tools used to implement the budget are:
Allotments
Well functioning fiscal systems divide the total budget appropriation into operating units for the
year into quarterly or monthly allotments based on projected revenue for the period and approval
from the Central Budget Office (Department of the Budget).
Budgetary Transfer
A budgetary transfer is a request made by a Ministry/Agency to remove funds from a nominal
program to one of higher productivity or higher priority. There are two types of budgetary
transfer.
(a)
An Internal Transfer – a transfer made within a Ministry/Agency (from one
program to another).
An External Transfer – a transfer made from one Ministry/Agency to another. Note: No
transfer shall be made from one Branch of Government to another without the consent of the
Branch from which the transfer is being made.
Personnel Action Notices
PAN is the control tool used to place or remove an individual’s name from the payroll of
particular LMAs. The wage bill has shown relatively rapid rates of increase in recent years
without management control. We should make serious efforts to improve manpower utilization
without violating the Government’s Employment Policy. All employment must be done through
the CSA and that employment should be done in line with Ministry’s/Agency’s personnel needs.
Potential challenges
Judicial implementation of the Budget is not without challenges. One major challenge when
implementing the budget is the low institutional capacity of LMAs. There is also the challenge of
the procurement process which often conflicts with budget procedures. Another challenge is the
problem of irregular reporting of the activities of LMAs. Lack of the requisite computer
technology and software continue to make reconciliation of accounts and reporting difficult at
LMAs.
-11-
Monitoring & Evaluation
An important link in the budget cycle is the monitoring & evaluation of LMAs to ensure
compliance with planned programs and expenditure levels as reflected in the National Budget.
The monitoring and evaluation of the activities of LMAs are done through three mediums,
namely:
Internal audits at LMAs; Periodic reports – quarterly, midyear and end of year
performance reports; and External audit by General Auditing Commission.
Potential Challenges for Effective Monitoring and Evaluation
1. Weak internal audit structures at some LMAs; the GAC still building capacity;
and absence of national accounting standards.
The Legislative Budget Office (LBO)
LBO was created by an act of the National Legislature on August 17, 2010.
Purpose of the Legislative Budget Office
Its purpose is to review and analyze the National Budget to ensure that national budget
adequately considers the national priority programs; and assure that the revenue projections are
near realistic.
The LBO has the following statutory mandate:
To collect, consolidate and process financial and socio-economic information and data for
the use of legislative committees as well as groups and/or individual lawmakers.
To collect and interpret, for the benefit of committees, groups and/or individual members of
the Legislatures, financial and socio-economic information and data from all institutions and
experts.
To collect, analyze and consolidate information and data relating to expenditures of all
programs and sub-programs of the Legislature and consolidate said information and data into
a single draft budget for the institution.
-12-
To collect, process, and analyze, for the benefit of committees, groups and/or individual
members of the Legislature, the sources of national revenues; objects of national
expenditures; as well as other vital socio-economic data necessary to understand, predict and
project the state of the national economy.
To produce critical socio-economic reports for the benefit of the legislative committees as
well as groups and/or individual Lawmakers in the performance of their monitoring and
oversight responsibilities.
To perform other financial and socio-economic information gathering and interpretation
function as may, from time to time, be requested or determined by either the Plenary
Sessions or Committees of the Senate and House of Representatives or by individuals or
group of Lawmakers.
To provide an independent re-estimate of the President’s budget proposals based on the use
of a consistent set of economic and technical assumptions, thereby engendering the basis for
the Legislature to make comparative analysis of the President’s spending or revenue or
revenue proposals to other proposals.
To analyze the spending or revenue effects of specific legislative proposals, prepare cost
estimate of pending legislation and track the progress of such legislation in a scorekeeping
system.
To present an Annual Fiscal Report to the Legislature not later than 60 days after the end of
the fiscal year this shall include illustrative scenarios for spending and revenues and describe
the effects on the implications of those scenarios for the economy now and in the future.
Measurable Program Objectives
Prepares analyses, estimates relating to the budget and presents, where necessary, alternatives
for the National Legislature to consider.
Activities:
The LBO shall seek to achieve the following specific objectives:



Assist the National Legislature formulate a budget plan;
Assist the National Legislature assess the impact of government mandate;
Provide pertinent information that will assist the National Legislature in
considering issues related to the budget and economic policy;
-13-





Ensure that the Legislature understand and is kept fully apprised of the state of
affairs pertaining to Liberia’s financial management in order to execute its
oversight, appropriation and lawmaking responsibilities;
Assist the Legislature in obtaining financial autonomy status by drafting the
appropriate structures and instruments acceptable to the Legislators and the
Executive;
Provide advice on the role and activities of the General Auditing Commission
(GAC) and propose a mechanism for monitoring and handling its reports;
Participate in and guide the drafting of the budget of the Legislature and
Monitor revenue flow and expenditures with the aim of ensuring adherence of
financial plan of government, fiscal transparency, accountability and probity.
Current Challenges
 The LBO, though legislated and now functional, is saddled with many challenges. There
is a lack of appreciation and understanding of the need for the LBO to be totally
independent and non partisan in all respects. Considering the emergence of a pluralistic
democracy in Liberia, the need for a Budget Office that is non partisan and can be trusted
by both ruling and opposition parties cannot be overemphasized. To achieve this
objective, the LBO must be constituted as a Separate Program in the administrative
structure of the National Legislature.
 Adequate budgetary support required to attract the quality of professional staff necessary
to man a functional and productive Budget Office is still lacking. Adequate budgetary
support is crucial in order to insure commitment, integrity and productivity of staffers.
Compendium of Reports
Cost Estimates and Mandate Statements
The LBO will produce a cost estimate and mandate statement for every bill reported by a
Legislative Committee. Each cost estimate will provide an assessment of the range of budgetary
effects pending legislation. The Economic and Cost Estimates analysis of bills to be passed is
intended to establish the bill’s revenue and social impact and its compliance with established or
existing Government mandates. The specific concerns of the analysis include:
 The potential impact on spending subject to appropriation (discretionary spending);
 The impact on mandatory spending (direct spending);
 The impact on government revenues.
-14-
Reports Needed for the Process
The LBO will prepare reports on the budget and economic outlook. This report will provide the
Legislature with a baseline against which to measure the effects of proposed changes in spending
and tax laws. To construct economic forecasts and projections, the LBO will draw from ongoing
analysis of daily economic events and data.
Analytical Studies
The LBO will perform analytical studies at the request of the leadership of Legislature,
Legislative Committees or Subcommittees, and other interested parties and stakeholders.
Budget Review
The LBO will issue monthly analysis of Government spending and revenue totals for the
previous month, the current month, and the Fiscal Year to date. These reports will be based on
information obtained from the Ministry of Finance, the Central Bank and other institutions. Its
purposes are to inform the Legislature and public on the monthly status of outlays, receipts, and
the deficit or surplus throughout the Fiscal Year.
Accordingly the LBO will produce reports and publications including:
Reports needed for the budgetary process, such as The Budget and Economic Outlook, An
Analysis of the President’s Budget, and other annual, biannual and semiannual reports; analytical
studies, which explore economic and budgetary issues involving the national budget; briefs,
which provide short analyses of policy issues; the Monthly Budget Review, which summarizes
the fiscal activity of the government during the previous month; and background papers and
related documents, which describe the assumptions and technical methods underlying various
aspects of the LBO.
IV. CONCLUSION
Limited transparency and accountability have constrained the efficiency with which institutions
and processes utilize resources. Thus, the main controlling agency, the Ministry of Finance
through its Department of Budget, have had little success in fostering accountability, as
illustrated by the profile of revenue and expenditure estimates. It is hoped that better
collaboration and coordination will be fostered in the near future.
Recent innovations in the budgetary process have recognized the need for allocative efficiency.
Thus the Budget has become input and output oriented. All efforts are being made to relate
output to input which will indicate the efficiency with which resources are converted to output. It
will also consider the impact of the output or service on the environment. To do this, requires
that a lot of financial and economic data must be forthcoming and interpreted so as to determine
their impact on national development. Performance measurement will be carried out to make
sure that the budgeting system in the future will be cost conscious and result oriented.
-15-
The LBO must therefore be an indispensable partner in the new trend of budget formulation,
implementation and monitoring. With the expertise of the LBO, relevant data and publications
that will aid the budgetary process are expected to be produced periodically. It is envisaged that
these documents will have wide range of end users both locally and internationally.
The enactment of the LBO has sent a positive signal to both our national and intentional partners.
It confirms our compliance with the requirements of transparency and accountability. As a
Government, we must strive to sustain its budgetary and financial support. These partners are
watching out for how much support is being given the LBO by Government. The current
structure of National Legislature Budget does not indicate specifically what is being appropriated
for the LBO.
-16-