Investigate the Reform of Iraq’s Budgeting System with the Approach of Establishing Performance Budgeting and Medium-Term Expenditure Framework.

Investigate the Reform of Iraq’s Budgeting System with the Approach of Establishing Performance Budgeting and Medium-Term Expenditure Framework.

Dr. Muhammad Kashanipour^1,2 & Ahmed Baher^3,4
1Associate Professor of Farabi college of Tehran University
²Faculty of Management and Accounting (supervisor)
³Doctoral student of accounting at Farabi college of Tehran University
⁴Faculty of Management and Accounting.      

Abstract

     The purpose of this study is to investigate the requirements and mechanisms for reforming the budgeting system of Iraq with the approach of establishing an performance budgeting system, medium-term expenditure framework and accrual accounting system. The study population is university faculty members, senior managers, financial managers, and financial and budget experts of Iraqi government organizations between 2021 and 2022, which according to the conditions applied, 65 people as a sample. Statistically selected. The data required for the research is collected through library and field methods and through library research and classical answer and questionnaires, Delphi and questionnaires. In order to answer the research questions, using qualitative content analysis, indicators and requirements for reforming the budgeting system of Iraq were identified in the form of three groups of objects, strategies and results and consequences. The classical Delphi questionnaire was designed to validate the theoretical model using the identified indicators, and was agreed upon by the research experts during three stages of distribution. Descriptive statistics analysis was performed using central characteristics and dispersion and measuring the validity and reliability of questionnaires through structural equation modeling by heuristic confirmation factor models and Cronbach’s alpha coefficient in order to rank the factors affecting the reform of the Iraqi budget system. Friedman nonparametric test was used. The results of statistical tests confirm the validity and reliability of the research questionnaire and the results of the Friedman test show that the impact of the identified indicators on the reform of the budgeting system in Iraq has the same rank and there is no prioritization between them. The results of the research confirm the use of the program budgeting method in the budget of Iraq and the non-implementation of the operational budgeting system, the medium-term expenditure framework and the accrual accounting system in the government organizations of this country. According to the agreed theoretical model, the implementation of operational budgeting is considered as an integral part of the medium-term expenditure framework and the implementation of the medium-term expenditure framework increases the quality of operational budgeting implementation and the resulting information. Implementation of the operational budgeting system and medium-term expenditure framework is recommended.

Keywords: Medium Term Expenditure Framework, Performance Budgeting, Accrual Based Accounting

Introduction

    The general budget is a major perfond romance for achieving economic and social goals on the economic projects of the special economic zones and the general economic development plans of the United Nations (Abdel-Wahhab, 2018).

    The political developments in Iraq during the past years provide what is needed in the future. in good condition, (Al-Badri 2019).

   The performance budget system and the spending framework can provide an average ability to solve problems and overcome weaknesses in the public financial system in terms of implementation of the decision between points of view, plans, goals, budget, expenditures, and the preparation of financial responses (Holmes, 2003).

    Public Relations and Marriage. Studying the requirements of applying the performance budget programs in the Iraqi government units in terms of achieving accountability for public spending, given that this money belongs to the people and future generations, which should be spent effectively and efficiently, and to ensure the optimal use of scarce resources by applying the agency theory.

Previous studies showed that the application of performance budgeting (PB) and medium-term expenditure Framework (MTEF) helps the central government to perform better (Al-Khafaji, 2020; Mohammed, 2019; Al-Badri 2019).

    This research has been completed on the basis of what, “For government government institutions as a developmental and applied research, and what are the obstacles that face this reform and in this way, entries and steps in the general budget are just questions to respond to.The performance budget system and the medium-term spending framework can provide an ability to overcome problems and overcome weaknesses in the public finance system in terms of decision-making through communication between policies, points of view, plans, goals, budget resources, expenditures, and the preparation of financial decisions for the government. (Holmes, 2003).

Budget performance and the medium-term expenditure framework were the two main elements of reform and in improving public financial management and reforming budget structures in recent years in the world, especially in developed and developing countries.

    The purpose of this research is to study reforming the budget system in Iraq with a performance budgeting approach and a medium -term spending framework.

Theoretical side

 2-1Performance Budgeting

    The budget includes the annual financial plan of the government for forecasting resources, revenues, credits, and estimating costs to carry out specific operations to achieve expected goals in a given period.

   A performance budget is one that reflects both the input of resources and the output of services for each unit of an organization. The goal is to identify and score relative performance based on goal attainment for specified outcomes. This type of budget is commonly used by government bodies and agencies to show the link between taxpayer funds and the outcome of services provided by federal, state, or local governments (Adam Hayes, 2021 ) .

    Budgeting is the process of defining, planning, and expressing government policies and programs in the form of financial figures and allocating limited resources to unlimited needs in the form of a budget document, stating expected revenues and expenditures (Fakih Qaen, 2015).

Typically, in budgetary systems, emphasis is placed on meeting basic needs to ensure compliance with laws, regulations and annual budget limits, maintain economic stability and increase productivity through improving the effectiveness and efficiency of service delivery . ( see Jones, Guthrie, Steane 2001a, b)

   One of the priorities of reforming the economic structure of states is reforming the methods of preparing the budget and distributing resources in government institutions. What is known as budgeting in government institutions is a traditional method that does not provide any information about the cost of allocations and the level of efficiency and effectiveness of programs. It has a short-term horizon, and they are unable to keep expenditures in long-term accounts. It leads to a reduction in the authority of the organization’s management in achieving goals. Balancing,(Kilian 1999 ).

    Performance-based budgeting is very beneficial because the available resources are very limited. Performance-based budgeting can help decision makers get better value with limited funds so that it can improve government efficiency and effectiveness. Managers can arrange priorities between highly competitive needs and the results of these decisions can be observed directly on the matrix and performance trends (Kilian 1999). Kilian further stated that the performance budget can improve internal management. Leaders and managers know better what to expect because the performance budget communicates the vision of superiors to subordinates .

Performance balancing is an effective method, in addition to separating and tracking resources for tasks and processes in the form of plans, programs and activities, that helps improve and manage organizations’ resources by calculating the size and cost of operations  (Robinson , 2005 ).

    The performance budget links allocated funds to measurable results and emphasizes accountability for outputs and results (Groning 2001)  .

2-1-1-Performance balancing objective

   Robinson (2009) believes that performance budgeting aims to improve the efficiency and effectiveness of public spending by linking organizations’ financial resources to the results they receive, and therefore the main elements of performance budgeting include measurable goals, strategies, operational plans, performance measurement criteria, resource prioritization and allocation and collecting, monitoring, evaluating and reporting results.

   The ultimate goal of performance budgeting is to assist in making operational decisions regarding the allocation and commitment of government resources based on measurable results that reflect the expected results of the organization over time. Through this interpretation, performance balancing seeks to achieve the following specific objectives  (Redburn, 2008 ):

• Providing the correct basis for making decisions about resources .
• Determine the measurable and expected results that can be achieved through the type of specific budget allocations..
• Focusing on the most important decisions related to the issues and challenges facing the organization.
• Finding a logical process for making decisions related to the budget which is directly related to the process of planning, implementation, control, evaluation and performance reports.
• Establishing a relationship between the budget and program performance results.
• Providing measurable information to adjust the progress of programs against the allocated budget.
• Provide the best possible tools based on the results (not only based on data and outputs) to reassure the community that the state’s resources are used to meet the basic needs of the community.
• Provide incentives for performance management on the basis of continuous improvement.
• Provide a basis for greater accountability for the use of the country’s resources.
• Transforming the budget-setting process from a purely political process to one involving economic, objective and rational foundations in decision-making.

2-1-2-The benefits of balancing performance

The listed advantages of adjusting the performance balance can be summarized as follows(Zaltsman ,2009) :

• Improving how the program is planned and modified
• The possibility of effective monitoring of the implementation of operations.
• Facilitating the process of reviewing and improving the budget in all its executive phases, especially in the legislative phase.
• Lack of focus in cost estimation.
• Improving the relationship between the government and the people by disseminating clear information on public programmes.
• Raising the quality of public expenditures.

2-2-Medium Term Expenditure Framework

   The lack of a communication mechanism for policy-making, planning and budgeting in financial and budget systems is the fundamental problem of budgeting in many developing countries (Kanahi, 2003) .

   Budget systems based on public expenditure management emphasize three important results related to efficiency in allocation, fiscal discipline, and spending efficiency. Therefore, performance budgeting and a medium -term expenditure framework were proposed as implementation tools to achieve these goals (Mart, 2018).

The performance budget system and the medium-term spending framework can provide an ability to overcome problems and overcome weaknesses in the public finance system in terms of decision-making through communication between policies, viewpoints, plans, goals, budget resources, expenditures, and the preparation of financial decisions for the government (Holmes, 2003).

Medium‐term expenditure frameworks (MTEFs) are typically viewed as instruments to expand budget horizons beyond one year and to limit spending growth over the medium term (usually three to five years) ( Raudla et al., 2022).

The medium-term expenditure framework is one of the main elements of reform and improvement of public financial management and reform of budget structures in recent years in the world, especially in developed and developing countries.

In order to implement the performance balancing system, bearing in mind that the achievement of performance indicators requires a time longer than one year, it is necessary to anticipate long-term frameworks or time horizons. These frameworks must be coordinated with the medium and long-term development plans in order to achieve the expected and desired goals. On the other hand, the inflexibility of medium-term plans may create many obstacles in the implementation of annual budgets. To solve this problem in the developed countries of the world and some developing countries, in recent years, medium -term government expenditure frameworks (MTEF) have been used . The time period for these frameworks ranges from two to five years, and the quantitative and qualitative targets used in them are consistent and based on the expected goals in their development plans.

   The Medium-Term Expenditure Framework is a framework specifically designed to link medium -term planning to annual budgets. In this way, this framework establishes the linking of budgetary expenditures in a systematic way to desired social outcomes. The main focus of this framework is to allocate budget resources to programmes, activities and projects in a way that can achieve the strategic priorities of the country. This framework is recognized in developed countries as an important tool for managing public expenditures with fiscal discipline (Benito, 2007). This framework is an effective tool for increasing predictability of budget results and improving resource allocation. The main objectives of this framework are to improve oversight of the aggregate budget, to enable strategic allocation of resources among competing priorities, and to help solve the problem of shared resources of public resources  (Francesco , 2015. )The Medium-Term Expenditure Framework (MTEF) is the government’s medium-term 3- to 5-year plan, in which strategic priorities and primary objectives are determined by the volume and estimated price of services and credit outlook. These programs are almost always prepared independently of the annual budgeting process and include a list of programs and activities that are not usually realized for various reasons, including lack of accurate forecasts and in some cases an idealized view of the programmes. In these countries, the decision-making system is largely separate from the performance of the public sector, and due to the lack of control over expenditures, the majority of the government’s financial resources are used to cover current expenditures, which do not have high flexibility, and therefore in these countries, the planning system mostly focuses on investment projects. Policies are generally tailored to current issues and program considerations are not taken into account in the budget. For the following reasons, there is always a gap between these programs and the annual budgets:

• In the annual budget preparation process, the medium-term effects of government spending did not appear in the budget discussions that year. In the medium term, this point will lead to unsustainable expenditures and neutralize the potential positive effects of investment expenditures for the current year’s budget.
• The development plan contains the results to be achieved in the medium term. This is despite the fact that the annual budget confirms the data and is not concerned with the results.
• Negotiations between the budget department and the executive branch mostly take place on issues such as the number of employees and the amount of budget required by the executive body, and issues such as the amount of products produced by the body to achieve a certain goal. (Janani, 2010).

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2- 2- 1 MTEFs as budgeting instruments

    In this article we focus on the type of MTEFs that establish multiyear expenditure ceilings. The overarching rationale of an MTEF “resides in laying out a multiannual path for the fiscal policy, with a guiding role for the yearly budgeting process” (Sherwood, 2015, p. 28). The core idea of MTEFs is to replace the practice of annual reviews of budget requests with a system of multiyear expenditure targets or ceilings (Shiavo‐Campo, 2017). MTEFs are viewed as a way to curtail short‐sightedness, overspending, and inertia in budgeting (Schiavo‐Campo, 2009; Sherwood, 2015; Vlaicu et al., 2014). They are expected to increase transparency, enhance time‐consistency, and alleviate the common‐pool problems of budgeting (Sherwood, 2015). The common‐pool resource (CPR) problem of budgeting means that the claimers of spending (e.g., line ministries) internalize the full benefit of spending but bear only a fraction of the cost: as a result, the sum of the spending demands may exceed the revenue pool (Hallerberg et al., 2009; Weingast et al., 1981). By specifying an aggregate resource constraint, the MTEF can, in principle, offer a focal point for coordinating spending requests that counteract the CPR driven bottom‐up pressures on the budget (Filc & Scartascini, 2010; Hallerberg et al., 2009; Sherwood, 2015; Vlaicu et al., 2014).

Importance And necessity search

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