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Issue 17 | September 2023
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Budget Execution is central to the delivery of services at the lowest level

img By Medard Kaganzi, Research Intern, ACODE

Budget execution is at the core of government businesses globally and also quality budget execution is measured in terms of a government's ability to accurately hit its own revenue and service delivery targets. In a study on the effect of budget execution on service delivery, Ejang, M. et al (2022) observed that budget performance affects service delivery. Qazi et al., (2016), also observed that improving service delivery requires allocating sufficient budget resources that bridge gaps between budget performance monitoring and planned activities1. In budget execution, spending often fails to meet expected performance and it is important to differentiate the source of this performance failure to specify the cure. In this case, efficient budget execution should be2.

  • Technically efficient: Technical efficiency implies the impossibility to reduce the physical level of any input without reducing the level of output
  • Economically efficient: Economic or allocative efficiency implies the impossibility to substitute one input for another without increasing the total costs of a given output or service level.
  • Technically effective: Implies that resources allocated efficiently (both in a technical and economic sense) to provide a certain service must satisfy the objectives it was designed to meet
  • Economically effective: Implies that the budget should be aimed at the critical sectors of the economy that can quickly offset the economy to the next higher level.

In Sub-Saharan Africa, Uganda inclusive, one of the leading causes of poor budget execution is low absorption. This continues to be a persistent challenge amidst the deficit budgets these countries run. Low absorption means that a significant portion of government funds earmarked for a specific program or project remains unutilized within a designated financial year. According to MoFPED FY 2020/2021, a total of UGX 589 billion unspent money was returned by LGs to the Treasury3. The following financial year (FY 2021/22) the OAG Annual Report (2021) shows that UGX 587 Billion was returned by LGs again. However, we should note that Section 17 (2) of the Public Finance Management Act (2015 as amended) requires that all LGs that fail to spend money appropriated are to return it to the Consolidated Fund at the end of the fiscal year4. This article, therefore, explores the challenge of low absorption during budget execution and its impact on service delivery.

In the year 2010, Uganda embarked on a journey to attain middle-income status by coming up with a development policy framework known as Vision 2040. This is to be achieved through a series of medium-term expenditure frameworks –the National Development Plans (1, 2, and 3). However, this target is failing to realize expectations due to a series of continuous failures to attain the medium-term targets caused by such budget execution shortfalls. Over time, Uganda’s Central and Local administration units have persistently grappled with inadequate funding but amidst the inadequate funds, poor absorption makes it dire. It is important to note that some of these appropriated funds in the budget are loans that must be paid back with interest and currently debt servicing and Repayment takes up about 9 trillion which is about 16% of the whole 2023/24 financial year budget.

A look at the Auditor General’s Report FY 2021/2022 , shows that Parliament passed a UGX 51.562 Trillion budget to finance Government expenditure. However, the warranted (released) funds were UGX 48.854 Trillion. And the actual expenditure was UGX 44.43 trillion. This means that unutilized funds were UGX 4.419 Trillion which amounts to about 9% of the total released funds as illustrated in Figure 1 below:6

Figure 1: Level of Utilization of Funds (in Trillion Shillings)

Source: Auditor General’s Report for the Financial Year 2021/2022

Furthermore, the Auditor General’s Report reveals that MDAs returned UGX 3.832 trillion (about 9%) out of the UGX 43.759 trillion warranted. This implies that MDAs only utilized UGX 39.927 trillion (91%)7. local governments spent UGX 4.508 trillion out of the UGX 5.095 trillion warranted (released) funds. This means that Local Governments returned UGX 0.587 Trillion (587 Billion) as illustrated in Figure 2.

Figure 2: Utilized Funds in MDAs and LGs in FY 2021/22 in Trillion Shillings

Source: Auditor General’s Report for the Financial Year 2021/2022

Furthermore, the same Report revealed that 121 of 130 districts all over the country received 100% funding for the wage bill as requested, but only 11 of 130 districts had an absorption of 100%. Terego District registered the worst performance at a 63% absorption rate.

This article therefore observes contributing factors to the low absorption capacity of funds during the budget execution process some of which include:

  • Bureaucracy: Tendencies of delayed hiring and slow decision-making towards implementation of interventions by both MDAs and LGs have been cited as one of the causes of the return of money to the treasury.
  • Governance challenges: This arises from failed cohesion of the different responsible planning parties especially at the local government during the procurement, recruitment, and resource allocation processes and conflicts in sharing assets and liabilities of mother districts. This has undermined the coherence of the planning parties and credibility for a successful impartial budget execution.
  • Capacity constraints: limited institutional capacity at both MDAs & LGs for effective budget execution due to the low-skilled or insufficient human resources to effect spending mandate.
  • Late disbursement of funds by the Ministry of Finance: This has been cited commonly during payments and recruitments. These disbursements are mostly skewed towards the end of the last quarter of the financial year.
  • Lengthy Procurement processes: These are complicated by hybrid contracts management from the Central Government with minimal engagement from LG which further slows down budget execution.

Recommendations

To improve budget execution and absorption, especially at both MDA & LG levels, there is a need to consider the following:

  1. Streamline Bureaucratic Processes: Implement measures to expedite decision-making and hiring processes within Ministries, Departments, and Agencies (MDAs) and Local Governments (LGs). This could involve setting clear timelines for decision-making and recruitment, as well as simplifying administrative procedures to reduce delays.
  2. Enhance Governance and Coordination: Improve coordination among planning parties, especially at the local government level, to ensure smooth procurement, recruitment, and resource allocation processes. Strengthening communication and collaboration can help prevent conflicts over asset sharing and liabilities, promoting a more effective budget execution.
  3. Build Institutional Capacity: The MDAs & LGs should undertake continuous capacity building of staff for proper retooling, skilling, and improvement in working conditions to ensure effectiveness and efficiency in budget execution
  4. There is a need to strengthen budget monitoring systems both at the National and Local Government Levels.
  5. Timely Disbursement of Funds: The Ministry of Finance should adopt a more balanced approach to fund disbursement throughout the financial year. Ensuring the regular and timely release of funds can prevent the rush of spending towards the end of the year and improve overall budget execution efficiency.
  6. Simplify Procurement Processes: Review and simplify the procurement processes, aiming to reduce complexities caused by hybrid contracts management. Involving local governments more actively in procurement decisions could lead to more streamlined procedures and faster execution

Conclusion

To address the challenges associated with the low absorption capacity of funds during the budget execution process, a multi-faceted approach is necessary. By addressing bureaucratic inefficiencies, improving governance and coordination, investing in capacity building, ensuring timely fund disbursement, and simplifying procurement processes, governments can enhance their budget execution efficiency. These recommendations seek to create an environment where allocated funds are utilized effectively and interventions are implemented as planned, ultimately leading to improved public service delivery and developmental outcomes.

  1. Ejang, M. et al (2022). The Effect of Budget Execution on Health Service Delivery in Lira District, Northern Uganda. International Journal of Development Research Vol. 12, Issue, 11, pp. 60653-60659, November, 2022.
  2. Diamond, J. (2005). Establishing a performance management framework for government. IMF Working Paper
  3. MoFPED (2022). Highlights of the Budget speech FY 2022/23 Issue No 7 April-June 2022. Pg. 47
  4. MoFPED, (2015). The Uganda Gazette No. 11 Volume CVIII. Public Finance Management Act 2015
  5. OAG (2021). Annual Report of The Auditor General to Parliament for the Financial Year ended 30th June 2022. Government of Uganda. Pg. 130
  6. MoFPED (2022). Highlights of the Budget speech FY 2022/23 Issue No 7 April-June 2022. Pg. 47 National planning Authority (2010). The Uganda Vision 2040.

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Tel: +256(0) 312812150 Email: acode@acode-u.org

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