Question

1. What is the main objective of multiyear budgeting? What purpose does it serve?
2. Multiyear budgeting is usually a quantitative and technical process. Do you think it consists of a qualitative and political aspect as well? Why? Why not?
3. What are some of the key challenges of multiyear budgeting? How can they be addressed?

Answer 1

Definition and Objective

Budgeting is a function which helps Government and other organizations outline their goals and objectives for a specified period. Multiyear budgeting spans across two or more years. While annual budgeting has its advantages, the main objective of multiyear budgeting is to focus on long term planning and ensuring the budget is aligned for successful completion of the priority projects like community welfare etc.

There are 2 types of multi year budgeting process.

Classic multi year budgeting: where the budget is planned and approved once for the multi year period. Minor adjustments to the budget are allowed if there are any significant changes to economical, political, environmental etc changed. The current covid-19 pandemic can be classified as a significant change which can justify some minor changes to the budget.

Rolling over multi year budget on the other hand is approved for one year and rolled over to the next years based on a adjustments table prepared at the beginning.

Purpose of Multiyear budgeting:

1. To make long term planning more efficient, sustainable and successful.

2. Helps in planning and anticipation of any obstacles in advance and enhances the ability to respond to adversities.

3. Budgeting can be a tedious process. Doing multiyear budgeting can help save resources (human time and effort) and prevent burnout.

4. Increases the involvement of different ministries to thnk their long term vision and involve in the budgeting process

5. Ensures fiscal discipline of the government

Qualitative and Political aspects:

Apart from the hard savings (human effort, time, other resources saving), there is also a qualitative aspect to the multi year budgeting. This also serves the political agenda of the Govt. To budget for multiyear gives a provision to show the citizens of the long term vision of the political party.

If the vision is appealing the political party can further their agenda and if not, there is plenty of time to get feedback from the citizens and reform accordingly.

Challenges to multiyear budgeting:

1. Ability to make accurate projections of the expense and revenue streams well in advance.

2. Taking up multi year budgeting might requie political reforms and new policies

3. Increase workload to staff during the first year and adaptive years of multi year budgeting.

4. The accurancy depends on reliability of medium term budgets of multiple departments.

How to overcome these challenges

Today's technological advancement has provided many opportunities to perform efficient budgeting and planning. Advanced calculation engines have broken down the complex structures and formulae to produce instant results.

Political reforms required to implement such multi year budgeting process is a small price to the political advantages . It is also a one time effort.