Government budgets and the budgetary process

The budget is technically the document that includes the government's expenditure and revenue proposals, reflecting its policy priorities and fiscal targets. The budget document is just one part of an ongoing budget decision-making process within government, and of a country's system for managing and assessing its spending and tax policies.(1)

Budgets prioritize and balance competing demands. The government's ability to raise revenue is often limited in developing economies, but there are infinite needs to be met by the public expenditure. The budget sets out the resources and funds expected to be available for the upcoming year and how the government will spend those funds, for example, what services and goods will be delivered. The budget allows governments to plan for the upcoming year, and hold government departments responsible for performance.

Knowledge of budgetary processes and cycles is essential for Employers' Organizations. This knowledge will enhance their policy advocacy work. Sound analysis of the budget requires an understanding of:

  • Why budgets are important.
  • Who is involved in the budgetary process and what their responsibilities are.
  • The key stages on the budget cycle.

Employers' Organizations should understand the underlying strategies and policies that budgets and their allocated resources are supposed to support.

As a country's main economic planning document, the budget necessarily reflects assumptions about key economic and fiscal indicators; however, developing countries typically face a range of macroeconomic circumstances that complicate budgeting and multi-year planning, ranging from a limited capacity to absorb external shocks like falling commodity prices, to narrow tax bases that yield erratic levels of revenue. Vulnerable to rapid shifts in underlying economic conditions, these countries find it more difficult to adhere to expenditure and revenue targets, and keep to even the best-laid budget plans.


If the Employers' Organizations proposal entails considerable new financial resources which are not accounted for in the current budget, then it needs to consider one of three things: a) advocate for an existing budget line to be downgraded or abolished, b) identify cost savings in the delivery of existing budget lines, or c) identify new resources or new ways of revenue-raising for government to fund its proposal.

In shaping its proposal, the Employers' Organization needs to analyze the national budget data. This entails a quantitative assessment of budget revenues and expenditures.

Revenue composition

Most national budgets derive their revenues from five major sources:(2)

  • Taxation revenues – compulsory contributions, mandated by law, the primary and traditional revenue source for most countries;
  • borrowings – debt taken on by the government with obligation for repayment with interest;
  • official development assistance (ODA) - financial assistance from other countries or entities that do not require repayment;
  • capital revenues – proceeds from sale of assets;
  • extraordinary income – non-recurring proceeds or income, and as the name suggests, does not occur regularly (e.g. a sale of a government corporation during privatization).

Expenditure composition

The most common budget expenditure classifications are by:

  • Programme – including sub-programmes and sub-sub programmes, etc.;
  • economic classification – recurrent or capital expenditures
  • standard item classifications – personnel expenditures, administrative expenditures, equipment, etc.
Box 1: Basic expenditure terms

Some definitions for basic expenditure terms include:

Recurrent expenditures: day-to-day operating expenses, usually incurred in the conduct of normal government operations. The largest recurring expenditures are typically public sector wages and salaries, administration, purchase of goods or services for current consumption, and so on.

Capital expenditures: moneys spent on capital items or fixed assets such as buildings, roads, and other infrastructure.

Transfer payments: funds transferred to other organizations or entities, not payments for productive work. These include retirement payments, disability grants, child support benefits, and so on.

Debt service payments: these are payments for past borrowings.

Investment contributions: payments made into capital investments.

 (1) International Budget Project:

 (2) Asian Development Bank (ADB): A Guide to Applied Budget Analysis in the Republic of the Marshall Islands, 2006